Scoring auctions: are they the key to marketbased allocation of airport slots?

Abstract

Air transport has increased almost fifteen-fold worldwide in the last half-century (1970- 2019) and is expected to return to this trend in the next few years, after falling from 4.558 billion passengers in 2019 to 1.809 billion passengers in 2020 due to the Covid-19 pandemic. Airport capacity has not kept pace with such growth and, therefore, more than two hundred major airports worldwide face capacity constraints and are “coordinated”. Efficient allocation of scarce airport capacity is critical for air traffic growth, as well as for the overall air transport dynamic efficiency. However, the allocation of airport slots in Europe and elsewhere is still ruled by administrative processes, based on the IATA Worldwide Slot Guidelines, which follow historical precedence (called “Grandfather Rights”) and time adjustments of historical slots. Several objections have been raised to the adoption of market mechanisms in slot allocation, as an alternative to administrative processes, and they are still rarely used. Despite often being suggested in the literature, the use of auctions for slot allocation has only been implemented in some local routes in China, and apparently this underemployment of auction mechanisms has been due to the reluctance of coordination authorities to face the risks that have been pointed out regarding airlines’ long-term route planning, the usage costs related to excess slots, origin-destination pairing, and competition distortions. However, scoring auctions have never been considered and our research shows that their properties combined with an appropriate auction design could overcome most of those objections and mitigate the associated risks. Furthermore, the current drop in air traffic provides an opportune window for the introduction of auctions as a mechanism for the allocation of airport slots with minimal risks of disruption to airline business models.