The Possibilities and limits of the introduction of competitive bidding in airport slot allocation

Abstract

The revised aviation law that came into effect on February 1, 2000 almost completely liberalized the Japanese domestic airline market. This liberalization, however, has not been welcomed unreservedly by economists and policy makers. This is mainly because ministerial discretion remains substantially unchanged in allocating takeoff and landing slots at congested airports. Known as the “Scoring System,” this rule does not sufficiently assure objectivity and transparency in the slot allocation procedure, nor does it improve consumer convenience through competition.

In view of these limitations, some economists and policy makers have suggested competitive bidding as alternative method of airport slot allocation.

Competitive bidding for airport slot allocation, which can be broadly classified into (a) auctions and (b) efficiency bidding, is expected in general to overcome the limitations of the Scoring System. Most of the studies on competitive bidding for airport slots, however, confine themselves to demonstrating the advantages of competitive bidding over the present and/or other airport slot allocation rules. What seems to be lacking in these studies is an analysis of the inherent limitations and/or problems associated with the implementation of competitive bidding, and a consideration of the terms and conditions of selecting any particular bidding method. This article will attempt to provide this analysis and consideration, and argues that auctions are desirable if an expansion of runway capacity is possible, but if not, the potential costs and benefits of efficiency bidding should be compared with those of auctions complemented by negative bidding and/or other regulations under various existing conditions.