There is increasing interest in the rules by which airport slots are allocated to airlines. As the airline industry reconfigures, more attention is being paid to how the allocation of airport slots should be reviewed, and whether they can be reallocated or removed.
This Insight explains the global legal framework and the powers various bodies in the UK (and at present the EU) have to affect how slots are allocated.
Legal framework for slot allocation
An airport slot is permission to use the airport infrastructure (runway, terminal, apron, gates, etc.). These are necessary to operate an air service at an airport on a specific date and time for the purpose of landing or take-off. The allocation of slots between air carriers (‘slot allocation’) is a planning tool. Its purpose is to ensure, where airport capacity is scarce, that available landing and take-off slots are used efficiently and distributed in a neutral, non-discriminatory and transparent way.
The law in the UK concerning airport slots is governed by EU Regulation 95/93(EEC). This was transposed into UK law by the Airports Slot Allocation Regulations 2006. This will remain the case at least until the end of the Transition Period on 31 December 2020. From 1 January 2021, the UK will have the ability to amend the Regulation, independent from the EU.
Slot allocation is only regulated at ‘coordinated airports’. These airports have insufficient capacity to meet actual or planned airline operations. Rules apply to both the maintenance of existing slots and to the allocation of any new or unused slots. In the UK these are the main London airports (Heathrow, City, Gatwick, Stansted and Luton), Manchester and Birmingham. Bristol is coordinated from 23:00 to 07:00 in summer seasons.
Independent slot coordinator
One of the fundamental principles of the slot allocation rules is that allocation is undertaken by an independent slot coordinator [see e.g. Art. 4 of the EU Slot Reg] – for UK airports this is Airport Coordination Limited (ACL).
The UK Civil Aviation Authority (CAA) and Department for Transport (DfT) maintain an arms-length relationship with ACL. They have no direct involvement in the slot allocation process, per the slot regulations.
While ACL is funded by UK airlines and airports, it is legally required to act in a neutral, transparent and non-discriminatory way and has a quorum of independent directors on its Board.
Slots are allocated by ACL, twice yearly, for the summer and winter season at coordinated airports.
‘Use it or lose it’
‘Historic rights’ entitle an airline to continue using the same slot in the next scheduling period, provided that it has used that slot for at least 80% of the previous period. This is known as the ‘use it or lose it’ rule [see e.g. Art. 8 of the EU Slot Reg].
The ‘use it or lose it’ rule has been suspended several times in the past 20 years. The rule was suspended after 9/11, the launch of the Iraq War, the outbreak of SARS in 2003, the global financial crisis in 2009 and most recently because of the coronavirus pandemic.
UK bodies with powers to affect slot allocation
Competition and Markets Authority
The main body with the power to investigate the allocation of slots is the Competition and Markets Authority (CMA). In certain specific circumstances, following an investigation, the CMA has the power to address a competition issue, potentially by ordering the sale of slots.
Anyone can raise concerns with the CMA about anti-competitive behaviour by a company or group of companies or ask the CMA to look at the functioning of a market and whether it is working well and not creating negative effects for consumers, businesses and the economy.
The CMA could require the sale of slots. For example, if one airline obtains slots from another as a result of a merger, and the CMA finds a “substantial lessening of competition”. This happened in 2012 when IAG bought BMI and in 2015 when IAG bought Aer Lingus.
The transfer of slots between airlines as a standalone transaction might also give rise to a relevant merger situation. But this would be subject to detailed legal assessment and it would not be certain to be subject to merger control.
The CMA can also initiate market studies and market investigations to examine whether a market is working well. A market investigation reference typically follows a market study. If the CMA finds an “adverse effect on competition” following a detailed investigation, it has wide-ranging powers to remedy, prevent or mitigate that adverse effect on competition or associated detriment itself, or through recommendations to other bodies, which could lead to a transfer of slots.
The CMA’s powers under the Competition Act 1998 extend to giving directions or accepting commitments from parties that it considers appropriate to addressing breaches of competition law. Subject to the specific circumstances of a case this could result in the divestment of slots by an airline.
The CMA also has the power to accept binding commitments from parties under investigation to address any competition concerns it has. This power could be used to accept commitments by an airline to divest slots.
The European Commission has similar powers under Article 9 of EU Regulation 1/2003(EC), and has used these to accept commitments by airlines to divest slots.
Secretary of State for Business, Energy and Industrial Strategy
The Secretary of State for Business, Energy and Industrial Strategy has the power to intervene in markets that raise public interest issues and make a market investigation reference. The Secretary of State also has a reserve power to make ordinary and cross-market references under the Enterprise Act 2002.
Civil Aviation Authority
In its draft aviation strategy, the DfT set out the case for slot reform once the Transition Period ends on 31 December 2020. It argued that the current allocation system “is not designed to stimulate a competitive market environment and has no means of taking into account broader objectives”. It identified a number of specific problems, including a lack of transparency, perverse incentives, and barriers to entry for new airlines and existing airlines looking to serve a new airport.
The draft strategy said that the Government was looking at proposals to improve the system and address these problems. It includes a commitment to “work constructively with the industry, IATA and the countries the UK has aviation links with, to consider how to develop the existing slot allocation system to deliver the best outcomes for the consumer”.
Commons Library briefing paper Airport Slots, CBP 488, June 2017
About the author: Louise Butcher is a researcher at the House of Commons Library specialising in transport.