A market for airport slots

Département d'Economie et Sciences de la Décision

Intervenant: Marleen Marra (Sciences Po)

Room T-012

Abstract :

This paper assesses the welfare implications of introducing airport slot auctions, while connecting the parallel worlds of demand-supply and auction models. Given the absence of an existing market and available bids, slot values are derived from airlines’ additional profits based on a flight-level structural model. This model considers various factors, such as consumer preferences, scheduling efficiencies, and aircraft-specific costs, with a new flight-level dataset facilitating its estimation. The validity of the model is demonstrated through close alignment of its predictions with industry data, including metrics like gross profit margins from Air France, average slot prices at Heathrow, and the behavior of carriers seeking additional slots after the 2019 Aigle Azul bankruptcy. Sizeable network benefits are estimated which carry through to the market-based allocation, skewing the resulting slot allocation towards dominant carriers within their hub airports. Consumers and participating firms are shown to benefit from the auction, despite the dominant carrier retaining at least its baseline share of slots, and implications for market design are discussed.