Scott Kirby Keeps Pushing for Newark Slot Controls — Here’s Why Those Should Be Abolished Everywhere Instead

On this week’s Airlines Confidential, United Airlines CEO laid out the incredible extent that fixing air traffic control would mean for improving air service in the United States, reducing delays and cancellations. I don’t think the FAA as service provider can ever actually do it – you need the regulator to be different than the actual air traffic organization. The FAA regulating itself has meant zero accountability for decades.

However, Kirby goes on to argue that there still need to be limits at Newark airport, where United has a hub. His point about ‘simple math’ doesn’t imply the solution that he thinks it does.

Newark, for what it’s worth, always should have been capped. I mean it was the only airport left in the world that was a large airport that was over scheduled that doesn’t have slots.

It’s the only one and it used to have slots and the reality is at Newark the FAA says in the best of times with full staffing on perfect weather day they can handle 77 operations per hour and they were letting it be scheduled at 86 operations per hour for hours in a row. And that is simple math.

It meant, you know, if you did that for 10 hours, that’s 90 flights that have to get delayed until past 10, 10 p.m. at night or have to get canceled every single day. It was just unconscionable and it was awful and a basic misunderstanding of very simple math. We’re not caring about very simple math. I think they understood it. So I’m incredibly relieved that this administration has done that.

We should improve throughput at Newark, because there’s a lot of demand for air travel out of Newark. We can’t do that both because of air traffic control and because we don’t build things in the United States well any more, in some part because the National Environmental Policy Act creates too many veto points (it’s even used to block environmental projects by the way).

However if Newark is overscheduled the answer isn’t to hand the exclusive right to operate most of the flights to United, blocking competitors and future new entrants, as a free gift (subsidy) from taxpayers. That’s what slots are – the right to takeoff and land at an airport, generally given free, wit huge economic value. Slot controls allow incumbents exclusivity and block anyone else from competing with that. The fact that airlines have succeeeded in regulatory capture to make this a standard practice doesn’t make it any less bad policy.

Here’s the better approach: congeston pricing.

Slots are a blunt rationing instrument (and a subsidy to the incumbent airlines you give the slots to). Since they’re ‘use it or lose it’ we get unnecessary flying on small planes no one wants to fly, just to squat on flight times. Prices encourage airlines to allocate flights on the right aircraft to the right routes that match passenger demand.

The Case For Congestion Pricing

Think of a runway like a heavily used road approaching its capacity. As use approaches 100% of capacity, planes have to queue. Each additional flight imposes delay costs on everyone else, but the airline only internalizes its own delay cost. So airlines are incentivized to overschedule.

Slots try to deal with this by capping the number of flights in a period. Congestion pricing says: “You can operate whenever you like, but you must pay the actual total cost of the delay you impose on others.”

Slots are a crude cap: “X movements per hour.” They’re allocated via grandfather rights and use it or lose it. They’re adjusted infrequently and administratively. Once you have the slot, the flight becomes ‘free’ regardless of the delay it causes.

Charging per flight movement that approximates the marginal delay cost to others works better. When the system is uncongested, the price is low or zero. As demand approaches or exceeds capacity, prices rise sharply.

Airlines operate a flight in that time slice if they are willing to pay – if the value of the flight to passengers and the airline is greater than the congestion charge.

That way, you get the flights that generate the highest value relative to the delay they cause. You also get natural spreading of flights to shoulders or off-peak times, reducing congestion, to lower costs. It can encourage use of larger aircraft to spread the cost out across more passengers, and also de-banking of hubs.

A slot freezes peak delay – a “19 slots per hour” rule means you get 19 flights per hour, regardless of delay and irrespective of whether those are 19 regional jets or widebodies. There’s no incentive to move those any of those flights 20 minutes to spread out peak loads.

Slots are also bad at handling weather events and air traffic control issues. Thsoe might reduce an airport’s capacity from (say) 60 to 35 flights per hour. That’s when we get ground delay programs and ad hoc rationing. Congestion pricing can do the work for you, and prioritize the most valuable flights. Instead of stressing the system, airlines contribute towards paying for a better one. (If you want to make it revenue-neutral, cut landing fees or passenger charges to offset and just use congestion pricing for the incentives.)

Ultimately, the same price applies to everyone – incumbent airline or new entrant in the market.

Airlines Would Hate This!

Yes, of course they would. They’re getting a valuable property right now for free, and instead they’d be charged (though it could be done as revenue-neutral).

You’ll likely hear that ‘congestion fees will just cement incumbent dominance’ which is silly, because that’s what the current slot system does. The claim, though, is that incumbents have deep pockets to pay peak charges, while others get pushed out worsening competition.

• Under slots, incumbents own peak access for free (or were often cheaply acquired in the past). They can sit on grandfathered rights indefinitely. New entrants are often shut out completely.

• If a new entrant sees high value in a particular peak flight, they can buy in. Under a fixed slot regime, there may literally be no access at any price.

• If policymakers still want to support entry (they will, usually for their own constituents rather than the public good), they can offer rebates for new carriers on specific routes and use competition policy to scrutinize predatory practices rather than locking in those practices with slots.

There will also be a class argument that peak times will become ‘rich people’s time slots’ with lower-income travelers getting pushed into inconvenient off-peak times or other airports. That’s often what happens now, getting pushed to Spirit and Frontier for lower fares. And lower-income travelers would face fewer delays! In any case, especially if congestion pricing encourages upgauging, we’ll likely see more major carriers with excess capacity to discount – at peak times. But if you want redistribution, then do it explicitly, not via hidden cross-subsidies embedded in slot allocation.

What is a fair concern is that low value flights that few passengers value – often on smaller regional jets to low volume airports – will lose peak time service. That’s because these flights are less valuable! But if we’re really going to design policy around these flights, don’t do it in a way that also inefficiently allocates flights causing delays for the entire air system. Make the subsidy cost of these flights explicit rather than burying it.

A system that sets prices by day and time seasonally, by 15 or 30 minute increments and published in advance is easy for airlines to plan around. Then major weather or air traffic control outages can have surge pricing with a capped multiper (e.g. 2x). This is easy for airlines to deal with – they manage variable fuel pricing and demand risk constantly. And this will lower costs from ground delays.

Time To Abolish Slot Controls

Newark shouldn’t get slot controls. We should abolish them at New York’s JFK and LaGuardia and Washington National as well. They’re a rationing mechanism that locks in incumbents and treats all flights in the same time window as equivalent, regardless of the systematic delays they create. And they provide no real incentive to move a flight time, upgauge, or de-bank a hub.

And they turn scarcity value into privately-owned assets of the airline, rather than revenue streams to improve system capacity. Capacity pricing does the opposite! Anyone can access takeoffs and landings if the value of their flight is high enough to warrant paying peak prices.