Airport Gate Slots: Who Buys Them And How?

Airport gate slots are permissions granted by the airport operator for an airline to land or take off at a specific time, ensuring efficient operations. Not all airports require slots, with only level 3 airports needing stricter management due to higher flight volumes and infrastructure needs. The scarcity of slots and regulations surrounding their allocation make it difficult for airlines to obtain desired slots, leading to high-value transactions and leasing opportunities. Slots are allocated by independent slot coordinators, twice yearly, for the summer and winter seasons at coordinated airports. The allocation of slots is a planning tool to ensure that available landing and take-off slots are used efficiently and distributed in a neutral, non-discriminatory, and transparent way.

How are airport gate slots bought?

Airport gate slots are permissions for airlines to land or take off at a specific time

The allocation of airport gate slots is a planning tool to ensure that available landing and take-off slots are used efficiently and distributed in a neutral, non-discriminatory, and transparent way. In the UK, slot allocation is only regulated at coordinated airports, which include the main London airports, Manchester, and Birmingham. At these airports, slot allocation is undertaken by an independent slot coordinator, Airport Coordination Limited (ACL). ACL is funded by UK airlines and airports but is legally required to act in a neutral, transparent, and non-discriminatory way. Slots are allocated twice yearly, for the summer and winter seasons, and airlines must submit their requests well in advance.

There are strict rules that airlines must follow to keep their slots. Generally, an airline must use at least 80% of its slots in a season to retain them. If they do not, these slots can be returned and given to other operators. This is known as the 'use it or lose it' rule. Due to the scarcity of slots and the regulations surrounding their allocation, it is difficult for airlines to obtain their desired slots, leading to high-value transactions and leasing opportunities. One of the most expensive deals was in 2016 when Oman Air paid Air France-KLM $75 million for a pair of slots.

Slots can also be acquired through secondary trading, although the rules for this vary between countries. For example, in the US, the transfer of slots between airlines may be subject to a detailed legal assessment and merger control. In addition, slots can be bought and sold as a result of mergers and acquisitions, as seen with IAG's purchase of BMI and Aer Lingus in 2012 and 2015, respectively.

Slots are allocated by independent coordinators to ensure efficiency and transparency

An airport slot is a permission granted by a coordinator to use the infrastructure of an airport designated as Level 3 (coordinated airport) for take-off and/or landing at a specific time and date. Level 3 airports have insufficient capacity to meet actual or planned airline operations, and therefore slot allocation requires a coordinator to ensure efficiency and transparency.

Slots are allocated by independent coordinators, such as Airport Coordination Limited (ACL) in the UK, to ensure neutrality, transparency, and non-discrimination in the process. ACL is funded by UK airlines and airports but maintains a neutral stance through a quorum of independent directors on its board. The allocation of slots is based on guidelines set by the Worldwide Airport Slot Board, with members from the International Air Transport Association (IATA), Airport Council International (ACI), and the Worldwide Airport Coordinator Group (WWACG).

IATA categorizes airports into three levels based on capacity and demand: Level 1 airports have sufficient capacity to meet demand, Level 2 airports have moderate demand, and Level 3 airports have demand exceeding capacity. Level 3 airports require closer management, and slot allocation is crucial to ensuring efficient operations and fair distribution.

The allocation process considers historical slots, with airlines submitting requests in advance for each season. Slots are allocated twice yearly, for the summer and winter seasons, and airlines must sufficiently use their allocated slots to retain them. If an airline does not use at least 80% of its slots, they can be returned and reallocated to other operators.

The scarcity of slots at busy airports makes it challenging and expensive for airlines to obtain desired slots, leading to high-value transactions and leasing opportunities. As a result, slot trading and leasing have become common practices, with some airlines acquiring slots through mergers or standalone transactions.

Allocation rules vary for Level 1, 2, and 3 airports, based on capacity and demand

All airports worldwide are categorized as either Level 1, Level 2, or Level 3 airports. These levels are based on capacity and demand, and the allocation rules for airport gate slots vary accordingly.

Level 1 airports are non-coordinated airports, where there is potential for congestion during certain periods. Schedule adjustments are mutually agreed upon with the airlines, and an independent slot coordinator allocates slots for arriving or departing flights. Level 1 airports do not require strict coordination, and arrivals and departures are managed through airline cooperation.

Level 2 airports are schedule-facilitated airports, with less stringent slot allocation rules. Airlines propose schedules to the administrating authority, and participation is encouraged through penalties for non-participation if the airport is later designated as Level 3. Level 2 airports are a step up in terms of demand and capacity constraints, but they do not require the same level of coordination as Level 3 airports.

Level 3 airports are coordinated airports, where demand significantly exceeds airport capacity. These airports have insufficient capacity to meet actual or planned airline operations, so strict coordination is necessary. Slots are allocated by an independent slot coordinator, and the rules apply to both the maintenance of existing slots and the allocation of new or unused slots. Level 3 airports have the highest demand and the most complex operations, requiring precise management of slots to ensure efficient use of limited resources.

The allocation of airport gate slots is a dynamic process that aims to balance airport access and efficient use of infrastructure. The rules vary across Level 1, 2, and 3 airports to account for the varying levels of capacity and demand, ensuring fair and optimal utilization of airport resources.

Slots are valuable assets for airlines, often used as collateral for funding

Airport slots are permissions granted by the airport operator for an airline to land or take off at a specific time, ensuring efficient operations. They are valuable assets for airlines, often used as collateral for funding. The scarcity of slots and regulations surrounding their allocation make it difficult for airlines to obtain desired slots, leading to high-value transactions and leasing opportunities.

Slots are allocated to airlines following the International Air Transport Association's (IATA) Worldwide Airport Slot Guidelines (WASG). The regulatory body has been managing slot allocation since 1970. Any available slots are allocated through the WASG, which aims to balance airport access opportunities for new and existing carriers.

The allocation of slots is only regulated at 'coordinated airports', which have insufficient capacity to meet actual or planned airline operations. In the UK, these include the main London airports (Heathrow, City, Gatwick, Stansted, and Luton), Manchester, and Birmingham. At coordinated airports, slot allocation is undertaken by an independent slot coordinator, such as Airport Coordination Limited (ACL) in the UK.

Airlines must adhere to strict rules for slot usage, including a minimum usage requirement of 80% in a season to retain the slot. This is known as the "use it or lose it" rule. The scarcity of slots and the difficulty in obtaining desired slots make them valuable assets for airlines. As a result, airlines are often willing to pay high prices to acquire slots, and they can be used as collateral for funding.

For example, in 2016, Oman Air purchased a pair of peak slots at London Heathrow for US$75 million from Air France-KLM. Airlines may also lease gates and have exclusive rights to manage those gates or parking locations. The ability to secure desirable slots, particularly during peak hours, can significantly impact an airline's operations and financial performance.

Secondary trading of slots is an option to acquire them, but rules vary by country

Acquiring airport slots can be challenging due to high demand and allocation restrictions. While the primary method for airlines to obtain slots is through slot allocation by a coordinator, secondary trading offers an alternative option. This involves the redistribution of slots among airlines without returning them to the slot pool.

The rules for secondary trading vary across countries and airports. In the UK, for instance, the Competition and Markets Authority (CMA) can require the sale of slots to prevent a "substantial lessening of competition". This was the case when IAG bought BMI in 2012 and Aer Lingus in 2015. The CMA can also initiate market studies and investigations, potentially leading to slot transfers if an "adverse effect on competition" is found.

In the US, the Federal Aviation Administration (FAA) has allowed the buying and selling of slots at four "High-Density Traffic Airports" since 1986. However, critics argue that this system is prone to market failure, with dominant carriers allegedly hoarding slots to inflate prices.

At some airports, such as London Heathrow, the limited availability of new slots has led to a furious market. This has resulted in high-value transactions, such as Oman Air's purchase of a pair of slots from Air France-KLM for $75 million in 2016.

While secondary trading can promote efficient slot utilization, it also has its challenges. Systematic studies on this practice are limited, and there are concerns about potential market failures and anticompetitive behaviour.

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