AVIATION

Hammer set to fall in China’s first airport slot auction

Nine pairs of landing and departure slots at Guangzhou Baiyun International Airport will be auctioned off for use in the next three years

PUBLISHED : Tuesday, 29 December, 2015, 12:38pm
UPDATED : Tuesday, 29 December, 2015, 12:38pm

Mainland China’s first airport slot auction will take place on Wednesday, as its aviation regulator heads into a new year with more market liberalisation.

Nine pairs of landing and departure slots at Guangzhou Baiyun International Airport will be auctioned off for use in the next three years. It is part of two slot-allocation pilot schemes unveiled by the Civil Aviation Administration of China earlier this month. The CAAC said half of the 196 weekly slots that will be added in 2016 at Guangzhou and at Shanghai Pudong International Airport will be given out to domestic airlines through market mechanisms – by auctioning in Guangzhou and by a “lucky draw plus charge” model in Shanghai. The other half will be reserved for international flights.

Spring Airlines spokesman Zhang Wuan said: “I am going to Guangzhou with my colleagues to bid. Of course we welcome the move. We very much hope to grab this opportunity, and hope the same could be tried in Beijing – we don’t have good slots in Beijing.”

Zhang declined to indicate how much Spring Airlines was prepared to pay for a slot.

The slots up for grab in the auction are for use in prime hours, between 10am and 8pm, and only licensed domestic airlines that have been accident-free in the past two years are qualified to bid, according to the auction notice.

If an airline wins a slot and immediately sell it off for profit, that shouldn’t be allowed
Geoffrey Cheng, Bocom International

The CAAC is yet to release details of how the model in Shanghai will work.

“This is the CAAC taking the industry’s most important resources to the hands of the market. It will bring about a revaluation of airline companies, as the slot resources they own are now given an open price tag,” said Qi Qi, a lecturer at Guangzhou Aviation Academy. “Notice the proposal said the slots could be traded in secondary market. This could mean no upper price limit.”

While most places in the world allocate slots by administrative rather than market mechanisms – as is the case in Hong Kong – the mainland aviation regulator’s boldest experiment to date has more to do with anti-graft initiatives, according to industry insiders. Communist Party graftbusters, in an ongoing inspection of the aviation sector, found slot and route application processes were hotbeds for corruption among rent-seeking officials.

Industry insiders say a prime slot could be obtained for 5 million yuan through backdoor channels. Mainland airlines have mixed views about the auction proposal. One manager said: “Open auction will be a good thing only if they also define the rules properly, otherwise it will only mean the CAAC gets a legitimate reason to levy fees and increase our costs.”

Analysts say the reform benefits new and cash-rich airlines, and that the experiment is expected to be widened to more airports along the lines of either the Guangzhou or Shanghai model.

Geoffrey Cheng, head of transportation research at Bocom International, said: “It will be interesting to see if airlines shift that cost to passengers. The short-term impact will be limited by the scale of the experiment.”

Cheng said slot auctions would not change the slot shortage that is capping traffic growth at many air hubs, and that they should come with a complete set of rules. “If an airline wins a slot and immediately sell it off for profit, that shouldn’t be allowed,” he said.

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