Market-based allocation of airport slots: the PAUSE auction mechanism and extensions

During the past several months, passenger air transport has been recovering from its significant retraction during the two years Covid pandemics. If the recent significant drop in air traffic due do the Covid pandemics acted as an external mitigating factor to airport traffic congestion in several major airports around the world, with the post-pandemics air traffic recovery it is likely that airport capacity will, once again, fall short of demand and not keep pace with the growth in air traffic. That is why close to two hundred major airports worldwide, most of them in Europe, face capacity constraints and are “coordinated”. Eurocontrol predicts Europe's capacity shortage in 2050 at 500,000 flights/year in the baseline scenario, which could rise to 2.7 million in an optimistic scenario. The allocation of airport slots in Europe and elsewhere is still ruled by administrative processes, based on the IATA (International Air Transport Association) Worldwide Airport Slot Guidelines (WASG), which follow historical precedence and time adjustments of historical slots. Market mechanisms in slot allocation, as an alternative to administrative processes, are still rarely used. Several authors have highlighted the inefficiency of the current airport slot administrative allocation system, based on the IATA’s Guidelines. Several authors have suggested improvements in this administrative system, such as congestion pricing mechanisms and other market mechanisms involving auction procedures. Among the various auction mechanisms, scoring auctions and the PAUSE methodology have been suggested in the literature. In this paper, and following our previous work, we explore and extend the application of the PAUSE auction mechanism with bidding based on a score function for the auctioneer, that includes another variable in addition to the total revenue, where this variable can represent e.g., quality of the service provided. We study the application of this auction mechanism, in a gradual fashion, p.e. to the year round three level 3 international airports operating in Portugal. The different airlines using these airports would still follow the current IATA slot allocation guidelines in their use of other airports, including the slot exchange protocols. We show that some of PAUSE auction mechanism’s desirable properties, such as computability, transparency, absence of envy, and the mitigation of the “price-jump problem”, “threshold problem”, “exposure problem”, and “winner’s curse problem”, still hold.