Slots at the some of the USA’s most popular airports rarely come up for sale, with mergers or similar deals often being the only time when they do.
With this the case, it is far from surprising that JetBlue Airways, Southwest Airlines and Virgin America scrambled to buy some of the 86 slots that American Airlines was forced to divest at Ronald Reagan Washington National airport by the US Justice Department (DOJ) in exchange for approval of its merger with US Airways. American also exchanged 16 slots for 24 at New York JFK International airport with JetBlue.
Nor is it surprising what they paid.
American netted $307 million in cash from the sale – or about $3.57 million per slot – according to a recent stock exchange filing.
This represents a nearly three-fold increase in value from the roughly $1.3 million per slot that Continental Airlines offered to pay for 222 slots and associated gates in 2000 when adjusted for inflation, and a more than 40% increase from the about $2.5 million per slot that JetBlue paid for 16 slots in 2011.
“Clearly they’re very valuable,” says Jan Brueckner, a professor of economics at the University of California Irvine who has written extensively on airlines and airports. “That’s because Washington National is clearly the preferred airport for travellers going to Washington.”
Economic and population growth of the Washington DC region are driving the increase in value, he says.
The population of the Washington-Arlington-Alexandria metropolitan area increased nearly a quarter to 5.95 million from 2000 to 2013, US Census data shows.
Even with the auction, $3.57 million may not be the market value of a slot at Washington National. The DOJ placed restrictions on both who could bid – just low-cost and non-incumbent carriers – and how many slots any one carrier could win – up to 64.
Under these rules, an incumbent carrier with a lot of cash, for example Delta Air Lines who expressed interest early on, could place a higher value on the slots but was blocked from bidding. In addition, a lower bidder could have won some of the slots due to the restriction on the number any one carrier could win, which would result in a lower overall value of the slots.
Slots may ultimately not be the best way to manage traffic at Washington National. Brueckner would prefer a congestion-pricing scheme where airlines pay more for an aircraft movement during peak times and less at off-peak time, he says.
“You could get a similar outcome in terms of restricting the airport,” he says. “It’s a price restriction rather than a quantity restriction.”
UPDATE: JetBlue disclosed that it paid $75 million, or $3.13 million per slot, for its 24 slots at Washington National, in a stock exchange filing on 2 May.