In December 2007, the Department of Transportation (DOT) announced that it plans to restrict the number of flights permitted to takeoff and land at Kennedy International Airport to around 82 or 83 per hour in the near future.  At peak hours nowadays, more than 100 flights arrive at and depart from Kennedy International Airport.   U.S. Transportation Secretary Mary E. Peters cited the growing congestion and delays when delivering this pronouncement.  From 2003 to 2007, the number of delayed flights per thousand more than tripled from 20.9 to 77.4.  While federal regulators and airliner trade organizations squabble about whether or not this action is constitutional, the real story lies in an even more radical idea. 

Several economists at the U.S. Department of Justice (namely Tom Whalen, Dennis W. Carlton, Ken Heyer, and Oliver Richard) have proposed another mechanism for distributing flight slots at congested airports: auctions.  While this idea is not new (Bell Journal of Economics published an article named A Combinatorial Auction Mechanism for Airport Time Slot Allocation by Rassenti, Smith, and Bulfin in 1982), it certainly deserves to be rekindled.  The price incentives for using scarce airport capacity are not large enough.  Without the necessary consequences, there is nothing to stop each airline company from scheduling too many flights during peak times, cultivating massive delays, and imposing negative externalities upon all passengers and all airlines.  Time slots would have well-defined property rights.  Airlines would be able to resell them to accommodate changing demand and rescheduling.  As reasonable as it sounds, politicians, airline executives, and even some consultants have voiced their vehement opposition.

The airline companies insist that they could collaborate to bring down delays and congestion. However, is an industry-based conspiracy really the solution?  Has the government not been fighting to break down the dominant airline oligopoly in this country?   

                The New York Times believes that auctioning will drive up fairs and reduce competition.  Yet, we have consistently demonstrated that bidding one’s true valuation of a good, independent of others’ values, is the dominate strategy in a second-price auction.  Furthermore, we showed that market-clearing prices always exist in a market and always maximize social welfare.  Airlines that value popular time slots the most will pay top dollar; their costs will be reflected in their ticket prices.  Unlike in the current system, each airline would assume the true cost of their flight schedules.  In the end, auctions will help consumes and airlines assume their costs as monetary valuations rather than as scheduling variability.  Furthermore, I believe these auctions will encourage airlines to start shifting some of their flights to other nearby airports (such as Long Island MacArthur Airport in Islip) where flight times will surely be less expensive.  I believe in free market mechanisms and auctions, and I believe they can solve the congestion problem. 

Additional resources on this topic:

• http://web.mit.edu/airlines/www/board-meetings/meeting-nov-2005/Harsha-Auctions_for_Landing_Slots.pdf
• http://www.nytimes.com/2007/12/11/nyregion/11airport.html?_r=1&scp=1&sq=game+theory+traffic&st=nyt&oref=slogin
• http://www.newsday.com/business/ny-bzjfk1220,0,3175312.story
• http://www.knowledgeproblem.com/archives/002256.html