Using economics to ease airport congestion

It is once in a while you come across such papers which refresh you completely. These days most research is focused around crisis and recessions which is very good but gets onto you after a while. You need a change. 

I came across this fascinating paper by econ trio – Jeffrey P. Cohen, Cletus C. Coughlin, and Lesli S. Ott. The paper tells you about how economics can help reduce congestion at airports. 

We all know that airports are congested at peak hours. How do airport regulators decongest the same. The authors tell us how economics can help. 

Congestion at airports imposes large costs on airlines and their passengers. A key reason for congestion is that an airline schedules its flights without regard to the costs imposed on other airlines and their passengers. As a result, during some time intervals, airlines schedule more flights to and from an airport than that airport can accommodate and flights are delayed.  

This paper explores how a specific market-based proposal by the Federal Aviation Administration (FAA), which includes the use of auctions to determine the right to arrive or depart in a specific time interval at airports in the New York City area, might be used as part of a strategy to mitigate delays and congestion.  

By explaining the underlying economic theory and key arguments with minimal technical jargon, the paper allows those with little formal training in economics to understand the fundamental issues associated with the FAA’s controversial proposal. Moreover, the basics of the  proposed auction process, known as a combinatorial auction, and value capture are also explained. 

The FAA announcement is here

The paper uses basic microeconomics to explain the idea. It serves as a good revisit to textbooks. One way to reduce is to restrict flights in peak hours. This is an inefficient solution as how does one decide the number of flights? The best way is to use market mechanism and let the flight operators pay for using the airport space at the given time. Whoever pays the highest, gets the space. And to help pricing the congestion, the way out is usage of auctions. 

The economics looks all good but then comes the implementation. There are issues and the authors discuss them. There has been intense debate over thios move and has not moved forward. 

The summary of the paper is: 

Although there is general agreement that a cap on the number of slots is appropriate, the use of the auction to allocate the slots has generated much controversy. The FAA viewed the auction as an essential feature of their plan, but auction opponents argued that it would have been unnecessary to ensure a competitive result. Moreover, and especially disconcerting to some airlines, the value capture feature of the proposed auctions would have required payments by airlines to the FAA for some slots that they previously received free of charge.  

Clearly, these opponents were not mollified by either the plan to use these proceeds for projects to mitigate delay and congestion or that auctions might be the least costly way of generating such funding. Without an auction, the FAA believed that the already-established carriers would have an unfair advantage. On the other hand, the opponents argue that these carriers are using the existing slots efficiently and that the existing secondary market works to ensure that slots are transferred to those airlines placing the highest values on the slots.  

As of now, the opponents of using an auction to allocate slots have won the political battle. Whether a similar proposal will resurface and generate sufficient political support remains to be seen. 

Excellent stuff. 

Reading about using Economics for such purposes is so refreshing and enlightening.  You know it can be used but to see it getting implemented and the challenges that come with it is such an interesting read. The paper is also very nicely done by the authors which makes it a wonderful read. The paper also has some good references to read up on the subject. 

I also came across this news item, Maharashtra Chief Minister trying to decongest the city: 

If Chief Minister Ashok Chavan has his way, the traffic congestion afflicting the city’s 1.7 crore population will be a thing of the past. On Tuesday, Chavan asked the Urban Development Department (UDD), which handles city planning, to chart out a plan to decongest the city’s choked overflowing roads and make space for its increasing crush of vehicles. 

Mumbai has eight lakh cars – five lakh officially registered in the city, three lakh registered outside the city, and 60,000 new cars added every year. Chavan asked for a pilot project, which will study one particular congested road, and apply the learning to the rest of the city. 

Chavan took this decision after a meeting with the former mayor of Bogota, Columbia, Enrique Penalosa, who is an urban planning expert. 

Penalosa made a presentation at the meeting chaired by Chavan and attended by TC Benjamin and Manu Srivasatava, both UDD secretaries, and Shriya Gadipalli, senior programme director, Institute for Transportation and Development Policy. Penasola said that by 2060, Maharashtra will be 75 per cent urbanised and transportation should be planned accordingly. He also stressed the importance of dedicated lanes for different modes of transport and the need to improve the quality of footpaths and road crossings. 

‘The congestion plan for Mumbai will consider all these aspects. And public opinion should be taken, we should have open discussions with them,” Chavan told officials. 

Transport expert Ashok Datar said : “It is a good start. I only hope when public opinion is taken, it is from across the spectrum – from people using cars, public transport, even walkers.” 

How about adding economists to the spectrum as well? It will actually be great to see what value can economists add to decongesting a city like Mumbai. It has to be thought out really well. If rich airlines in US could refuse to pay up, the people surely would not like it. What could be the ways then? 

Similarly, we keep reading about congestion in India’s Airports but don’t come across any economic studies for the same. I think we can apply economics to all these daily problems. It is more interesting than the mundane jobs econs end up doing.

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4 Responses to “Using economics to ease airport congestion”

  1. Benjamin Says:

    Excellent post Amol, very interesting indeed!

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  3. smtaber Says:

    The only problem with slot auctions at airports is that, as right now, they are illegal. See http://www.aviationairportdevelopmentlaw.com/2008/10/articles/faa-1/legal-analysis-of-the-faas-slot-auction-rule-for-jfk-and-newark-part-1/ FAA backed off not so much from political pressure from the airlines, but from legal pressure from the courts, which were telling them that they did not have the authority to sell slots because they do not own the slots.

    That being said, I agree with you that it seems that slot auctions make sense from economic point of view and that the law needs to be changed to allow them. See my article on (almost) the same topic: http://www.aviationairportdevelopmentlaw.com/2008/09/articles/faa-1/the-tragedy-of-the-commons-and-airport-congestion-management/

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