Congested Hubs, the EU Slot Regulation and Incentives to Invest

19 Pages Posted: 11 Apr 2015 Last revised: 11 Oct 2015

See all articles by David Gillen

David Gillen

University of British Columbia (UBC) - Sauder School of Business

David Nicholas Starkie

Case Associates

Date Written: August 2015

Abstract

We examine the slot management regime used in the EU and investigate how it may in the short run lead to inefficient outcomes and in the long run discourage support for expanded airport capacity. Slot administration is used to balance demand and supply when capacity is in short supply. Because airports are not permitted to, or do not, charge market-clearing prices for scarce runway capacity, airlines set fares to clear the market. In doing so they earn significant rents. These rents exist regardless of who owns the slots or if the slots are or are not concentrated in a few hands. The distribution of rents will depend on slot ownership. The EU regulations limiting incumbent airlines’ access to newly available slots does nothing to affect airfares. Restricting 50 percent of new capacity to new entrants will also exacerbate incumbents’ reluctance to support runway capacity expansion since they lose scarcity rent and potentially market share. The paper illustrates our argument using the current debate concerning runway expansion at Heathrow and Gatwick.

Keywords: airport slots, slot regulation, congestion, airport investment, investment incentives

JEL Classification: L51, L93, L14, L98

Suggested Citation

Gillen, David and Starkie, David Nicholas, Congested Hubs, the EU Slot Regulation and Incentives to Invest (August 2015). Available at SSRN: https://ssrn.com/abstract=2592449 or http://dx.doi.org/10.2139/ssrn.2592449

David Gillen

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

David Nicholas Starkie (Contact Author)

Case Associates ( email )

1 Heddon Street
London, W1B4BD
United Kingdom

HOME PAGE: http://www.casecon.com

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