Aviation: airport slots

Transcription

1 Aviation: airport slots Standard Note: SN488 Last updated: 16 April 2012 Author: Louise Butcher Section Business and Transport This note explains the airport slot allocation process at airports around the world, with particular focus on the rules at airports within the EU. It also explains the process of selling or trading slots. An airport slot is a planned timing for landing or takeoff together with the necessary apron and terminal facilities to enable the aircraft and passengers to be handled. At non-eu airports slot allocation is operated by the airlines themselves using guidelines drawn up by IATA. In the EU, allocations are governed by the 1993 Slot Allocation Regulation, as amended, and there are separate provisions for time limited suspensions of the use it or lose it rule. The European Commission has put forward proposals to legalise the buying and selling of slots and to revise other rules around slot allocation. These are expected to progress during the second half of Allocating slots at congested airports continues to be a problem for the authorities. The two most difficult probably involve grandfather rights airlines using the slots in one season may claim them in the following season and the sale of slots. There has been concern expressed recently about the sale of BMI to IAG (which owns British Airways), giving IAG over half of the slots at Heathrow. Information on other aviation issues can be found on the Aviation Topical Page of the Parliament website. This information is provided to Members of Parliament in support of their parliamentary duties and is not intended to address the specific circumstances of any particular individual. It should not be relied upon as being up to date; the law or policies may have changed since it was last updated; and it should not be relied upon as legal or professional advice or as a substitute for it. A suitably qualified professional should be consulted if specific advice or information is required. This information is provided subject to our general terms and conditions which are available online or may be provided on request in hard copy. Authors are available to discuss the content of this briefing with Members and their staff, but not with the general public.

2 Contents 1 Airports outside the EU 2 2 Airports regulated by the EU Slot Allocation Regulation: background, Slot Allocation Regulation: proposed reform, Use it or lose it temporary rule suspensions 7 3 Sale and purchase of slots 8 4 Further reading 9 1 Airports outside the EU Outside of the EU slot allocation is operated by the airlines themselves using guidelines drawn up by the International Air Transport Association (IATA). The basic framework under which global civil aviation is regulated was established in 1944 by the Chicago Convention on International Civil Aviation. Article 1 of the Convention provides that every state has complete and exclusive sovereignty over the airspace above its territory. Article 6 does not allow any scheduled international air service to be operated over or into the territory of a contracting state, except with the special permission or other authorisation of that state. Non-EU routes are usually licensed by governments on a bilateral basis. The UK used to have air service agreements with most countries that provided the framework for the operation of air services between the two. The air service agreement is registered with the UN and has treaty status. The details of the service to be operated, such as the number of flights per week and the airlines to fly the route, are contained in a memorandum of understanding. This can be varied but the agreement itself remains unaltered. However, in recent years the EU has taken over negotiations on behalf of all EU Member States and gradually UK-second party agreements are being replaced with EUsecond party agreements. 1 In a parallel process, individual airlines must negotiate slots at the airports to and from which they have an agreement to fly. Airline self-regulation is the traditional and widespread approach used outside the United States to allocate runway and terminal slots between airlines. This involves two stages: overall and worldwide schedule co-ordination at twice-yearly IATA meetings; and local co-ordination at individual airports usually through their own scheduling committees. All airlines operating at an airport are usually members of its scheduling committee. The base airline or the largest base airline provides the administrative support to the committee and the chairman. Each scheduling committee is responsible for developing, within the IATA 1 e.g. see the Open Skies agreement between the EU and the United States in HC Library note SN455 2

3 guidelines, local scheduling guidelines and advising the airport co-ordinator. All airports have scheduling committees but at small airports the committee may not need to meet often. The objective of the IATA conferences is to agree the slot allocations for the coming season between airlines and co-ordinators for airports around the world. They are attended by airlines and co-ordinators and up to 650 delegates. The process of the conference is for airlines to make brief appointments to see the co-ordinators of the airports they plan to serve in the coming season and then to meet and discuss the feasibility of the proposed schedule. Airlines apply to the committee twice yearly for runway and terminal slots for their winter and summer schedules, normally in June for the winter season and in November for a summer season. Airline schedule requests are submitted to the co-ordinators by midnight on the day of the deadline set by IATA. This produces a picture of unconstrained demand for the airport and for the co-ordinator. When allocating slots the guiding rules are: historical precedence or grandfather rights (that is, an airline can keep a slot previously allocated if it has operated it); use it or lose it if an airline used an allocated slot less than a certain proportion of time, it is given to someone else; and priority for regular services if there is competing demand, it will be allocated to the service that plans to use it most frequently Services of longer duration get preference over those that are of shorter duration (i.e. a year-round service would have priority over a summer-only service) and services operated on more days of the week have priority. For instance, a daily service at a particular time would have priority over a service offered at the same time but operated only five days a week. Once the airport scheduling committee has allocated slots on the basis of these priorities, airlines can exchange slots among themselves provided they have broadly similar operating characteristics. An individual airline can also change the use of its own slots for instance, by switching a slot from a domestic to an international service or even from scheduled to charter. Trading can also take place on an ad hoc basis after the conferences. The system has evolved over time and is probably not what one would have designed from scratch but it has worked reasonably well. It allows carriers to put together scheduling networks with the minimum bureaucracy and the maximum flexibility. The airlines have an incentive to sort out differences in a spirit of compromise and without outside agencies. That said, such a system does become increasingly anti-competitive as slots at peak periods are used up. IATA s Worldwide Slot Guidelines, currently in their second edition, are available on the IATA website. 2 Airports regulated by the EU 2.1 Slot Allocation Regulation: background, Under the so-called Third Package of aviation liberalisation that came into force on 1 January 1993, EU Member States are not allowed to discriminate between airlines seeking licences to establish themselves on their territory other than for technical or economic reasons such 3

4 as solvency or financial viability. Any airline, which meets common safety, nationality and fitness criteria, is entitled to an operating licence anywhere in the Community. It was agreed in 1992 that changes in the allocation of runway slots would have to be tackled at community level if the benefits of liberalisation of air transport were to be realised. Regulation 95/93/EEC ( the Slot Allocation Regulation or SAR), as amended by Regulation 894/2002/EC and 793/2004/EC, was implemented in the UK by the Airport Slot Allocation Regulations 1993 (SI 1993/1067) and came into effect in May It is based on the IATA rules but with some amendments. It applies to all airports that have been designated as 'fully co-ordinated', i.e. those airports where there is insufficient capacity to meet demand. In the UK only London Heathrow, Gatwick, Stansted, London City and Manchester are co-ordinated airports. 2 The system for allocating time slots at other airports is based on the IATA system for non-eu airports, outlined above. The SAR required the formation of a co-ordination committee at co-ordinated airports. Member States were given discretion on whether to establish committees for their coordinated airports. Membership of the co-ordination committees includes airlines, the airport operator, air traffic control, and general and business aviation representatives. All airlines using the airport can be represented on the committee but votes are weighted by the number of slots an airline has at the airport. The role of the co-ordination committee is, inter alia, to advise the co-ordinator on matters such as increasing airport capacity, methods for monitoring the use of allocated slots, local guidelines etc. The co-ordination committee can also deal with any complaints on the allocation of slots. The SAR was innovative in that it insisted on the co-ordinator in charge of sharing out the slots being independent of government, airlines and airport management. In the UK the airport authority has the ultimate statutory authority for the allocation of slots at the airport under the Airports Act 1986, as amended. Airport Co-ordination Limited (ACL) is the airport co-ordinator at the UK s major airports; it is an independent company owned by nine major UK airlines. The Civil Aviation Authority (CAA) and Department for Transport maintain an arms-length relationship with ACL and have no direct involvement in the slot allocation process. The main provisions of the SAR which affected the practical arrangements for slot allocation were: recognition of the long established principle of grandfather rights under which an airline holding and using a slot in one summer season or winter season has first claim on that slot in the next equivalent season; recognition of the secondary rules established by IATA including the period of use of a slot and re-timings of existing slots for specific reasons which are given priority over completely new slot demands; the creation of a slot pool into which are placed newly created slots (through increases in hourly scheduling limits); slots returned either voluntarily or under the use it or lose it condition and slots otherwise unclaimed under grandfather rights or the IATA secondary rules; 2 London City was designated as a co-ordinated airport in 2009 following two rounds of consultation by the UK Government, see: DfT, Designation of London City Airport as coordinated, 23 February 2009; under temporary rules 36 other UK airports could be subject to coordination for the duration of the 2012 Olympic Games, see: Airports Slot Allocation (Amendment) Regulations 2011 (SI 2011/1610) 4

5 allocation of fifty per cent of the pool slots to new entrants 3 unless they request less; and a requirement that airlines must use their slots for at least 80 per cent of the period for which they are held or, subject to certain specified exceptions, the slots are withdrawn and placed in the pool. The SAR placed a duty on the European Commission (EC) to report to the European Parliament on the Regulation s effects three years after its entry into force and to place a proposal for the continuation or revision of the Regulation before the European Council by 1 January This deadline was missed and there was reported disagreement in the Commission about the possible trading of airport slots. The UK Government put forward a suggestion to the Commission that a revised system should adopt a market-based approach to slot allocation, with the auctioning of newly-created and recycled slots, and legitimised and transparent trading of slots between air carriers. 4 According to press reports, however, only a minority of Member States backed the idea of slot trading: twelve Member States and all the big airports were said to oppose the idea. 5 In June 2001 the EC eventually published a proposal for a limited revision of the SAR, 6 followed by an amended version for consultation in November The UK Government responded to the consultation in 2004 on the basis of the policy set out in its December 2003 aviation White Paper. 7 It stated that the UK's priority was the introduction of formalised secondary trading, with the market being left to determine how trades are conducted, subject to certain minimum conditions of transparency. Further, fundamental changes to grandfather rights, such as those suggested by the Commission in their paper, could not be considered properly until the impacts of any changes on the industry and its consumers had been fully scoped and quantified by the Commission. The government also suggested that the initial allocation method for slots was ready for reform through the implementation of primary auctions. 8 In the end, the 2004 Regulation made extensive technical changes to the SAR, but no significant amendment to the slot allocation process: the most notable consequence was the introduction of sanctions for the misuse of airport slots. The 2004 Regulation was implemented in the UK by the Airports Slot Allocation Regulations 2006 (SI 2006/2665). The Commission promised a more radical review of the SAR, but after rounds of consultation between 2007 and 2009, all that was published was a consolidated text of the SAR Slot Allocation Regulation: proposed reform, In December 2011 the EC published its Better Airports Package. This followed research carried out for the Commission in which concluded that the allocation system in place prevents optimal use of the scarce capacity at busy airports. Therefore the Commission is proposing changes to the current Regulation to allow for the introduction of market-based mechanisms across the EU provided that safeguards to ensure transparency or undistorted competition are established, including greater independence for slot defined in Article 2 of the Regulation HL Deb 23 April 2001, cc18-19wa EU trims plans for air slot changes, Financial Times, 23 May 2001 COM(2001) 335 final, 20 June 2001 DfT, The Future of Air Transport, Cm 6046, December 2003 DfT, UK s response to European Commission s slot allocation consultation, 6 December 2004 consultation documents, communiqués etc. published on the EC website [accessed 16 April 2012] 5

6 coordinators. This would help to ensure that slots go to those carriers able to make the best use of them. The EC s communication document proposing the revision states that the SAR has significantly improved slot allocation at busy European airports in terms of neutrality and transparency, making a major contribution to the creation of the internal market in aviation. However, Europe is facing potentially serious levels of airport congestion, and a shortage of capacity at critical airports. While slot allocation cannot generate additional capacity, or solve the many problems created by a lack of capacity, it can be an effective tool for managing scarce capacity. In light of this, the EC is proposing four main changes to the SAR: Introducing the possibility of secondary trade in slots and increased competition the proposal expressly allows airlines to buy and sell slots. Improving slot mobility will help allow airlines to adapt their slots portfolios according to their scheduling needs. It also proposes broadening the definition of 'new entrant', to help facilitate the growth of sustainable competitors and reduce the schedule fragmentation that occurs when slots are allocated to a larger number of airlines unable to translate these slots into a viable alternative to dominant carriers; Strengthening the transparency of the slot allocation process and the independence of slot coordinators depending on progress made towards this end, the proposal could eventually lead to the creation of a European coordinator responsible for slot allocation at all European Union airports; Integrating slot allocation with the reform of the European air traffic management system (Single European Sky) the proposal would associate the European Network Manager with the slot allocation process and allow, for example, for the network manager to request capacity analyses at airport on which the Commission could make recommendations to Member States; and Amending the '80-20' rule on grandfather rights the proposal makes some changes to the criteria for the use of airport slots in order for 'grandfather rights' to be granted. In order for airlines to be granted priority for the allocation of a given slot in the next corresponding scheduling season, they would need to have used at least 85 per cent of the allocated series of slots (instead of 80 per cent at present). In addition, the minimum series length (i.e. the minimum number of weekly slots required for priority allocation for the following corresponding season) would rise from 5 to 15 for the summer season and 10 for the winter season. It would also authorise airports to use an airport charge system to dissuade air carriers from belatedly returning slots to the pool. 10 The European Scrutiny Committee looked at the proposals in January 2012 and recommended that they be debated in Standing Committee. 11 This debate took place on 19 March The Minister for Transport, Theresa Villiers, gave the government s view of the proposals as follows: At slot co-ordinated airports, in accordance with International Civil Aviation Organisation and EU principles, slots are independently allocated; they are not decided by airports or by the Government... We think that the current arrangements work well COM(2011) 828 final, 1 December 2011, pp7-8 ESC, Fifty-third report of session , HC 428-xlvii, 6 February 2012, section 1 6

7 in many ways, but we have some concerns about regional connectivity in the long term... We see this as an opportunity to talk to the Commission and other member states about whether any amendment to the current rules on slots is needed to ensure that we maintain appropriate levels of regional connectivity to congested London airports. I would not say that the current system is perfect, but on the whole it has worked reasonably well in many ways. We should certainly be cautious before accepting changes from the Commission [...] On the 80:20 demarcation, we will confer carefully with the airlines. We have already discussed it with them, and they are concerned about the potential impact of the change proposed by the Commission. Again, it is something to work through in discussions on the proposed regulation, to ensure that we do not inadvertently undermine the balance sheets of important airlines and thus jeopardise investment that will ultimately be to passengers benefit. 12 When pressed further on grandfather rights Ms Villiers said: On ownership of slots, the crucial point is that the Government fully recognise the importance of the secondary market and of ensuring that the airlines can continue to enjoy grandfather rights. As I have said, one of our most important priorities will be to make sure that that is not jeopardised. The secondary market enables us to provide market access even at highly congested airports. It is also an important way to ensure that slots are used as efficiently as possible. The secondary market is not threatened by the Commission s proposals, and we are making sure that the framework defends it. 13 Ms Villiers stated that SAR was unlikely to come forward for debate in the EU until the Cypriot Presidency of the Council (beginning 1 July 2012) Use it or lose it temporary rule suspensions On occasion, it is deemed necessary for the rules surrounding the use it or lose it requirements of the Regulation to be suspended. The rule (mentioned above) states that if an airline fails to use its slots for 80 per cent of the time they are returned to the pool to be reallocated by the coordinator to other airlines, amongst which new entrants to an airport have priority. The European Commission proposed a temporary suspension of the rule following the September 11 terrorist attacks on the United States and the subsequent impact of those attacks on the airline industry. This would essentially treat the slots allocated for the summer 2001 and winter seasons as if they had grandfather status, meaning that less than 80 per cent usage would not lead to the slots being removed from an airline. 15 This was legislated for in Regulation 894/2002/EC. A second suspension was adopted for the 2004 summer season on the basis of: the war launched in March 2003 against Iraq and the political developments that followed, as well as the outbreak of the Severe Acute Respiratory Syndrome (SARS). This gave grandfather status based on the slots allocated during the 2003 summer season and was legislated for in Regulation 1554/2003/EC EC(A) Deb 19 March 2012, cc9-10 ibid., c11 ibid., c4 COM (2002) 7 final, 11 January

8 A third proposal to suspend the use it or lose it rules was published by the Commission in March 2009 on the grounds that the current economic crisis and subsequent readjustments to services (suspension, reduction of frequencies) constitute exceptional circumstances that are having a negative impact on airline companies. 16 This would suspend the use it or lose it rule for the summer 2009 season and allow for it to be suspended for the winter season, depending on the economic circumstances at the time. The UK Government s view is that this should be a short term measure targeted at the summer 2009 season. 17 Agreement on the suspension was reached in spring 2009 and was legislated for in Regulation 545/2009/EC, adopted in June Sale and purchase of slots There is no official exchanging of money for slots, though trades of this type have been occurring for several years now. As indicated in section 2.2, above, the EC is proposing introducing new rules to permit the purchase and sale of airport slots. In the UK the most valuable slots are at London Heathrow Airport. Heathrow airlines tend to use the device of slot exchange : a valuable peak time slot is swapped by the selling airline for a worthless one late at night and money changes hands on the side. The High Court approved this ploy in a ruling over a slot deal between British Airways and KLM in Although airlines treat slots as their possessions, there is little certainty about who is the legal owner. Airports can claim to have title - they, after all, own the runways and the terminals. Governments also have a claim, with the use of a nation's airspace normally regarded as a matter of sovereign right. Airlines argue that since they have put the effort and investment into buying aircraft and building up routes, and as slot allocation rules give them the right to continue using them, they should be entitled to recoup any increase in the value of their slots. An article in the Sunday Times from 2004 quoted John Balfour, senior partner at Beaumont & Son, a London law firm specialising in aviation: The question of ownership is largely irrelevant because the law in Europe has established grandfather rights, airlines can keep on using their existing slots until either the law changes or they don't operate the service. 19 The first occasion that large sums of money changed hands was the purchase of the rights of Pan-Am and TWA by United and American Airlines in a deal that meant they effectively bought their slots at London Heathrow. In 2004 FlyBe sold six pairs of slots (i.e. the right to six daily flights to and from Heathrow) for about 40 million; 20 and in 2007 BA bought 102 Heathrow slots from BMI for approximately 30 million. 21 In October 2007 the Bland Group sold four pairs of slots at Heathrow after it sold GB Airways to easyjet; press reports at the time estimated that Heathrow slots could exchange hands for more than 5 million per pair depending on the timing of the arrival and departure, with prime peak hour slot pairs trading for up to 12 million. 22 In June 2009 it was confirmed that Lufthansa had bought BMI in a 16 COM (2009) 121 final, 10 March 2009, p2 17 European Scrutiny Committee, Documents considered by the Committee on 1 April 2009, including the following recommendation for debate: The EU Eastern Partnership (fifteenth report of session ), HC 19-xiii, 8 April 2009, para Air slots at Heathrow can be traded, High Court rules, Financial Times, 26 March The sky-high demand for Heathrow slots, Sunday Times, 22 February ibid. 21 BA buys extra slots at Heathrow, Financial Times, 1 April Take-off jigsaw falling into place at Heathrow, Financial Times, 26 October

9 223 million deal which included BMI s 11 per cent share of the slot market at Heathrow, taking Lufthansa s total share at that airport to over 16 per cent. 23 There has been some controversy over the proposed sale by Lufthansa of BMI to International Airlines Group (IAG) in early IAG, which owns British Airways, The EC agreed the takeover on 30 March subject to IAG releasing 14 pairs of slots at Heathrow. 24 The acquisition of BMI gives IAG over half of all the slots at Heathrow Airport. In the United States, the Bush Administration initiated a proposal in 2008 to auction off ten per cent of the slots at New York s three major airports (89 slots at John F. Kennedy Airport, 113 slots at LaGuardia and 81 slots at Newark, New Jersey). The proposals were met with criticism from airlines and legal challenges from the Air Transport Association, the US industry's main trade group, as well as the Port Authority of New York and New Jersey, which operates the three airports. 25 However, in May 2009 the new Obama Administration s Transportation Secretary, Ray LaHood, said that he would rescind the plans for slot auctions at New York area airports after the US Court of Appeals stayed the plan in December Further reading Over the years there has been a number of reports published looking at the operation of the slot allocation system and proposing ways to reform it, often involving auctions. Some of the more notable are listed below: Boyfield et al. for the IEA, A market in airport slots, March 2003 the report suggests how a market in airport slots could be developed to address problems of competition and congestion. Grayling and Bishop for the IPPR, The sky s the limit: policies for sustainable aviation, May 2003 the report proposed the auctioning of take-off and landing slots at airports, with the money raised earmarked for public transport, including airport links and high speed rail. NERA et al., Study to Assess the Effects of Different Slot Allocation Schemes, January 2004 the report examined the feasibility and likely impact of using market mechanisms to allocate slots at congested EU airports. It concluded that the introduction of market mechanisms would achieve a more efficient use of scarce airport capacity. However, it would also increase the overall volume of flights, especially long-haul flights, to and from EU airports, with a potentially negative impact on the environment market mechanisms and may also have a negative impact on the accessibility of regional airports. CAA/OFT, Competition issues associated with the trading of airport slots (OFT 832), June 2005 the report found that secondary trading should enhance efficiency and benefit airlines and consumers but that competition concerns could arise where secondary trading enables an airline to create or enhance a dominant position at an airport. The report recommended that prohibition on the inclusion of restrictive covenants in slot trades or leases would stop airlines placing restrictions on the future use of slots and that publication Lufthansa wins BMI sale battle with 115m to spare, The Independent, 23 June 2009; and Germans eye long-haul routes from Heathrow, Financial Times, 30 October 2008 EC press notice, Mergers: Commission approves acquisition of British Midlands (bmi) by IAG subject to conditions, 30 March 2012 US presses on with NY airport slot sales, Financial Times, 10 October 2008 US DoT press notice, Transportation Secretary LaHood Proposes to Cancel Slot Auctions for New York-Area Airports, Announces Discussions on Reducing Congestion, 13 May

10 of information to increase transparency would highlight the opportunity cost of holding onto slots, and hence promote trades. DotEcon for the DfT, Alternative allocation mechanisms for slots created by new airport capacity, September 2006 the report considered alternative allocation mechanisms for the allocation of significant amounts of new airport capacity at congested airports. The report aimed to identify which methods of allocation might potentially be feasible and what the associated costs and benefits might be. The report concluded that a two-stage hybrid allocation mechanism consisting of a relatively simple clock auction followed by detailed administrative scheduling would be a feasible solution that could greatly improve the efficiency of slot allocation to the benefit of consumers. 27 Mott MacDonald et al., Study on the impacts of the introduction of secondary trading at Community airports, November 2006 the report summarised the secondary slot trading arrangements in the UK and concluded that secondary slot trading as currently practised is generally beneficial. 27 this followed a 2001 report for the then DETR which found that market-based allocation systems for slots could result in substantial gains in social welfare, see: DotEcon, Auctioning airport slots, March