+ COMMENT: Airport slots

With a third runway at Heathrow stalling (again), the 500-passenger Boeing 747’s demise, and any expansion plans fiercely objected to at airports large and small, adjustments to slot allocation rules may be the only way to increase overall capacity at airports.  The Government has published a consultation document. 

Heathrow tells Travel News Update one thing to bear in mind is that it flies on average 169 passengers per aircraft.  Plenty more capacity is available. 

“Given the current capacity constraints … and the likelihood of these worsening without new capacity, the Government believes that it is essential that the utilisation of existing capacity is fully maximised” says the Department for Transport (DfT).

But should UK airport slot rules be changed?

The consultation document is a surprisingly informative introduction into the slot allocation process and 92 pages long. Plenty of thought has gone into it.

It will only apply to so-called ‘Level 3’ slot coordinated airports, ie the most congested airports in the country. These are Heathrow, Gatwick, London City, Stansted, Luton, Manchester, Birmingham and Bristol.

The sounding will gather feedback on a variety of ideas to increase the efficiency of existing airport operations to make the best use of the infrastructure in place.

The objectives for the slot reform are:

•    Stimulating a competitive environment by creating a more efficient, transparent, and dynamic slot market.

•    Establishing a framework for the allocation of new slots.

What are airport slots, anyway?

Fundamentally, an airport slot is a landing or take-off right for a specific date and time at an airport.

At the busiest airports, such as Heathrow, slots are lucrative in themselves and can fetch millions of pounds. In 2017 Oman Air paid a record $75m for a sought-after early morning slot at Heathrow.

To operate a flight, an airline needs two slots – one for landing and one for take-off – so there are twice as many slots as flights.

Slots only become an issue when more airlines want to operate into an airport than the airport can accommodate. This can come down to a number of factors, including the number of runways, terminal capacity or regulatory restrictions such as a flight cap.

At Heathrow, for example, the biggest constraint is the number of runways which can only facilitate so many flights per day.

Under the current system, there are two criteria for awarding slots.

By far the largest proportion of slots, at Heathrow at least, are awarded under so-called ‘Historic Rights’. This means that if you have a slot in the previous summer or winter flying season you get to keep it for the next one. This is one of the reasons why British Airways owns 51.8% of all Heathrow slots – it inherited many of them from its predecessors such as BEA, BOAC and British Midland (BMI via Lufthansa).

To keep a slot, the airline must abide by the 80:20 ‘use it or lose it’ rule in which the slot is used at least 80% of the time. As long as it does so, it can keep the slot in perpetuity.

Any slots that are not allocated under historic rights are allocated under a set of guidelines that take into account connectivity, competition and various other operational factors.

Slot coordination was introduced in 1993. Prior to that, the flag carrier of a country was responsible for allocating slots!

Pre-empting the introduction of regulatory slot coordination, British Airways split out its slot coordination department in 1991 to create Airport Coordination Ltd (ACL), with other UK airlines as shareholders. This is now the world’s largest airport slot coordinator, working with 72 airports.

When rules around historic and secondary slot rights were introduced, airline demand for slots was below available capacity. This meant that airlines were largely free to launch and operate flights at UK airports ad-hoc without having to worry about securing slots.

That has since changed, of course. Second-best Virgin Atlantic has just 4.3% of the Heathrow slots. EasyJet dominates Gatwick.

This airline disparity is a problem because it means the airport marketplace becomes (in the words of the Government) “undynamic”:

“However, the combination of airport capacity being congested and the majority of slots at an airport being held by one or two airlines can inhibit competition and lead to the slot allocation system becoming stagnant. If an airline loses a slot at a capacity constrained airport it can be very difficult, or take many years, for the carrier to acquire a new one. It is often only when an airline becomes insolvent that significant numbers of slots become available at a capacity constrained airport. The impact of this is that there are fewer opportunities for new airlines to commence services at an airport or for existing airlines at the airport to grow, limiting choice and connectivity for businesses and passengers.”

To put this into perspective, 99% and 98% of slots are allocated based on historic rights at Heathrow and Gatwick respectively. Even though at least 50% of the remaining slots must be allocated to new entrants, it is very hard for airlines to launch new services at these airports.

JetBlue is a prime example of this, having struggled to get a foothold in the London market. It has split its operations across Heathrow and Gatwick, increasing its cost base and lowering its efficiency although one could argue that by offering two London airports it has increased its appeal to US-based customers.

Now that we are no longer part of the EU, the UK Government has greater latitude to reform the slot allocation process. However, an airline obviously needs slots at two airports to operate an international flight.  Timings can get very complicated if the “away” airport also has slot problems.

How could the slot allocation process change?

The consultation document pitches a number of different options that it could consider:

•    Increasing slot utilisation and the ‘use it or lose it’ rule.

•    Raise the number of flights an airline must operate in order to retain its slots. At present, that is 80%. For example, if an airline had slots for a flight every single day of the year, it would only have to operate flights on 292 days in order to meet this rule.

•    Make the retention figure 90%.

Unused slots provide some resilience and redundancy during times of disruption. The higher the utilisation rate the closer you are to operating the airport at 100% capacity. When things go wrong and flights are delayed or cancelled, you have less of a buffer to reschedule flights and recover.

Increasing the utilisation rate could increase the number of ‘ghost flights’ during quieter periods of the year. These are flights that are operated for the sake of retaining slots – sometimes without even carrying passengers. Politically and environmentally this is embarrassing!

At the moment there are a number of slot rules that give incumbent airlines preferential treatment over new entrants.

This includes the fact that new slots allocated to incumbents can be used for any route whilst new entrants must use their slots for the allocated route for at least two flying seasons (one year) before they can use them for other destinations.

In addition, these airlines are able to re-time their slots during the coordination process before any remaining slots are re-allocated. This means that existing airlines have a competitive advantage over new airlines, particularly when an airline goes bust or ceases operations at an airport and leaves a void. Existing airlines are able to cherry pick the more preferable slots, leaving little on the table to interest new entrants.

In both cases, the Government is proposing to level the playing field between current airlines and new airlines. It proposes that all new slots should be treated the same, with a moratorium of four flying seasons (two years) until airlines can fly to alternate destinations. It also suggests that the re-timing advantage be removed and that re-timing requests and new slot requests be considered at the same time.

At the moment, slot coordination is managed by a range of private companies which are contracted by airports to manage their slot portfolio, the largest being ACL, which is mentioned above.

This means that the Government has no control over slot coordination beyond regulatory and policy framework. It wants to change this.

The consultation document proposes to create a new power for the Secretary of State:

When slot coordination was first introduced in the 90s, nobody expected slots to become tradable commodities or sell for tens of millions of pounds.

In 1999 the UK High Court confirmed that whilst slots are not the property of the airline, they are allowed to be traded or sold between airlines however they wish.

In a 2019 report, Frontier Economics said that a daily, year-round Heathrow slot pair was worth around £15m for early morning slots, £10m for mid-day slots and £5m for evening slots. Clearly, trading and selling slots is big business.

Unfortunately, because slot coordination was not designed with trading in mind there is no official marketplace or register and there is a “lack of transparency over who holds and operates each slot”.

To solve this problem, the Government is proposing to establish a compulsory public slot register for airports as well as a mandatory trading platform.  Sadly another qango. But there does not appear to be any alternative.

“It is envisaged that ACL would be responsible for providing and maintaining the platform. At the very least, slots that are available for trading would be required to be advertised on the platform”.

It also wants to give the slot coordinator regulatory oversight to review and approve all slot trades.

At present, airlines are able to lease out their slots for an indefinite period of time, allowing them to retain their slot portfolio until such a date as they should require them. This means that some slots are retained by airlines for no other reason than they can make money by leasing them to other airlines.

The consultation document is firm that with that one: “Leasing should not be used as a long-term operational solution and slots should instead be returned to the pool for reallocation.

What happens next?  

A significant impact would be a third runway at Gatwick.  The airport plans to bring its Northern taxiway into use as a runway.  There are also plans for a second strip at Stansted.  

Why London City has been brought into the consultation is something of a mystery. With its new parallel taxiway and possible aircraft size increase it needs to treble its current passenger throughput to cause any problems. Sadly it is the only senior airport not to show any growth moving the same number of annual passengers as 2016.

British Airways takes the opposite view from every other carrier on the future of slots.

To paraphrase Christine Keeler “They would, wouldn’t they!”  

It will be fascinating to see what the results of the consultation are, which runs until 9 February. But we have been unable to glean from the DfT when the document will be published.

www.gov.uk/government/consultations/airport-slot-allocation-system-reform

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READERS' COMMENT

All comments are filtered to exclude any excesses but the Editor does not have to agree with what is being said. 200 words maximum

Simon Grigor, United Kingdom

Another Heathrow issue (and I've encountered it at Gatwick too - but not as often as at Heathrow T5) is the number of parking stands. All too often one's aircraft lands on time, only to sit on a taxiway for 10 or 20 minutes while waiting for a stand to become free.

David Starkie, United Kingdom

Giving the government powers to give directions and an ability to intervene is very dangerous. It will be subject to all sorts of political pressures such that slots are taken for flights to Carlisle, etc at the expense of, say, a A380 long-haul flight. The Carlisle's of this world can be catered for in other suitable ways.

Sue smith, Winsor

It seems to me that Heathrow has plenty of scope for increased passenger numbers. Why all the runway fuss. Better still another public road tunnel from the south and the building of a rail connection out of either T4 or T5. And why 10 years to replace a baggage system.