By request: auctioning landing slots

By Megan McArdle

Reader Navigator wants to know "the effect on airlines and airports of the auctioning of landing slots".  For readers who have not been following the controversy, the background is here:  the Department of Transportation, which runs the air traffic control system, wants to auction off landing slots at the New York airports.  The Port Authority, which runs the airports, is resisting.

Needless to say, I concur with the Department of Transportation.  Landing slots are a scarce public resource that are being overused because they're underpriced

Mayer and Sinai's study also identified the real culprit: the deliberate overscheduling of flights at peak periods by major airlines trying to increase the amount of connecting traffic at their hub airports. Major airlines like United, Delta, and American use a hub-and-spoke model as a way to offer consumers more flight choices and to save money by centralizing operations. Most of the traffic they send through a hub is on the way to somewhere else. (Low-cost carriers, on the other hand, typically carry passengers from one point to another without offering many connections.) Overscheduling at the hubs can't explain all delays--weather and maintenance problems also contribute. But nationally, about 75 percent of flights go in or out of hub airports, making overscheduling the most important factor.

American Airlines, for example, uses O'Hare as a hub and schedules a cluster of flights to arrive there from the east in the earlier afternoon. Another cluster leaves for points west and south soon after. In the 30-minute period between 2:45 p.m. and 3:15 p.m., American has scheduled about 18 takeoffs, not counting its regional flights. That comes close to maxing out the airport's capacity, without any other airline. Other airports are even more extreme. Continental has seven flights scheduled to depart during the exact same minute (11:45 a.m.) out of Newark, as well as almost 20 other flights in the surrounding half hour. Some of these flights leave late more than 80 percent of the time. The major airlines know perfectly well that these hideous statistics are inevitable.

If slots were allocated by auction, these high demand slots would increase in price, which would change the economics of the tickets, making it less worthwhile to overschedule.  This wouldn't merely benefit passengers currently being deluded about the wait time on their flights, because delays have a tendency to cascade. I've seen estimates that a third of all airplane delays in the US originate in one of the three major New York airports.

Meanwhile, the auctions would provide the funds to upgrade America's air traffic control system, which desperately need it.

The auctions would change not merely the scheduling of flights, but the mix of flights that airlines run.  Airlines have been steadily shifting towards regional jets, which makes sense for them because it allows them to offer more  flights to any one destination.  Since landing slots in New York are priced based on the weight of the plane, there's no penalty for doing so. 

But the primary cost of running a plane out of LaGuardia now isn't the wear and tear on the tarmac; it's the spot that a plane takes up in saturated airspace.  A 60 seat regional jet takes up as much space in that queue as a 747.  If we moved to a system of auctions, with airlines having to pay for desireable time slots, many of the regional jets would become less profitable.  We'd probably see fewer flights with bigger planes.  That, too, would help reduce congestion.

This wouldn't be good for everyone.  Airlines schedule this way, as Goolsbee points out, so they can maximize connections.  Spreading out flights means longer layovers (though perhaps not, on average, since the number of delays, missed connections, and cancelled flights would drop.  It would also mean that some areas wouldn't get as much service, or would get service at less convenient times, because their population can't support frequent large flights.  Look at who's sponsoring the bill to block the DOT's proposal.  Schumer and Clinton, who like regional jets servicing upstate New York.  Frank Lautenberg of New Jersey, who joins the Port Authority in wanting to maximize the absolute number of flights.  And . . . Liddy Dole, with a lot of constituents enjoying frequent small-jet flights to Raleigh-Durham.

But for most people, especially in the crowded coastal corridors, this would be an improvement.  At this point, only a little more than half of all flights to New York are on time, thanks to the massive overcrowding.

This article available online at:

http://www.theatlantic.com/business/archive/2008/08/by-request-auctioning-landing-slots/3994/