19 Allocation of slots at Community airports
| (a)
(22519)
10288/01
COM(01) 335
(b)
(23997)
14205/02
COM(02) 623
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Draft Regulation on common rules for the allocation of slots at Community airports
Amended draft Regulation on common rules for the allocation of slots at Community airports
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| Legal base | Article 80(2) EC; co-decision; QMV
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| Department | Transport |
| Basis of consideration | Minister's letter of 7 December 2004
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| Previous Committee Report | HC 63-xxxvi (2002-03), para 11 (5 November 2003)
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| Discussed in Council | 5 December 2003
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| Committee's assessment | Politically important
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| Committee's decision | Cleared (decision reported on 5 November 2003)
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Background
19.1 The allocation of landing and taking-off slots at Community
airports is regulated by Council Regulation No. 95/93,[62]
the purpose of which is to ensure an efficient distribution of
slots in a transparent and open manner. The Commission proposed
modifications to the Regulation in order to:
- clarify the legal nature of slots;
- promote efficient allocation of slots through
clear rules on methods and procedures, better definition of airport
capacity and transparent, neutral procedures of consultation and
mediation;
- encourage the efficient use of slots; and
- enhance competition between incumbent carriers
and new entrants.
19.2 In July and December 2002, we recommended these
documents for debate in European Standing Committee A. But in
November 2003, we heard that in negotiation the effect of the
proposal had become relatively limited, making only technical
amendments to the rules governing airport slot allocation. The
expectation was that a more far-reaching proposal would come forward
in the light of a then awaited review of market mechanisms for
slot allocation commissioned from National Economic Research Associates
(NERA) by the Commission. Given this, we rescinded our debate
recommendations and cleared the documents.[63]
Subsequently the technical revision of the governing Regulation
was adopted.[64]
The Minister's letter
19.3 The Secretary of State for Transport (Mr Alistair
Darling) writes now to tell us of developments subsequent to our
previous Report. He says that the NERA report, which looked at
five options, was published at the beginning of 2004. NERA concluded
that the introduction of market mechanisms would have a positive
effect on passenger numbers. But the consultants were not required
to develop recommendations for a preferred option. Instead, in
September 2004, the Commission called for comment on a staff working
paper. This paper fulfils a longstanding Commission commitment
to reform of the 1993 Regulation governing the allocation of take
off and landing slots at congested airports. Under that Regulation
slots are allocated on an administrative basis, with existing
slots allocated on the basis of historic rights, and with new
entrants entitled to be allocated the first 50% of any available
slots in a pool.
19.4 In its paper the Commission:
- suggests for the combination
of secondary trading with the possibility of withdrawing, on the
basis of a lottery system, a certain percentage of "grandfathered"
slots[65] where trading
does not lead to satisfactory reallocation of slots;
- identifies alternative primary trading mechanisms
such as higher posted prices and auctioning, but without stating
a clear preference for either of these;
- poses some questions on the potential environmental
impact of these measures; and
- discusses some other technical points.
The Commission asked for the views of Member States
on the various possible commercial allocation mechanisms that
could replace the present allocation system.
19.5 The Minister tells us the Government has now
responded to the Commission. He reminds us that the Government
has long advocated reform of the current allocation system, which
he says does not provide the most effective way of allocating
the scarce capacity at UK major airports. In the context of the
proposals in the Department of Transport's December 2003 White
Paper, "The Future of Air Transport", to address the
lack of capacity at the UK's main south east airports, he says
it is in the UK's interests to ensure that new capacity at congested
airports is allocated and utilised effectively. He says that "some
elements of the Commission's paper will make a very helpful contribution
to doing this but others seem to be completely unworkable".
19.6 The Minister says the Government's response
is based on six key elements:
- reform of the existing system
is essential, but should proceed incrementally to allow for full
assessment at each stage of the impacts of change and to give
the industry time to adjust;
- the first step should be immediate introduction
of formalised secondary trading;
- opposition to the proposed mechanism to increase
the liquidity of secondary trading by confiscating a percentage
of grandfathered slots — such a mechanism would be arbitrary
and ineffective;
- any further detailed work on the legal basis
of slots and grandfather rights should be based on a full regulatory
impact assessment, drawing on evidence gathered during a few years
of formalised secondary trading;
- secondary trading alone would not address the
need to ensure new airport capacity is allocated effectively;
there should be further investigation of primary market mechanisms
to allocate new capacity; and
- auctioning is the most effective mechanism for
allocating new capacity, but more work is needed on how these
mechanisms would operate, including a proper regulatory impact
assessment.
19.7 On the basis of these key elements the Government
suggests a two-stage approach to reviewing slots regulation, with
the possibility of a third stage in the longer-term:
- first, the Commission would
implement secondary trading and acknowledge the advantages of
primary allocation mechanisms in allocating new capacity at very
congested airports;
- secondly, the Commission would undertake further
studies of the practicalities of implementing primary mechanisms
to allocate new capacity and of the potential impacts on industry
and consumers, and would then clarify at Community level how primary
mechanisms to allocate new capacity at congested airports might
work. This could require legislation which the Government would
like to see no later than 2006, so having the new mechanisms in
place to allocate any new capacity arising from the introduction
of "mixed mode"[66]
at Heathrow around 2010; and
- a third stage would be any move by the Commission
to reform the grandfather rights system. The Government would
support a detailed examination of this issue, accompanied by a
full regulatory impact assessment to enable better evaluation
of the necessity of any further mechanisms, and the potential
benefits and negative impacts of such a change. This should not
delay the other two stages of the process.
19.8 The Minister tells us that the terms of the
Government's response were prepared following extensive discussion
both within Government and with the airline and airport industry.
(The Minister also sends us a preparatory Regulatory Impact Assessment,
which was drawn up in parallel with the Government's response
and will form the basis of a full assessment once the Commission
makes any formal proposal.) Although there is broad support from
the industry for the proposed legitimisation of secondary trading,
there is very little enthusiasm for any move beyond this to the
formalisation of the market, or for what is seen as the interventionist
transparency measures proposed by the Commission. The majority
of airlines are very opposed to the limiting of grandfather rights
and there is also very little support from the industry for primary
trading mechanisms.
19.9 The Minister adds that the Government's response
to the Commission "certainly does go further in endorsing
change to the current system than most of the UK aviation industry
would like". He adds:
"However, our view is that the current
system does not do enough to ensure that scarce capacity at the
UK's congested airports is allocated most effectively. The implementation
of a secondary trading market will formalise the 'grey market'
of trading that has developed in the UK and introduce scope for
a significant improvement in efficiency and competition. Introducing
a primary mechanism for the allocation of new capacity and pool
slots is also essential to make best use of the new capacity we
have supported at Heathrow airport.
"The response reflects the fact that
we feel it is important that the Commission does not rule out
future detailed consideration of the important questions around
whether grandfather rights (which give incumbent airlines perpetual
rights to use slots) are sustainable within a fluid secondary
trading market. Far more examination and regulatory impact assessment
of the impacts such a change would have is needed on this issue.
However, we have stressed that it is also important that this
further work should not delay the implementation of secondary
trading."
19.10 The Minister concludes by telling us that support
for the Commission's ideas from other Member States is likely
to be limited. He says no other Member State has the same extremity
of capacity and slot constraint as the UK and many are strongly
opposed to changing the present system. Some Member States also
seem to base their views on the priorities of their flag-carrying
airlines, which are even keener to protect the status quo
than UK airlines. He adds that the Commission is likely to view
the UK as its most natural supporter on the issue and that it
is also conscious of the need to reform the slot allocation mechanism
as a likely element of an eventual deal in EU-US negotiations
on air services. He says the Government understands that the Commission
intends to act quickly on the consultation exercise and may propose
a draft Regulation to amend the 1993 Regulation during the first
half of 2005.
Conclusion
19.11 We are grateful to the Minister for this
full account of where matters stand on the review of airport slot
allocation. We will wish to examine carefully any proposal that
emerges from the Commission's consultations. As we said when we
last reported on this issue, it is likely that we would recommend
any such proposal for debate.
62 OJ No. L 14, 22.1.93, p.1. Back
63
See headnote. Back
64
Regulation (EC) No. 793/2004, see OJ No. L 138, 30.04.04, p. 50. Back
65
"Grandfather rights" allow air carriers entitled to
a slot during a season the right to reclaim it for the next equivalent
season provided they have made an established minimum use of it. Back
66
Mixed mode involves the use of a runway for both take-off and
landing during the same operational period. Back
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