• It can be expected that KLM will increase its slot holdings at the airport and will become more dominant.
• Competition on short-haul routes may be reduced.
• The likelihood of increased long-haul competition occurring at Amsterdam is less than at Heathrow. The Amsterdam market is much smaller and thus less attractive to (new) long-haul carriers other than the hub carrier.
• The KLM hub operation requires a certain level of airport concentration to support efficiency. Although the potential competition concerns are acknowledged, the hub operation is also considered beneficial to society because of the large range of destinations, high frequencies, and short transfer times available to consumers.
8.4 Impacts on the efficient use of the capacity at
Schiphol
In general, legitimisation of secondary trading offers scope to improve the efficient use of slots by confronting grandfather slots with the true opportunity costs of the slots held (see also section 4.2.3). The allocation of slots can be expected to increasingly reflect the willingness to pay of the airlines. Slots will be used by those airlines that can use them most efficiently. Yardsticks of a more efficient use of airport capacity are the increase in the use of larger aircraft, the increase in the use of slots for long-haul flights, a higher passenger throughput per slot, and better utilisation of slots during the day.
From the perspective of optimal social welfare, this is a step forward since congestion costs will be internalised in the market price in a marginal sense. However, other steps will have to be taken as well, including the internalisation of external costs (noise, emissions).
We surveyed the potential impacts of secondary trading on two objectives of the EC at Schiphol: slot mobility and competition. Below, we discuss the expectations for the other objective of the EC, the efficient use of capacity at Amsterdam Airport Schiphol.
8.4.1 Historical developments
Independent of any secondary trading, a number of developments indicate a more efficient use of Schiphol’s infrastructure in recent years. Schiphol has shown a development towards the use of
larger passenger aircraft, as Table 8.3 shows. This seems to be a reversal of the trend during the 1990s, which was characterised by decreasing aircraft size.89 Moreover, operations are
increasingly spreading around the shoulders of the peaks as a result of slot shortages in the peaks90 (Figure 8.2). This indicates a more efficient use of the airport throughout the day. Also,
the off-peak periods are starting to be filled.
Table 8.3 Average aircraft size and average stage length of scheduled passenger movements at Schiphol: April 2001 and April 2006
average seat capacity average stage length (km)
April 2001 137 1641
April 2006 148 1757
Source: OAG
Figure 8.2 Slot allocations and declared runway capacity at Schiphol: Wednesday, summer 2007
Source: Courtesy of SACN; www.slotcoordiation.nl
8.4.2 Perspectives
Will secondary trading result in further improvements to the efficient use of airport capacity in the sense of maximisation of aircraft size, stage length, passenger throughput per slot increase, and the use of the airport throughout the day?
89 SACN (2006) recently stated in its Report to the Secretary of State that the use of smaller aircraft has been increasing. We were not able to reproduce that finding using OAG data.
90 SACN (2006). Rapportage Slot Coördinatie December 2006. Report to the Secretary of State Mrs. Schultz van Haegen.
First, secondary trading may contribute to these effects. Certain airline groups may have the incentive to sell their peak slots and move their operations to unused slots in off-peak periods or to other airports in the region. In addition, they may cancel operations. Another option for a carrier would be to swap its peak slot with an airline operating an off-peak slot, thereby receiving monetary compensation. Peak slots are likely to be bought by KLM or long-haul carriers, which will aim to use these peak-hour slots as efficiently as possible. In particular with respect to new long-haul carriers buying slots, average aircraft size, passenger throughput, and stage length can be expected to increase.
Mott MacDonald (2006b) assumes that the potential gains at Amsterdam are quite high with respect to increases in average aircraft size and stage length due to secondary trading.
Table 8.4 Assumptions on numbers of seats and average distances flown per airport in 2025, with and without secondary slot trading
Amsterdam Heathrow Charles de
Gaulle
Frankfurt
Without trading 144 218 168 167
Average number of
seats per flight With trading 167 (+16%) 229 (+5%) 182 (+9%) 174 (+4%)
Without trading 3374 4734 3861 3894
Average distance flown per flight
(km) With trading 3786 (+12%) 5143 (+9%) 4269 (+11%) 4101 (+6%)
Source: Mott MacDonald (2006b, p. 48-66)
The study team identified several limitations, however, to the extent to which the airport can be used more efficiently from a capacity perspective, given the current environmental and network contexts. These limitations contrast with the results of Mott MacDonald.
First, hub efficiency is not the same as the efficient use of airport capacity. As discussed above, the possibilities for the largest slot holder, KLM, to use larger aircraft or increase stage length are limited. In contrast to BA, KLM is a typical hub carrier. Growth of its hub network mainly takes place in terms of frequencies, not capacity. Short-haul growth is needed to support intercontinental growth. Nevertheless, given the value of new slots during the peak for the entire hub-and-spoke network, KLM may show a high willingness to pay for slots to be used for short- haul flights. In short, secondary trading will give KLM an additional tool to optimize and expand its hub operation. The resulting hub efficiency will not necessarily be equal to a more efficient use of airport capacity from the airport’s perspective.91
Second, there are limitations to the possibilities for better utilisation of the airport infrastructure throughout the day. The capacity at Schiphol for departure and arrival slots varies sharply during the day (see Figure 8.2).92 As we concluded in Chapter 7, the shortage of peak slots may
incentivize airlines to sell. However, unless they engage in swaps with monetary compensation,
91 Nevertheless, this does not necessarily mean that hub development is not beneficial to society as a whole. As we have argued in section 4.2.2, the connectivity externalities of hub-and-spoke networks increase the value of the network for the consumer.
92 The overall capacity at Schiphol is stable during the day. However, owing to pronounced peaks in the demand for slots, the capacity for departure flights varies during the day. The same holds true for the capacity of arriving flights (this is the so-called 2+1 runway system at Schiphol).
the extent to which airlines can move their flights to off-peak periods is, therefore, limited. Moreover, the off-peak periods are quickly saturated with slot allocations.
Third, airlines holding slots in the peak may not wish to sell because of a lack of alternatives during off-peak times or at other airports in the region. This issue is discussed in section 6.1. When there are serious constraints to the liquidity of the market, the potential for a more efficient use of airport capacity is also reduced.
8.4.3 Conclusions on the efficient use of Schiphol’s capacity
We assessed the likely impacts of secondary trading on the efficient use of capacity at Amsterdam Airport Schiphol. The most important conclusions are the following:
• Secondary trading may contribute to a more efficient use of capacity at the airport as the distribution of slots will increasingly reflect the willingness of airlines to pay. Hence, slots will be used by those carriers which can use them most efficiently.
• In particular with respect to long-haul carriers buying slots, secondary trading may result in an increase in aircraft size, passenger throughput, and stage length for traded slots. • Efficient use of the slots by the dominant hub carrier, however, is not necessarily the
most efficient use from the airport’s viewpoint. Owing to the nature of the hub operation (frequency-focused) of KLM and its partners, the extent to which the carrier can use larger aircraft on slots it has bought on the secondary market is generally limited. The developments at the hub airport of Chicago O’Hare are in this respect much more illustrative for Schiphol than those at the origin-destination airports of London Heathrow and New York LaGuardia. Mott MacDonald (2006) assumes substantial gains in terms of aircraft size and stage length at Schiphol. SEO Economic Research doubts if these gains can be realised at Schiphol given the nature of KLM’s hub operation and the experiences at typical hub airports in the US, such as Chicago O’Hare.