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February 23, 2012
Brattle Economists Author Paper on the Competitive Effects of Exchanges or Sales of Airport Landing Slots

A recent white paper co-authored by Brattle economists investigates the competitive effects arising from transactions that involve the sale or exchange of airport landing slots. Congested airports in the United States (e.g., JFK, Reagan National), Europe (e.g., Heathrow), and elsewhere (e.g., Japan, Brazil, Australia) explicitly restrict the number of flights that may depart or land from their airports, requiring that airlines have specified time slots for departures and landings. These “landing slot” restrictions effectively place a cap on the total number of flights that may be offered to and from these airports, as well as the number of flights that may be offered by individual airlines that must possess the requisite number of slots. The paper, published by the Social Science Research Network (SSRN), endeavors to fill a gap in the current economic literature, which has not analyzed the competitive effects of sales and exchanges of landing slots that increase the concentration of landing slot holdings among airlines (and airline alliances). This is a particularly relevant antitrust and aviation policy question, given recent transactions that consolidate these slots, such as airline mergers, airline alliance expansion, and the outright sales and exchanges of slots. The paper analyzes how increases in the concentration of landing slot holdings across airlines affect route selection, air fares, consumer welfare, and social welfare. The authors find that increases in the concentration of landing slot holdings among airlines tend to reduce consumer and social welfare. When the number of airlines holding landing slots is reduced, more routes may be served, but that increase comes at the expense of fewer flights and higher fares on higher-demand routes, leaving consumers and society worse off. The same effects prevail when a slot sale or exchange allows a relatively large slot holder at a particular airport to acquire even more slots. Again, more routes may be served after the slot sale or exchange, but air fares again rise on higher-demand routes. More generally, the results suggest that increases in slot concentration are harmful to consumers and social welfare, although consumers on relatively thin routes may gain air transportation service as a result. The paper, “Competitive Effects of Exchanges or Sales of Airport Landing Slots,” was co-authored by Brattle principal James D. Reitzes and associate Nicholas Powers, with assistance from research analysts Brendan McVeigh and Samuel Moy. A full copy of the paper can be downloaded from the link below.