The Economics of Airport Slots

Constraints on airport profitability appear to preclude the use of market mechanisms to allocate capacity at congested airports such as London's Heathrow. But that is not quite the end of the story. Even if one accepts the political constraint on airport profitability, it is still possible to bring airport charges closer to levels that balance supply and demand for airport capacity. The prices of other goods and services supplied by airports can be reduced in compensation. Overall, there has to be a rebalancing of prices across the range of goods and services supplied by the airport operator and its agents. A rebalancing of tariffs would be greatly encouraged by 2 major complementary changes to public policy. First of the fiscal privileges enjoyed by airport operators and, 2nd, of the scope of economic regulation. There are real opportunities for policy-makers to improve the functioning of the market for airport services.