Optimal Use-it-or-lose-it Rules for Airport Slot Management

28 Pages Posted: 22 Sep 2018 Last revised: 13 Apr 2020

See all articles by Achim Czerny

Achim Czerny

Hong Kong Polytechnic University - Faculty of Business

Date Written: April 12, 2020

Abstract

This paper considers a single airport and two time periods in which an incumbent airline competes with a new entrant airline in the second period. Slot allocation is based on grandfathering and features priority for new entrants. Grandfathering is conditional on a minimum use of capacity in the first period (use-it-or-lose-it). The analysis shows that the incumbent's preferred use-it-or-lose-it requirements are lower than the welfare-maximizing requirements, which indicates the need for government involvement for passenger protection. Numerical simulations further indicate that the discrepancy between the incumbent's and the welfare viewpoints are decreasing when airport capacity is expanded and increasing when passenger demand and airline rivalry is growing. The policy lesson is that use-it-or-lose-it requirements should be made on a case-by-case basis in the sense that they are more relaxed when airport capacity increases and tighter when passenger demands and airline rivalries grow.

Keywords: Airports, Use-It-or-Lose-It, Grandfather Rules, Priority Rules, Market Entry

JEL Classification: L93

Suggested Citation

Czerny, Achim, Optimal Use-it-or-lose-it Rules for Airport Slot Management (April 12, 2020). Available at SSRN: https://ssrn.com/abstract=3243395 or http://dx.doi.org/10.2139/ssrn.3243395

Achim Czerny (Contact Author)

Hong Kong Polytechnic University - Faculty of Business ( email )

9/F, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon M923
China

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