world in avgeek eyes

Airport slots: Why airline compete for them?

Why the scenarios after airline bankruptcy are always the same? Why slots are such valuable assets for airlines? and how the allocation of slots works? In this post, I will try to figure out these things. Another airline has just announced bankruptcy. Founded in 1945 Aigle Azur was the second-biggest airline in France. It’s sad when such a “mature” airline becomes to be just a memory. But not for all. Race for airport slots which belonged to this airline has just begun. There is no such thing as a vacancy in aviation. It’s like in nature, a predator sees the weakness and takes advantage of it.  Therefore according to Reuters news – there are 14 airlines interested in acquiring this insolvent airline.

What exactly are airport slots?

In easy words. If you are an airline and you would like to have scheduled flights from/to Paris Orly Airport or any other coordinated airport – you cannot do that whenever you want. You have to apply for a slot. This means that you need permission or guarantee from the airport operator, that in this specific period of time for which you applied you will be assured to use the full range of airport infrastructure necessary to arrive or depart from this particular airport. Of course, there is some margin for delays or earlier arrivals caused for example by bad weather because as it’s well mentioned in thepointsguy article about slots…

“slots are less about controlling the punctuality of airlines at the airport, and more about ensuring they control the number of flights operating to or from the airport over the course of an entire day.” – thepointsguy

But remember that the larger the airport, the smaller the margin of flexible time. If you miss your slot for departure at London Heathrow you can expect to wait in a long queue towards the runway.

Why airport slots are so valuable?

Here all fun begins. Slots can cost you a lot. I would compare the slot business to buying advertisements displayed during the Super Bowl. You have finite options for that and a lot of competitors. Therefore you have to have something in your pocket. Day has only 24 hours and if you reduce this by airport opening hours, environmental restrictions, noise restrictions and so on…the available time shrinks and cause it’s very expensive.

Because of operational benefits, it’s widely adopted that the most expensive are morning slots. Midday are a bit less valuable and evenings are cheapest.

How much worth are airport slots?

To give you an bigger overview here are some of the most expensive slot transactions from London Heathrow.

  •  Back in 2008, Continental Airlines bought from currently not existing GB Airways – 4 pairs of slots for $52.3 mln each one.
  •  In 2017 – Scandinavian Airlines sold their two slots for $75 mln to undisclosed buyers.
  •  But! the record was made in 2016 when Oman Air paid also $75 mln but just for pair of slots. The seller was KLM/Air France

Now just consider all other big hubs around the whole world and imagine how worth is that market. Unthinkable.

Allocation of airport slots

Of course, there must be some rules in this system. Unfortunately, like it very often is, they favor biggers – incumbents. Smaller players have little chances to flight to big world hubs. In 1970′ International Air Transport Association(IATA) set a document called “Worldwide Slot Guidelines” where we can find general rules for slot allocation. These rules are active and widely accepted by 190 airports around the world. Let’s have a look at those most important!

  • “Seniority rule” – An airline that was entitled to a slot may apply to retain it next season. This obviously gives an advantage to “incumbent” carriers at the airport.
  • “Use it or lose it” – The second rule says that each allocated slot must be at least 80 percent used by the holder, otherwise, it returns to the shared pot
  • “Fifty-Fifty” – is a nod towards smaller players. If there are free, not allocated slots (for example taken from the other airline due to failure in complying with rule no.2) – half of them receive an airline that has less than 5 percent slots at a given airport.

Fairness of allocation

Are these rules “fair, neutral and transparent” as it is described by IATA? It was well analyzed by the Economist and let me resist these conclusions. Answer yourself is this fair…

“To comply with the use-it-or-lose-it rule, many airlines resort to artifice, flying smaller planes than necessary in order to spread capacity across their slots, for example, and even running empty “ghost” flights to ensure that the runways are busy at the appointed time.”The Economist

or maybe this?

“One analysis showed that only 0.4% of Heathrow’s total slots and 0.7% of Paris Charles de Gaulle’s were allocated to new entrants during the period under study.” – The Economist

There is a lot of truth in saying “once a cheater always a cheater” but maybe we should replace the word “cheater” by “winner”:) cause basically getting a slot on the busy airport is like winning a lottery.  Unfortunately, the only way for new airlines to appear at large crowded airports is to buy or inherit slots – providing the best or cheapest service is not enough. The second option is to be somehow related for example by Joint Venture(about that you can read here) to a bigger player.

 

Summary

That’s gonna be interesting to see how the battle for airport slots at Paris Orly will be finished. It’s definitely worth to play all-in cause these slots are very attractive from the operational point of view and the opportunity to take over slots in Paris (on the non-restricted airport!) does not happen very often. I hope I brought you closer to airport slots subject, answered your questions and doubts, and finally that you found that article interesting to read. What are your thoughts?
Do you think that the current slots allocating system is fair? Let me know about this in the comment section.

Stay tuned!
Aeroobservator

 

Sources:

thepointsguy.com

finavia.fi

livemint.com

economist.com

iata.org

Leave a Reply

Your email address will not be published. Required fields are marked *