Transport and Logistics Department College of Business Room 257 , Main Building of COB D/l: 04-9283664 email: rohafiz@uum.edu.my 1 Transport and Logistics Department July 2009 Definition of a slot The approval to conduct an aircraft landing or a take-off at an airport at a specific time on a specific day EU definition encompasses – right to use all infrastructure Slot availability linked to terminal capacity Airport slots have two dimensions: they are allocated to airlines in advance so that they can establish timetables and promote services; and they are allocated by ATC to airlines on the day of operation Slots are not guaranteed because of delays and other operational disruption. Slots and airline scheduling Airlines need the correct number and timing of slots : to offer departure & arrival times that are convenient to passengers; to coordinate with departure & arrival times of partner carriers; to compete with other carriers; to optimise aircraft utilisation - e.g. one arrival followed by a departure 1 hour later. If airport is not congested then the airline will approach airport ATC to be granted an approval to take-off and land. If airport is congested then special arrangements exist. System-wide demand and supply of slots Increased demand for airport slots Air traffic growth (4% to 6% annual) Hubbing Increased competition Focused in major regions (Europe, N. America, Asia) Levels of airport charges are low at busy airports and do not reflect scarcity Inadequate supply of slots Failure to invest in new runways / expand capacity & expand capacity in 1970s Environmental constraints and questions over sustainability of growth rates Long planning & construction time horizons System-wide demand and supply of slots Excess demand and capacity at London Heathrow all arrivals Summer 2005
Source: UK CAA / ACL Ltd
IATA slot allocation process Developed by IATA in response to growing congestion at airports. Established to resolve conflicts between airlines over access to the runway. System administered by IATA involves: Airlines Slot coordinators designated at congested airports IATA method legally adopted within the EU (Council Regulation 95/93) with some differences. IATA slot allocation process Each airport has a slot allocation status : Non-coordinated (level 1) Schedules facilitated (level 2) Fully coordinated (level 3) IATA slot allocation method comes into effect at level 3. Airports reach level 3 if Voluntary re-scheduling has failed; or demand for slots exceeds capacity; and All efforts to expand capacity have been exhausted. IATA slot allocation process National civil aviation regulator determines the levels At Level 2 – an independent slot coordinator is appointed and an airport scheduling committee is formed Airlines, GA users, airport, ATC, handling, coordinator At level 2 the coordinator is requesting airline cooperation in re-scheduling At Level 3 - Full coordination gives coordinator greater control over management of capacity and demand at the airport Airlines have more flexibility under level 2 Support of major airlines usually needed to change from level 2 to level 3 IATA slot allocation process
Process at each airport administered by a schedules
coordinator appointed by government In EU must be independent of the airlines (e.g. CAA) In some other countries usually largest airline Airlines, airports & ATC involved in the process Process involves local and international phases Slots allocated to airlines at international conferences held twice a year attended by airlines and airport coordinators. Summer and winter scheduling seasons. IATA slot allocation process
Slots can only be allocated to aircraft operators
Priority to regular scheduled & charter flights Airlines can retain slots granted to them in previous season “grandfather right” (Historic slots) Slots can be exchanged between airlines – 1 for 1 Slots cannot be bought or sold Slots cannot be transferred from new entrants to established airlines within a 2-year period. Slots must be used for at least 80% of its time IATA slot allocation process
Local rules can be applied
New entrant airlines have first choice on 50% of the slot pool (unwanted slots, returned slots, newly created slots) Airlines can apply for slots their grandfather historic slots to be re-timed In EU, Slots can be reserved for domestic / PSO services Slots cannot be bought or sold IATA slot allocation process Strengths
Airlines do not have to pay separately for slots –
(they will pay charges that go along with using slots e.g. airport charges) Maintains stability in airline scheduling Rewards airlines that have made past investments in routes at the airport and makes long-term planning more predictable Flexibility enables airlines (large slot holdings) to react quickly to new commercial opportunities IATA slot allocation process Weaknesses
IATA system incompatible with maintaining
competitive airline markets New entrant airlines unable to secure access to required slots at slot-constrained airports Slot pool consists of mainly unattractive slots Airlines with historic rights maintain dominant market shares Inefficiencies in usage of slots Not possible to achieve allocative efficiency (slots are used for air services to destinations that are most highly valued by society) Not possible to achieve productive efficiency (slot is used to move the maximum number of passengers IATA slot allocation process recent developments
Slot trading has taken place unofficially at some
airports (Heathrow) in recent years. What is allowed is 1 for 1 exchanges with accompanying monetary compensation. Example: regional airline has slots at primary congested airport and long-haul airline has slots at secondary airport Long-haul airline wants slots at primary airport Reforming slot allocation Introduction of price-mechanism in slot allocation Ensure that slots are allocated to those airlines who value the slot the highest Present existing airline with grandfather slots with the opportunity cost of holding slots To what extent will the price mechanism: Maximise passenger throughput at an airport Facilitate airline competition / remove market entry barriers Avoid adverse implications of sudden / radical change protecting socially valuable air services & the environment Implications for worldwide slot scheduling coordination Slot ownership Reforming slot allocation
There are two basic types of price-based slot
allocation mechanisms Auctions Trading (buying & selling between airlines) There are two dimensions to consider: Should airlines keep existing slots and then be allowed to trade ? Should slots be taken from airlines and then auctioned to the highest bidder. Reforming slot allocation Secondary Trading
Allow existing holders of “grandfather” slots to sell their slots
to other airlines – without need for exchange. Any eligible airline would be entitled to make a cash offer for slots held by an incumbent airline All transactions needs to be approved / cleared by slot coordinator to ensure compatibility with airport operations / capacity Larger airlines at an advantage over smaller airlines ( like under auctions) – could increase slot holdings at the airport. Positive effects on competition – only with regard to lucrative long-haul routes Possible loss of less profitable regional connections Reforming slot allocation how much are slots worth?
Depends on demand and supply conditions at the
airport Time of day / quality of the slot ATC constraints – night curfew will reduce supply of slots Availability of substitute airports Airport runway expansion plans will increase capacity thereby reducing slot values Lifting of bilateral agreements / deregulation will lead to increased demand Slot values (exchanges) at Heathrow have been between £4 million £6 million per slot. Policy issues
Is reforming the slot allocation system in order to
increase competition really needed? How do you define a market. Is it the choice of flights from one airport? Is it the choice of flights available from 2 or 3 airports in same metropolitan area? A route at an airport will have competitive pressures from: Services offered at other local competing airports to the same destination in Connecting services from the airport to the destination In some cases high speed rail to the destination Policy issues Monetary trading will probably lead to increased hub dominance by established carriers. Radical solutions (auctions) could cause increased uncertainty in the airline industry. Compatibility with IATA system (e.g. simultaneous auctions). Loss of regional services – should regional services be protected? Recommended reading Amsterdam slot trading report (available on Blackboard under Air Transport Fundamentals – External Resources) IATA world scheduling guide (available on Blackboard under Air Transport Fundamentals – External Resources) Also academic papers available on library electronic journals (ingenta, Science Direct)