The little-understood government rule that allows airlines to dominate certain airports

Dec 26, 2021

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If you’re a regular TPG reader, you’ve probably heard about slots before. But maybe you’ve wondered what exactly is a slot, and how does one work? And why, during the COVID-19 pandemic, are airlines “squatting” on these slots?

Well, we’re here to help you understand the basics on what an airport slot is — and how the process works.

Since the slot process differs by country, we’ll focus on how slots work in the U.S. However, slots are in use at numerous busy airports around the world, and the basic reasoning for slots globally is generally the same as it is in the U.S.

What is a slot?

A slot is the authorization for a flight to use a runway at a busy airport for either a takeoff or a landing. They exist at airports that the Federal Aviation Administration (FAA) deems capacity constrained. Without slots, the thinking goes, these airports would be so congested that it would be very difficult for flights to operate without delays.

In the U.S., there are four airports with FAA slot controls:

  • New York’s LaGuardia Airport (LGA)
  • New York’s John F. Kennedy International Airport (JFK)
  • Newark Liberty International Airport (EWR)
  • Ronald Reagan Washington National Airport (DCA)

The slots are distributed throughout the day and week to balance traffic. For example, there are no slots required to operate at LaGuardia on Saturdays, when demand for flights is typically lower. At most basic level, a “slot” refers to the right for a single takeoff or a single landing. A “slot pair” – a common term in aviation vernacular – means an airline can operate one round-trip flight.

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At LGA and DCA, there is also a perimeter rule in place. LGA’s 1,500-mile perimeter rule is imposed by its operator, the Port Authority of New York and New Jersey, and restricts operators to flying to airports within 1,500 miles. It’s separate from the slot process and has two exceptions: it does not apply to flights to Denver (DEN), and it is not in place on Saturdays, the same way that Saturdays are slot-free at LGA. Currently, Spirit Airlines operates Saturday-only flights to Los Angeles (LAX), San Juan (SJU) and Phoenix (PHX) to take advantage of this exception.

At DCA, the 1,250-mile perimeter rule is imposed by federal statute. However, Congress has exempted a number of flights to operate “beyond” the perimeter. Frequently, these long-distance exemptions were made with political undertones — sometimes shepherded through with the help of Congress members who stood to gain a new connection to their home states. Adding to the complexity at DCA, there are two tiers of slots at the airport. There are within-perimeter slots, and beyond-perimeter slots. As of 2020, carriers use their beyond-perimeter slots to serve 10 destinations farther than 1,250 miles, including destinations such as Seattle, Los Angeles and San Juan.

Why so few long flights?: Why does Washington’s Reagan National Airport have a ‘perimeter’?

Slots are incredibly valuable

When you think about it, the need for slots is predicated on scarcity. There are only so many runways (and time that can be spent on these runways) at these three popular airports. The FAA imposes slot controls to meter demand throughout the day (and week) to better match the supply of runways.

Slots can be thought of as like “tickets” needed for airlines to access these airports. And while the market valuation of an actual slot is something of a secret (though there have been some reported deals over the years), slots have been used time and time again as a type of barter currency — both in an ad hoc fashion and as part of the various merger deals the industry has seen during its wave of consolidation over the past 15 years. That’s because slots are transferable from one airline to another, and can be transferred permanently or leased. A small number of slots at DCA are considered “exempted” and cannot be transacted like other slots.

Perhaps the most notable transaction involving slots in the U.S. came in 2011. That deal saw Delta Air Lines and US Airways swap slots at LaGuardia and Reagan National Airports. As part of the deal, Delta acquired 132 slot pairs at LGA from US Airways, while US Airways acquired 42 slot pairs from Delta. Delta also doled out $66.5 million in cash to US Airways and handed over some of its rights to operate flights to Sao Paulo, Brazil (GRU).  And, as a prerequisite to approve the deal, federal regulators required the carriers to divest slots to other airlines – a move that the Justice Department reasoned would help maintain a competitive balance at the airports. Those slots ended up going to JetBlue and WestJet.

Delta Air Lines holds the most slots at LaGuardia airport after a 2011 slot swap with US Airways.

How are slots awarded?

It’s complicated.

Generally, airlines have held slots on a continuous basis. For airlines wanting to gain or expand access to these four airports, slots are awarded either through the secondary market or through an FAA process when slots become available.

More: FAA will offer Newark slots to low-cost airline, spurring competition for United

Slots became transactable between airlines in the 1980s, and it’s the primary means by which an airline can acquire slots. The 2011 slot swap is a good example of how this process can work. It also occurred with more transparency than usual, given the fact that the Justice Department got involved with the transaction.

When airlines are required to divest slots for whatever reason, whether it’s for antitrust reasons or due to slots being withdrawn for dormancy, the FAA runs a process to award the slots to a different airline. That process is ongoing now, as the FAA determines which airline will obtain Southwest Airlines’ slots at Newark. Spirit Airlines is considered a favorite to win those slots.

Slots are historically use it or lose it — but there are exceptions

To maximize the use of these in demand airports and to minimize hoarding (as a way to reduce competition), the slots are ‘use it or lose it.’ At each airport, slots must be used at least 80% of the time, though the way that 80% is measured varies among the different airports.

The FAA has the power to waive slot usage requirements, and due to the COVID-19 pandemic, has done that repeatedly since March 16, 2020. Currently, slot usage requirements are only waived for international flights; the waiver for domestic flights expired on Oct. 31, 2021.

Since demand has not fully returned to pre-COVID levels, and airlines now must use 80% of their domestic slots, some novel scheduling techniques are being used by certain airlines to avoid leaving slots dormant. When the slot waiver expired, United Airlines began running 18 round trips a day between Newark and DCA on the CRJ-550 — a total of 36 slots — to avoid a dormancy situation.

Slots at other airports

In addition to these four airports under federal slot controls, individual airports are free to impose their own slot controls for terminal capacity, noise abatement or other reasons. At John Wayne (SNA) and Long Beach (LGB) Airports in California, noise concerns have led to those airports imposing slot controls.

The next time you fly through one of these busy airports, think about how much behind-the-scenes planning took place for your carrier to even have the ability to be there — or to defend its position.

Featured photo of Ronald Reagan Washington National Airport by Bill Clark/CQ-Roll Call, Inc. via Getty Images.

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