Free the Slots: Stop Subsidizing Airlines and Protecting Them from Competition

The plan to build a third runway at London Heathrow is expected to cost about $20 billion. That will allow for 350 additional takeoff and landing slots at the airport.

Under existing rules “new slots are distributed based on airlines’ existing proportion.” IAG carriers British Airways, Iberia, and Aer Lingus hold about 370 of the airport’s current 650 slots, and would therefore be slated to get an additional 200.

Virgin Atlantic, together with its owners Delta and Air France KLM, control about 10% of current slots. Richard Branson says Virgin should be given 150 of the 350 new slots, or 2.5 times the current total that the three airlines have. Otherwise, Virgin Atlantic CEO Shai Weiss says, the distribution of slots wuuld be “favouring the incumbent.”

He’s right that British Airways shouldn’t be given access to 200 more slots. He’s wrong that Virgin Atlantic should be gifted 150. Gifting of the right to acquire slots makes absolutely zero public policy sense.

Each incumbent airline flies the most valuable flights it can now. Each incremental slot would be put to less valuable use than the current flights offered. And while additional connecting traffic can make current flights more profitable (Virgin doesn’t operate a meaningful connecting network at Heathrow) slots are valuable resources that shouldn’t simply be gifted to airlines.

  • Giving slots to airlines at congested airports is a huge subsidy to incumbent airlines, each slot pair is worth tens of millions of dollars.
  • Making those slots perpetual property rights of the airline that holds them is a barrier to competition.

Use of slots for a period of time should be auctioned. There’s no justification for inefficient flights, or ghost flights, that airlines operate just to ‘squat’ on slots, since they only way they can lose them is not to use them.

That’s why British Mediterranean used to operate a flight between London Heathrow and Cardiff, Wales with no passengers. That’s a takeoff and landing opportunity that could benefit passengers who actually need to fly somewhere, and an opportunity to compete against existing service bringing down the cost of travel.

There currently are 650 slots at Heathrow, and a single slot pair (at particularly favorable times) sold to Oman Air in 2016 for $75 million.

Taking away the vested property right would be disruptive to the balance sheets of incumbent airlines, but so is adding 50% more capacity since each slot should be worth less. A ten year transition for current slots to be re-auctioned shouldn’t be necessary — the value of an asset changes with changes in the regulatory environment in virtually every industry — but should resolve concerns about unfairness to the airlines (never mind unfairness to competitors and passengers).

Regardless the addition of new slots at the airport should not automatically confer brand new gifted property rights to airlines. The right to use each slot pair for a period of time should be auctioned off to the highest bidder, with a new auction at the end of each use period allowing new entrants or incumbent carriers to secure the slots needed for the most valuable flights they can offer.

Slots need to be freed in the U.S. too. Government-granted airline privileges are a driver of industry consolidation. The primary reason Alaska Airlines acquired Virgin America was for access to gates and slots at congested airports. Badly run carriers, that provide poor passenger experience, are protected from market discipline because more innovative startups aren’t permitted to compete and incumbents can continue earning off inferior products because passengers lack other options.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Hmm. Isn’t AA doing something similar at JFK with its slots? The runway work at JFK is allowing them to not use their slots and they indeed dont use them.

  2. Agreed. Giving slots to airlines at taxpayer expense that they can then turn around and sell to other airlines or simply squat on to reduce competition is crazy. They should auction the slots and then require that they be used for flights that average 70%+ capacity or they would be forfeited and re-auctioned. That would produce a situation that gave the most value to the traveling public, which should be the reason governments build airports.

  3. Pure and unbridled cronyism. If Google can auction search words, no reason on earth why Heathrow can’t auction slots — might even pay for a good portion of the runway privately that way.

  4. There are a number of peripheral points you make that I disagree with. Alaska’s primary reason to acquire Virgin America was not Virgin’s slots. A much better example to make your point would be USAir’s acquisition of AA, as Doug Parker was quite explicit about his desire to create a monopoly at Washington National.

    However, the gist of your argument is dead on. New airport slots should give access to all competitors, and let the flyers choose the airline they want to fly. The absolute worst thing to do with new slots is to hand them out to the incumbents.

    As you mentioned, the US has the same problem, Washington National being the most obvious example. Why even have overpaid regulators if they are going to let a few airlines trade the limited slots like properties on a Monopoly board?

  5. To paraphrase Coach Mike Ditka, “the airlines throw their nickels around towards airport improvements like manhole covers;” than act like they actually own the gates and take-off rights. Why has the FAA and Congress tolerated this monopolist mentality?

    Ironically, the EU has moved swiftly to break the monopolist grip of state-owned railways by requiring open access for private competitors; to the point that other state railways are now competing in other countries.

    Pathetically, the USA tolerates monopolists in transportation, as we see by most of the Essential Air Service Program, subsidizing airports just down the road (under 50 miles) from a major airport. As well, the USA has its own State-Owned Enterprise (SOE), Amtrak. Instead of tolerating the inefficiencies of this SOE, the Northeast Corridor should be removed from Amtrak’s control so the Corridor can transition into open access for competent private carriers to compete on intra-regional and intercity services.

  6. Just imagine the consumer benefit if a new airline launched with 200 LHR slots. It would be like JetBlue in 2000 when they launched out of JFK.

    Slots should be leased out with a right to take them back if not benefiting consumers.

  7. Agree with John about AA slots. Barking on other airlines and never look at their own. Pathetic AA.

  8. “Badly run carriers, that provide poor passenger experience, are protected from market discipline ….” Which aairline would thaat be referring to, Gaary?

  9. Excellent post, Gary. This is one of the key impediments to getting a competitive air travel system back in the U.S., instead of the race to the bottom that occurs because the legacies know we frequently have no other options. “Use of slots for a period of time should be auctioned” hits it exactly on the head. Allocating new slots for free as a giveaway to incumbents is insane public policy.

  10. Alaska didn’t buy Virgin for Virgin’s slots. Alaska bought Virgin to keep it out of JetBlue’s hands.

  11. What I find infuriating is that the government does not protect the customer MORE. They are plain and simply protecting the corporate interests of the airlines and doing very little for the actual customers. Money goes to executives and shareholders, often as stock buy-backs.
    And, the news breaks on the bottom of the back page that XYZ airline is offering its new 24″ seat on transcon flights and eliminating flights to 12 cities under a million. Doug Parker himself announces that the “old” 30″ seats are available at new prices.
    That is then hailed as “competition.”

  12. In the USA, what entity “owns” the slots for any particular airport and has the full authority to assign/sale/auction/etc them to a specific airline? Is it the FAA? The DOT? Or is it the individual airport (most of which are municipally owned)?

    I agree with the comments offered by many others, that the use of a specific slot should be limited in duration, say 5 years or 10 years. Kind of like an ordinary lease between a landlord and a tenant. And there should be a prohibition against subleasing (aka selling them) any slot. Use them in the manner intended, or lose them. And in the event of a merger or consolidation of airlines, a detailed review must be made to determine how many slots of the new, combined company can be retained. Otherwise, they must be returned to the governing authority for the express purpose of making them available to other airlines.

    Competition is good. It makes everyone and every company better and more responsive. We need to take every reasonable opportunity to re-introduce that concept.

  13. Airport expansion in the UK is not funded by the taxpayer. There is NO taxpayer funding. It funded by the airlines operating at the airport, through airport charges. Slots are not “gifted” to incumbent airlines, they are paid for through these charges. Furthermore, the article is wrong when it says that “new slots are distributed based on airlines’ existing proportion”. Current rules dictate that 50% of the new slots are made available to airlines who don’t currently operate at the airport, in the following order; slots for new airlines operating new routes and then to new airlines operating existing routes. The remaining 50% of slots are distributed to airlines based on their current slot share. So the rules only “gift” slots to new entrants in order to stimulate competition.

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