The coronavirus is exposing the bad side of the “use-it-or-lose-it” rule for airport slots
The corona virus has made so many disruptions to the global economy and it continues to wreak havoc. The flight industry has been one if the hardest hit due to low demand for flights from as people fear contracting the disease. Several countries have also placed travel restrictions in order to control disease outbreak.
But up until yesterday many European airlines had been flying empty planes in order not to lose their allocated take-off and landing slots at big airports. Under European guidelines airlines have to use 80 percent of their allocated airport slots or risk losing them to competitors. The rule has since been suspended as the European Union has bowed to pressure and taken into consideration the declining flight demand. But one thing the corona virus has brought into light is that the use-it-or-lose-it rule should not exist; it enforces monopolistic behavior and contributes to inefficiency in operations to a certain degree.
To put things in perspective, each time a plane flies, airlines are incurring numerous costs; fuel cost, employee costs, maintenance costs, airport fees, taxes and many others. But more that, everyone else incurs costs through externalities like carbon emissions and noise pollution. These costs incurred are paid through by customers buying airlines tickets. This does not happen when airlines fly empty planes; airplanes incur costs and losses, carbon emissions go up but nobody is the better for it. This is a highly inefficient practice.
The 80/20 rule inhibit an airline`s ability to respond to market conditions and incentivizes operating at loss. In normal market conditions, flight demand does not fluctuate to the point of the rule causing noticeable impact. But any event that would cause a significant dip in demand would show the inefficiency that the rule causes. This is why it is essential for regulation to provide enough room individuals and businesses to react to changing market conditions and be able to adjust operations accordingly without incurring too much cost.