Selling slots and fixing airports

Ike Brannon President, Capital Policy Analytics
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US Airways and Delta recently proposed swapping takeoff and landing rights in New York and Washington. While at first blush that may appear to be the makings of a boring story that is irrelevant to the policy world, it has the potential to set a new precedent in how we allocate a scarce resource — and fund our airports, as well as the rest of our transportation sector.

The current situation is as follows: Delta would like to have more flights out of LaGuardia and US Airways would like to have more flights into Reagan National Airport in D.C. They’ve proposed a trade that would send US Airways 42 takeoff-and-landing slots a day, along with cash and a future draft pick (actually, the right to add a daily flight to Sao Paolo), while Delta would get 132 additional slots from US Airways in LaGuardia.

The only hitch is that the federal government won’t approve the exchange without receiving some vigorish — in this case a few slots from each carrier — for approving the exchange. Before anyone cries foul, I’d like to point out that these slots are valuable property that the government has essentially given to the carriers in exchange for, well, nothing. The carriers accepted the fact that there would be an implicit tax of this sort and responded by agreeing to the general notion and trying merely to knock down the government’s initial request a bit.

What the carriers did not accept, at least at first, was that the government would turn around and dispose of the slots by auctioning them to the highest bidder. They objected because such an auction — if done correctly — has the potential of raising a boatload of dollars, which would create no small degree of pressure on the FAA to conduct further auctions to pay for airport and air traffic control modernization, security, and a host of other costs.

Our current method of allocating scarce takeoff and landing slots is nothing short of absurd: Major airports allow their main carriers to schedule way more takeoffs and landings than can possibly occur during periods of peak demand, resulting in inevitable delays that ripple through the system, causing delays at feeder airports as well. As a result, a frustratingly high proportion of flights are delayed or canceled as travelers get madder and madder. What’s especially frustrating is that we have a method of allocating scarce resources in an efficient way: If we auctioned off all takeoff and landing slots, it would cost travelers more to travel during peak times but less during non-peak times. The higher prices would reduce congestion during peak periods and shunt some price-conscious fliers to non-peak times, reducing the stress on the air traffic control system and lessening the need to expand capacity at major airports.

The Bush administration made a late-inning push to implement slot auctions in heavily congested airports. However, once the Republicans lost Congress, they faced a heavy headwind and Senate heavyweight Charles Schumer was in no mood to entertain doing anything to upset the airlines, regardless of whether or not it would make good policy, and the Obama administration quickly spiked such efforts soon after taking office.

The real news of the article is that the airlines decided to drop objections to the government auctioning the slots it accrues, giving a sensible policy a toehold in the real world. While this does not mean that the government will push for further slot auctions or even be open to using market forces to reduce congestion in other transportation sectors, it does represent a political sea change that opens the way for good policy.

If the administration wants to generate revenue and simultaneously improve our decrepit transportation infrastructure, it can start using the price system to allocate slots — and then start working with Congress to encourage states to implement congestion pricing and other tolls to reduce traffic and generate revenue for our roads as well.

Ike Brannon is director of Economic Policy at the American Action Forum.