Debate Magazine

"The Dangers of Slot Auctions"

Posted on the 31 July 2019 by Markwadsworth @Mark_Wadsworth

Recently, China experimented with the idea, putting a selection of slots on the market at Guangzhou Baiyun and running a slot lottery at Shanghai Pudong. This raised a substantial amount of cash but, according to an IATA assessment, that is part of the problem.
“The experiment showed that paying a large amount of money for slots is not sustainable,” says James Wiltshire, IATA’s Senior Economist. “If you boil down the money paid for the Chinese slots to a per passenger basis, it pretty much wipes out the anticipated $4.44 per passenger average profit for Asia-Pacific carriers in 2017, and that’s only for slots at one end of the route.”
In other words, even a small-scale slot auction can be the difference between profit and loss for an airline. The same conclusion can be reached from a different viewpoint.
In China, the auction winners have been granted the right to use the slot for three years. It typically takes up to three years for airlines to make money on new routes, given start-up costs, marketing, and the time taken to develop consumer awareness.

Are they saying that airlines are so f***ing stupid, they would a single dime for a slot which is not going to earn them a profit?
I think the three year claim is an outright lie as well. If you want to fly from A to B, you type in A and B on one of these comparison sites and choose whichever time and price suit you, I'm sure most people don't care who the actual airline is. I doubt anybody cares whether that airline has ben flying that route for decades or for a couple of weeks.
As it stands, at the 177 airports where IATA’s Worldwide Slot Guidelines (WSG) are used, demand outstrips infrastructure supply.
This makes slots a scarce commodity. Airport owners, government or private, would have an incentive to keep slot prices high by drip-feeding capacity.

Brilliant one-sided economics worthy of the Faux Libs. Slot prices are only high because ticket prices are high; and tickets prices are high because supply is restricted. So incumbent airlines are actually quite happy with restricted supply - it keeps their profits up. (I am heartily indifferent as to whether there should be more capacity or not, the Greenies would say definitely not).
Secondary trading
Secondary trading is completely different from slot auctions, which concern primary allocation. With secondary trading, airlines can swap slots that they have been given the right to use under the WSG but are unable to use in the future.
Not every jurisdiction allows secondary trading and it is probably only required at the most congested gateways. In the UK, secondary trading has been used successfully at London Heathrow and, to a lesser extent, at London Gatwick.
Airlines must have used a slot for two years before it can be traded but the final deal is dependent purely on the negotiations between the two parties.

And at the major hubs, large amounts of cash change hands.
But that is somehow COMPLETELY different to a public auction. Not.

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