Allocation of Slots to Airlines: What Role for Competition Law?

Air transportation in the European Union is said to have been liberalised since 1997, after several years of transition. However, important obstacles to effective competition have remained ever since. The most important impediment to competition is the lack of airport capacity at the congested airports in Europe. In 1993, a regulatory system was set up in order to deal with slot allocation, slots being defined as the scheduled time of arrival or departure available or allocated to an aircraft movement on a specific date. The system was modelled after the international practice as applied within the framework of the IATA and was based on the principle of grandfathering of slots. To avoid the regime becoming an insurmountable barrier to entry, a pool was created of unused slots which had to be allocated by preference to new entrants. Slots acquired a particular position within the application of EC competition law to the airline industry and the Commission started using them as a competitive instrument in its decision-making concerning the sector. In the course of its decisional practice the Commission has shown increasing flexibility with regard to slot divestiture as a structural remedy and has more recently also taken into account the particular economics of the airline business relating to network effects. However, because the allocation system does not price the slots at their marginal social cost, this results in economically inefficient outcomes. The lack of slot mobility caused by the grandfathering rule prevents both allocative efficiency and effective competition from being attained. Market mechanisms have been proposed to achieve a more efficient outcome, but their implementation has at the same time raised some important legal issues. Furthermore, their effect on competition has not always been clear. This article argues that, by allowing a secondary market in slots in combination with higher-posted charges for slots reflecting their marginal social cost, an economically more efficient outcome can be obtained. Moreover, competition issues resulting from this approach can be dealt with by means of existing competition law.