The Times devoted half of today's front page to this rather fascinating story, cont. page 8. This is well worth reading in full, if you have the time, but to sum up the salient facts:
Cost of running a flight from Heathrow to Edinburgh: £60,000
Take offs and landings on an average day at Heathrow: 1,303
Value of a peaktime Heathrow slot: £30 million
Average value of BMI's Heathrow slots: £5 million
Heathrow also have a rule that an airline that 'owns' a slot must use it at least 80% of the time or it forfeits it, which is why "It is, therefore, better for a carrier such as bmi to lose £20,000 per flight than to give up a £30 million slot. For bmi this is particularly important as it is trying to keep its value up for a potential sale this year. British Airways, Virgin Atlantic and Lufthansa are all interested in buying bmi, and the biggest attraction is the airline’s 11 per cent of Heathrow slots - the second-largest holding behind BA."
Of course, in a truly free market economy with no planning restrictions, supply and demand would even out and more airports would be built, so a landing slot would have negligible value. Indeed, if 'enough' airports were built in The Good Times, there would be a huge overcapacity in The Bad Times (fear of terrorist attacks, recession, high oil prices etc) and landing slots would have negative value - airports would have to pay airlines to land there (to skim off money from passengers at the airport shops etc). And it would, to be frank, be a bit of a waste of concrete and radar equipment to build airports that sometimes stand empty for year on end.
However the NIMBYs and Greenies are in charge, which is why we have chronic airport undercapacity - which is why the slots have such a colossal scarcity value - and it surely can't have been the intention of the NIMBYs and Greenies to generate windfall gains for BMI shareholders or to encourage a system whereby airlines fly empty planes, can it?* OTOH, air travel does have external costs - it causes noise and passengers use other local transport links to and from the nearest city.
Here's the interesting bit: "... some aviation analysts believe that there are no legal grounds for these carriers to own the slots, and advocate that they should belong to the State and be leased to the highest bidder. High prices for rented slots would encourage only profitable flights, which would almost certainly mean full flights."
I gave this a few hours thought a couple of months ago and came to exactly the same conclusion. The gimmick being that such an auction process only works if there is undercapacity.
The other possibility of course is that BAA just start charging much more for slots, but as they are Spanish-owned, why would anybody advocate this?
* That would be a good Conspiracy Theory - NIMBYs and Greenies are in fact all shareholders in smaller airlines.
Claptrap
10 hours ago
6 comments:
Ofcom's spectrum management strategy is an ideal benchmark as it too is a scarce resource.
The know how to set up and manage auctions to ensure that spectrum is used efficiently with necessarily going for the highest price (see Vickery auctions on Wiki). They all technology neutrality to ensure that the market picks the winner and they allow trading.
Sorry, that should have been Vickrey auctions
http://en.wikipedia.org/wiki/Vickrey_auction
Intriguing. But surely this is not what we did when we auctioned off 3G? That went through lots of stages and was designed by some maths genius professor.
The Times is running an awful lot of anti Heathrow stories.
Weren't they promoting an alternative new airport out over the Thames estuary way if I remember.
Whats the link. Do The Times owners have a big block of land in Dagenham or something?
The 3G auction was the trigger to make the changes, it went far too high.
The latest auction for Microwave spectrum in January was a modified Vickrey auction with 3 rounds:
Round 1 was what is called price discovery and takes time with people dropping out. It only stops when supply matches demand.
Ropund 2 is then a Vickrey sealed bid. However bidders are restircted with their based based on hen they dropped out. Those who stayed in can make unlimited bids, those who didn't are capped.
The spectrum was then allocated using second price rules.
Round 3 was to see anyone wanted any spefic channels within the overall allocation. This might be anaolgous to saying you want gate 1 at heathrow insted of gate 98.
There is due to be another mobile auction this year for 2.5GHz specturm which will also use this method.
Licences are in perputuity but after 15 years they move to at adminstrative pricing base, which is still a bit vague. Licences can also be freely traded on the open market.
There is no reason why something similar couldn't be done for slots at airports.
The 3G auction was the trigger to make the changes, it went far too high.
The latest auction for Microwave spectrum in January was a modified Vickrey auction with 3 rounds:
Round 1 was what is called price discovery and takes time with people dropping out. It only stops when supply matches demand.
Ropund 2 is then a Vickrey sealed bid. However bidders are restircted with their based based on hen they dropped out. Those who stayed in can make unlimited bids, those who didn't are capped.
The spectrum was then allocated using second price rules.
Round 3 was to see anyone wanted any spefic channels within the overall allocation. This might be anaolgous to saying you want gate 1 at heathrow insted of gate 98.
There is due to be another mobile auction this year for 2.5GHz specturm which will also use this method.
Licences are in perputuity but after 15 years they move to at adminstrative pricing base, which is still a bit vague. Licences can also be freely traded on the open market.
There is no reason why something similar couldn't be done for slots at airports.
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