CAA slot report pushes flexibility

2nd Mar 2006

The Civil Aviation Authority and Office of Fair Trading has published a report recommending a flexible approach to the secondary trading of airport slots.
It examines the concern that secondary trading of slots could potentially lead to anti competitive behaviour. It recommends that these concerns be met by small modifications to the design of the secondary trading market combined with case-by-case solutions to deal with specific competition problems at an airport level.
The findings of this report, Competition Issues Associated with the Trading of Airport Slots, are intended to inform discussions on the competition effects of slot trading ahead of proposals for reform of the EU Slot Regulations, which are expected to be announced later this year. The proposals are likely to address what rules should govern secondary trading at slot coordinated airports in the future.
Analysis by the OFT and CAA shows that secondary trading should enhance efficiency and benefit airlines and consumers using Europe’s most congested airports. In the main, the fewer restrictions on secondary trading, the greater the likely efficiency benefits.
Nevertheless, the report notes that competition concerns could arise where secondary trading enables an airline to create or enhance a dominant position at an airport. Competition could also be dampened through strategic behaviour by airlines when selling or leasing slots. The report argues that the design of the slot trading system should take account of this.
It recommends that a few relatively simple rules should reduce the potential for anti-competitive behaviour:
á A prohibition on the inclusion of restrictive covenants in slot trades or leases. This would stop airlines placing restrictions on the future use of slots.
á Publication of information to increase transparency. This would highlight the opportunity cost of holding onto slots, and hence promote trades.
The CAA and OFT suggest that these general design features, combined with the application of standard competition law, should be sufficient to deal with competition concerns at most airports.
However, in circumstances where dominance at individual airports is likely to be created or enhanced, the report concludes against general restrictions as the competition implications of such dominance could differ significantly. In such cases, competition authorities should conduct a detailed market investigation before trading starts. This would enable them to propose, if necessary, additional rules tailored to the market situation at that particular airport. The report also argues that, if competition concerns arise after the introduction of trading, competition authorities should be able to review the market and propose remedies.
Harry Bush, Director of Economic Regulation at the CAA, said: “Secondary slot trading can make an important contribution to ensuring that Europe’s increasingly congested airports are used efficiently.
“To work best, the slot market needs to operate with a high degree of freedom. We recognise the potential for competition concerns but also the danger that the gains from secondary trading could be lost to heavy-handed regulatory intervention stemming from such concerns.
“It is important that the benefits of lifting one set of restrictions are not compromised by the imposition of an equally onerous set. This work by OFT and CAA shows that this need not occur and presents a persuasive argument as to how a few proportionate and considered measures can enhance competition without sacrificing the benefits of flexible slot trading.”


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