A sign of the times for airlines:
March 10 (Bloomberg) — European Union regulators proposed to suspend an obligation on airlines to use their airport slots at least 80 percent of the time to avoid losing them, offering relief amid the economic decline.
The European Commission’s proposal today in Strasbourg, France, would suspend the EU’s use-it-or-lose-it rule on airport slots from March 29 until Oct. 24 as air traffic declines. The measure needs the support of national governments and the European Parliament.
This would be an interesting development for European carriers.
For a bit of background — under current rules airlines hold so-called “grandfather” rights to their takeoff and landing slots, or space at the airport. That means as long as they use them 80 per cent of the time they keep the rights to the space. This often leads to funny things like airlines operating empty flights in off-seasons to keep hold of their slots, much to environmentalists’ consternation. BMED‘s 2007 ’ghost flights’ were a prime example of this.
Slots are valuable things, particularly at crowded airports like London Heathrow, which is running at something like 99 per cent capacity. There’s a grey market in slot trading and selling between airlines – with values for the spaces rumoured to be in the double-digit millions for choice times. Continental paid $209m for four pairs of takeoff and landing slots at Heathrow last year, for instance. The slots are also a grey area in terms of legal rights and accounting.
Last year, BMI became the first UK airline to start putting slots on its balance sheet, booking an additional £770m from doing so; not bad considering the company made a pre-tax profit of £15.5m for that fiscal year. This was a strategic decision at the time. BMI, which is the second-biggest holder of slots at Heathrow, was expected to be sold to as a series of put and call options with Deutsche Lufthansa neared their activation windows. As of 2008, BMI was the second-biggest holder of takeoff and landing space at Heathrow, holding something like 11 per cent of slots. British Airways was first with about 41 per cent.
Allowing airlines to keep their slots without using them would effectively be a boon for slot-heavy, well-established carriers like British Airways, and possibly provide fresh impetus for them to value the spaces on their own balance sheets if they don’t already do so. At the very least, the suspension would allow them to cut capacity without incurring hefty operating costs, which is the real point of the measure.
Not surprisingly, the suspension would be less beneficial for carriers whose presence is largely at uncrowded airports, where space is not at a premium, or those who want a bigger presence at crowded ones.
EasyJet CEO Andy Harrison, consequently, is predictably up in arms over the proposal:
The Commission has today proposed a badly thought-through plan that will lead to fewer flights and higher fares, thereby exacerbating the economic situation, not helping it. Protectionism is not the answer; it will simply make the crisis worse.
Related links:
UK airlines start to value landing slots as assets on balance sheets – Deloitte