Pricing airline slots

Lynne Kiesling, after expressing her travel frustrations, offers some good proposals for pricing slots at airports. In response Gary Leff notes the following:

Slot pricing and exchange empirically works quite well, even in the absence of fully developed property rights. As I noted a few weeks ago, one of the more interesting market innovations in airline slots is the ‘grey market’ that has developed at London Heathrow.

Slots ostensibly aren’t property. If an airline gives up the slot it should revert back to a local authority which would then be charged with divvying out that slot. In practice, however, transferable property rights exist. That’s because the slots are “exchangeable” — an airline with a peak afternoon slot can trade with an airline with a useless late night slot. In a completely unrelated action, that airline with the undesireable slot can also send along lots of cash.

Variable pricing to consumers is also a fairly advanced activity already. Airlines already offer peak and off-peak pricing. Usually that’s determined not by peak travel time but is a function of which flight times face competition from low fare carriers. It wouldn’t be difficult for airline pricing to reflect the varied costs facing each flight based on the cost of takeoffs and landings for that given flight.

Gary sees the privatization of air traffic control as a high priority. He also calls for plane-to-plane communications, and greater decentralization more generally, as a means of limiting air traffic control problems. In other words, he wants to make planes more like cars.


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