The airline industry, despite the recovery in demand, continues to have to deal with significant elements of uncertainty. The waves of the pandemic have an effect on demand, of course, but also on supply. In recent weeks, following the spread of the Omicron 5 variant across Europe, a shortage of crews has begun to be reported for several air carriers and some airports in Northern Europe.
Another effect we have been able to highlight in recent months is that of “ghost flights”. Many airlines continued to fly their planes empty in order to maintain their rights to the airport slots.
To better understand how something like this could have happened, one must take stock of the current situation regarding the allocation of slots. They are, in fact, given to airlines on the basis of “grandfathers' right”', i.e. if one of them has the right to a slot and uses it, it keeps that same slot in the following season.
Historically, the required minimum use of slots has been 80% in order to keep the same slot but, for a time during the pandemic, the European Commission rightly decided to lower this limit to 50%.
The issue of slot allocation has historically been one of the most heated debates at the EU level, with traditional airlines (FSCs) historically having the rights and wanting to keep them without too many restrictions, while new entrants find it difficult to find “free slots” at the most congested airports. It is no coincidence that several low-cost airlines, in their initial development model, relied on secondary airports in order to have good operational efficiency (due to smaller airports and faster aircraft turnaround) and at the same time be able to schedule their flights efficiently without problems in finding slots. The strategy for many of these companies has subsequently changed, as they have also started to use primary airports, but the problem of slot allocation remains.
The key is to find a solution that does not have the consequences of ghost flights, because these flights are clearly a waste of resources for the airlines and cause unnecessary pollution. The environmental problem is certainly relevant for aviation, even if many steps forward are being taken, especially on the airport side where zero-impact management companies are fast approaching.
Returning to the problem of the slots, it should be pointed out that while grandfathers' rights apply at the European level, a “grey market”, or secondary market, has been established in the London area. In this market, companies do not own the slots, but can trade these rights among themselves. Often, the airlines that are struggling the most have sold slots at London Heathrow just to remain solvent and new operators have come in paying considerable sums (even 30 million euro per slot) in order to start operating at that important airport.
It is clear that the problem of airport congestion affects different airports differently. London Heathrow is the classic example where new infrastructure cannot be built because of the “nimby” syndrome (“not in my backyard”) that affects the London area, while other airports certainly have less congestion problems.
However, economic theory teaches us that where there is scarcity, it is normal that the price tends to rise. One solution is to increase airport capacity, but often it is some traditional airlines that are actually against this happening, so as not to let new competitors enter their hub of reference.
Often, as in the case of London, there are major problems in building new infrastructure. The problems are therefore various, but a market system would have the benefit of introducing efficiency and upsetting as few players as possible.
A secondary market for slots, therefore, could be a solution that would not be too upsetting for the operators who have slots (due to the fact that they can sell them, if necessary) and at the same time, allows new entrants to find the space they need to operate. Ghost flights can thus be cancelled and in general a better allocation of slots could make it clear what the value is, and thus the market price.
Industry efficiency also leads to better environmental efficiency, a key issue for the European Commission, which seemed to have forgotten about it during the pandemic. In general, economic efficiency can lead to environmental efficiency and this point cannot be overlooked by the legislator.
In addition, at this time of enormous complexity for the industry, with costs rising dramatically, not least as a consequence of Russia’s invasion and war in Ukraine, and uncertainties on both the supply and demand sides, efficiency should increasingly be a relevant goal.
The same applies, for example, to the coordination for the creation of a true Single European Sky, which would allow great fuel savings and greater operational efficiency for airports as well as for airlines.
Ghost flights, therefore, which are slowly disappearing given the strong return of demand (except on some routes where Covid 19 restrictions remain), are clear evidence that inefficient regulation causes major problems for the sector, not only economic, given the losses for the airlines, but also environmental.
It is therefore good to think about alternative solutions, such as those proposed in this brief analysis, precisely to improve the situation and make the best use of existing assets and avoid waste that the sector and the environment simply cannot afford.