Why has landing-slots auction at Hong Kong’s airport failed to take off?

Scalpers – rather than the public purse – are the big winners of Airport Authority’s mispriced system

PUBLISHED : Saturday, 02 April, 2016, 11:05pm
UPDATED : Saturday, 02 April, 2016, 11:44pm

Precious runway slots are becoming scarcer for private jets at Hong Kong’s airport because a new online booking platform has been hijacked by unscrupulous players rigging the system for profit ...

SCMP, April 1

 

As an April Fool’s joke, I have to admit it isn’t quite up with the one we carried years ago of how Singapore Airlines had bought six supersonic Concordes for the Changi to Jurong run.

But there is as much foolishness in it, even if it is true, and I cannot see the boss allowing our front page lead story to be an April Fool’s joke.

Question: why should unscrupulous hijackers not rig the private jet system for profit if our Airport Authority encourages them do so? And the AA certainly does so.

Answer: because stopping them would set a significant precedent for commercial airlines, who wouldn’t like it. Have I mentioned before that our publicly funded AA serves the (foreign-owned) airlines long before it serves the people of Hong Kong? Well, now you know.

Yet first a little reminder of how markets work. If you have a fixed supply of anything, but a fixed price that is too low for the demand meeting that supply, you will get scalpers to intermediate your market and price your goods up to the level at which supply and demand are in balance.

This is why we have scalper scandals at the Hong Kong Sevens. The ticket prices for the tiny proportion of the tickets available to the general public are too low relative to the demand. The scalpers get in the middle of that imbalance and raise the price to the right market-clearing level.

Likewise, the reason a taxi licence costs in the region of HK$7 million while the car itself costs only about HK$220,000 is that the taxi fleet size has been capped at 18,138 cars for more than 20 years.

Taxi fares, however, have been set at levels so high that taxi drivers could ordinarily make HK$25,000 a month from their trade if they had to pay only HK$220,000 to get into it. This is much more than people of the social standing of taxi drivers normally make and there is thus a huge potential oversupply of taxi drivers.

Scalpers then buy up the taxi licences, price them at a level that incurs debt carrying costs of HK$15,000 a month and this puts taxi driver income back at the normal HK$10,000 a month they might otherwise expect.

It always happens like this in a market. Stick your hand in to regulate supply, price or demand and you get scalpers, speculators, black marketeers, smugglers, unscrupulous hijackers, call them what you will, to bring things back in balance. If you don’t like it, keep your hands out of the market.

And now back to private jet landing slots. We know they are priced too low by the simple fact that speculators are active in the landing rights market. It is definite evidence of mispricing

The obvious solution is for the AA to take the difference between the present rate it charges and what the trade is willing to pay and there is an obvious way to do this – auction these landing slots and let the public take the full benefit from what the public owns.

The actual auction mechanism is a minor detail and private jet owners would have no reason to complain. By definition they are very rich people.

But then someone might say: “You know, we could do this for the entire airport, too. We could auction landing slots for commercial airlines and that would go a long way to paying off the cost of building a third runway.”

It would indeed and it is an excellent idea, so good that neither airport nor airlines have any worthwhile argument against it and just resort to keeping mum or saying, “No, can’t have that, out of the question”, when you ask them.

Tell me, Jack. Tell me, John. Why is it out of the question?

But it is, which means scalpers will continue to take big winnings from private jet landing slots when that money could go to the public purse. The AA doesn’t dare set an auction precedent.