Assessing the Welfare Impact of the Introduction of Secondary Slot Trading at Community Airports



Assessing the Welfare Impact of the Introduction of Secondary Slot Trading at Community Airports

Authors

D Holt, A Meaney, R Noble, C Riley, A Shaw , Oxera Consulting Ltd., UK

Description

This paper presents the welfare analysis undertaken as part of a study for the European Commission on the introduction of secondary slot trading at Community airports.

Abstract

With many airports in Europe approaching capacity, ensuring the most efficient use of landing slots is of paramount importance to the aviation industry and its stakeholders. However, the current system does not necessarily provide this outcome?with the exception of a few airports (most notably the London airports), slots are allocated according to grandfather rights (ie, airlines who use slots in a year keep them for the next year), while any new slots or those returned to the pool are allocated on an administrative basis, as opposed to through trading between airlines. Economic theory suggests that the status quo (the absence of an explicit market mechanism) will not lead to the most efficient outcome?either in terms of allocative efficiency (ie, slots will not be allocated to routes most highly valued by society), or productive efficiency (ie, slots will not be used to generate maximum usage or revenue).

In light of these concerns, the Transport and Energy Directorate of the European Commission asked for analysis of a proposed new Slots Directive involving maintaining grandfather rights, but supportive of secondary slot trading. A consortium of Mott MacDonald, Oxera, Keith Boyfield Associates and Hugh O?Donovan were selected by DG-TREN in 2005 to undertake this analysis. This paper focuses on the analysis of the welfare, environmental, financial and competition impacts of the team?s forecast changes in slot usage resulting from a mooted change in the EC Slot Regulation explicitly supporting secondary slot trading.

The first stage of the process was to estimate the long term impact of introducing secondary trading by comparing forecasts of the number and types of flights for ?with trading? and ?without trading? scenarios. Analysing the implied changes in consumer and producer surplus involved understanding the changes to demand and supply for four route types?long distance, short distance with greater than 100 seats, short distance with less than 100 seats, and other?associated with introducing slot trading. Some interesting economic insights were developed by the study team in order to quantify the benefits of introducing trading, which are clearly described in the paper.

Similarly, the environmental analysis links the predicted changes in the number and type of flights to environmental parameters, including emissions and noise, while the impact of trading on airport finances is linked to predicted changes in throughput at each airport. The approach taken to each of these impacts is set out in the paper.

The paper uses recent developments in appraisal methodology in relation to wider economic impacts of introducing secondary trading, and covers direct, indirect and induced changes in employment nationally and in areas surrounding individual airports, and also catalytic effects on productivity and agglomeration.

The impact on competition required a further split of route types by dominant incumbent, other incumbent, new entrant, and low cost operator, to show which of these types of operator are predicted to benefit most from the introduction of secondary trading. If the former were shown to benefit most, then the producer and consumer welfare impacts would be commensurately reduced, unless the network benefits associated with a strong hub carrier outweigh the competition concerns.

Publisher

Association for European Transport