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Tuesday, August 05, 2008

Auctioning Airport Access

Anyone who has flown into a New York airport knows that getting stuck in a traffic jam is not just a problem for ground transportation. Moreover, the ripple effects of New York delays make them a national concern. In response, the Department of Transportation has proposed auctioning slots for landing and take-off at some of the country's busiest airports, as a recent New York Times article reports. Port Authority, the owner and operator of the airports, just made a proposal to block these auctions by excluding airlines that use an auctioned slot.

I'm intrigued by this story in part because auctions seem to be touted as the free market solution to sometimes intractable problems. I wonder if the romance with auctions sometimes masks thornier issues of allocation and, in this case, agency power. As I suggested in my post last week, "Markets for Space in Law School Classes", sometimes auctions are just one of several possible market solutions or even an alternative to an existing market. In the NYU law students case, students generated an informal market in classroom slots. The reason to replace it with an auction system was not because the auction was the only market solution. Instead, it was likely because of concerns with fair access and a law school's policing of student activity. In the airline case, some market in slots may already exist: the Port Authority talks about slots that airlines acquire from each other by "sale, trade, lease or transfer transaction." So the question is not what is the one market solution. The big underlying question may simply be who gets the money.

It's also worth keeping an eye out for litigation, which will likely raise messy questions about the relative powers of these agencies. The list of players (and potential litigants) is large, and includes the airline carriers, the Port Authority of New York and New Jersey, Congress, the U.S. Department of Transportation and the Federal Aviation Administration. Some directions for litigation are suggested by the Port Authority's notice of proposed action, which sometimes reads like a legal brief. It considers the auction plan illegal absent congressional authority and claims "proprietary right and responsibility to allocate gate and terminal facilities." The Senate has also stepped in, with a provision of the transportation appropriations bill that would ban slot auctions. Keep tuned.

Posted by Verity Winship on August 5, 2008 at 01:18 PM in Corporate | Permalink

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Comments

From an earlier New York Times article, it seems auction proceeds would go to either the FAA for regional development, to the airlines, or a bit of both.

Apparently, airlines do presently buy and sell slots: "The debate resembles a dispute over rent control, with the airlines arguing that they should be allowed to continue to buy, sell or sub-let to each other their landing rights, known as slots." Maybe the DoT is legitimately concerned that airlines presently have anti-competitive incentives not to transfer slots to competing airlines.

Posted by: Guest 1L/2L | Aug 5, 2008 3:32:30 PM

Woops, the links didn't work. They are:

http://www.nytimes.com/2008/04/17/nyregion/17airport.html

http://www.nytimes.com/2007/02/18/nyregion/18laguardia.html

Posted by: Guest 1L/2L | Aug 5, 2008 3:34:17 PM

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