Washington National slot value passes $3.5m in American deal

Washington DC
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American Airlines made $307 million from its sale of 86 slots at Ronald Reagan Washington National airport to JetBlue Airways, Southwest Airlines and Virgin America.

A slot at the close-in Washington DC airport is worth about $3.57 million to the three low-cost carriers, based on the total cash value disclosed in a recent stock exchange filing by the Fort Worth, Texas-based carrier.

The slots could have been worth more. Under the rules set by the US Department of Justice (DOJ), no one carrier could win all of the slots, which were separated into four bundles, even if it placed the highest bids. This could have allowed a lower bidder to win one of the slot bundles.

JetBlue bought 24 slots, Southwest bought 54 and Virgin America eight through the auction. None of the carriers have disclosed what they individually paid for the slots.

The value of a slot at Washington National is rising. JetBlue paid roughly $2.5 million per slot for 16 slots in 2011 and Continental Airlines offered to pay about $1.3 million per slot for 222 slots in 2000 when adjusted for inflation.

“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.”

Asked about the rising value of slots at the airport, he points to the economic and population growth of the Washington DC region since 2000.

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.

Low-cost carriers have used the availability of slots at Washington National – through recent divestiture auctions and congressional action – to expand at the airport while reducing service to the region’s main international airport Washington Dulles International.

Passenger traffic at Dulles decreased 11% to 21.9 million from 2007 to 2013, airport data shows. Traffic at National increased 9% to 20.4 million during the same period.

Slots may not be the best way to manage traffic at Washington National. Bueckner 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,” says Bruekner. “It’s a price restriction rather than a quantity restriction.”