The bankruptcy filing by American Airlines a few months ago signals that the U.S. aviation industry is once again primed for dramatic change. American Airlines is the last of the major U.S. carriers to seek bankruptcy protection, as most of the other big carriers have completed restructurings or mergers that have reduced the number of full-service carriers from seven in 2005 to just four today.
Industry consolidation can be a mixed bag for the flying public. Mergers can deliver efficiencies from scale, but they can also decrease competition. American Airlines has now become the latest acquisition target, perhaps by US Airways or Delta Air Lines. Against this shifting landscape within the industry, the Federal Aviation Administration (FAA) took an important step to help ensure that consumers continue to benefit from airline competition, especially when they want to swap assets. Instead of allowing airlines to swap some of their operations at the nation’s largest airports – in an effort to further concentrate their shares of regional markets – the FAA wisely chose to initiate the nation’s first-ever “slot auction” at the end of 2011. The long-term benefits for the flying public from this precedent are potentially tremendous.
A handful of the nation’s airports are slot-controlled, meaning that there are a limited number of flights that are allowed to arrive or depart at these airports based on the amount of runway capacity. Each flight in or out is a “slot,” in aviation lingo. Airlines without slots cannot serve these airports. Over time, slot-controlled airports have been underutilized because there is no easy way for airlines to trade slots, and airlines with slots are understandably hesitant to allow competing airlines access to the airport. Airlines have been known to “babysit” their slots by flying smaller aircraft into the airport to hold onto their valuable arrival and departing slots. As a result, the number of passengers served by slot-controlled airports shrinks even as flight delays remain the same.
The system serves neither the airlines nor their air travelers. The cost of airline delays and congestion in our aviation system is a huge drag on the U.S. economy. The Congressional Joint Economic Committee (JEC) estimates that flight delays cost passengers, airlines and the U.S. economy about $40 billion each year. And much of the delay is caused by just a handful of very congested airports, including LaGuardia.