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Slot allocation at Keflavik Airport disrupts competition in the air transport market

11/8/2013

Isavia LogoIn decision 25/2013 the Icelandic Competition Authority (ICA) has instructed Isavia, who operates Keflavik Airport, to ensure that a new competitor in the market for operations of passenger flights to and from the airport has access to vital airport slot times to be able to compete in that market. The current arrangement has resulted in the incumbent competitor, Icelandair, controlling the most sought after slots at the airport. This also applies to the allocation of new slots that have become available due to changes being made to the airport building. The current system has therefore limited the ability of other competitors to compete with Icelandair and hence damaged competition in an important market, which is the transport of passengers to and from Iceland.

WOW Air, who entered the market in 2012, complained to the ICA that the current system used for slot allocation at Keflavik Airport was damaging to competition. A “slot” is the time allocated to airlines to land the plane and let passengers disembark, for the plane to be serviced, let passengers back on and take off.

It was WOW Air‘s opinion that the current arrangement was preventing the company from competing with Icelandair by setting up a hub and spoke system, with Keflavik airport acting as the hub or centre, connecting flights between Europe and North-America. WOW Air has claimed that the allocation of slots at peak hours is a prerequisite for being able to operate such a hub and spoke system, namely first thing in the morning (preferably between 7 a.m. and 8 a.m.) and in the afternoon (preferably between 4 p.m. and 5:30 p.m.).

The responsible authorities categorize airports according to levels of congestion. Currently, Keflavik Airport is categorized as a Level 3 airport, which entails that airlines that are on schedule at least 80% of the time within the allocation period keep the same slots for the coming allocation period. On that basis the vast majority of slots available at peak hours at Keflavik Airport have been allocated to Icelandair.

Icelandair has not only benefited from having priority under the current slot allocation system. The ICA‘s investigation has shown that Icelandair also had priority when the airport increased its capacity and a new slot became available last summer. According to the slot allocation guidelines coordinators should try to ensure that due account is taken of competitive factors in the allocation of available slots. The ICA sees no evidence that competitive factors have been considered.

Icelandair is dominant in the market for passenger air travel to and from Iceland, with its high market share and even monopoly on some routes. Its hub and spoke system entails connecting flights between destinations in Europe and North-America and gives the airline an advantage, mainly because of transit passengers. The ICA‘s investigation has shown that access to slots at peak hours is essential when operating a hub and spoke system because it allows for the maximum utilization of aircrafts, i.e. two flights from Iceland within the same day. It is the ICA‘s opinion that in order for competition to be effective in this market  it is a prerequisite for other competitors to be able to operate a hub and spoke system with Keflavik Airport connecting flights between Europe and North-America.

It is the ICA‘s finding that the current arrangement of slot allocations at Keflavik Airport is damaging to competition and prevents new competitors from being able to enter the market for operations of passenger flights to and from Iceland. The current system therefore ultimately results in damage to consumers.

Next summer there are plans to open a new slot at Keflavik Airport, thus increasing its capacity. It is clear that the demand for slots from Icelandair and WOW Air during peak hours will be considerably greater than the available supply. In the ICA‘s opinion it is therefore vital to take action to ensure that WOW Air gets the necessary slot allocations during peak hours. From a competitive standpoint it is unacceptable that the methodology used to allocate slots at Keflavik Airport is preventing a new competitor from being able to compete with Icelandair over the long term.

Therefore the ICA directs the following instructions to Isavia:

  • When allocating slots for the summer of 2014 Isavia shall give priority to WOW Air, so that the airline can compete with Icelandair by flying from Keflavik to North-America in the afternoon and connecting those flights with morning flights to destinations in Europe.
  • The priority shall entail allocating for every day of the week at least two morning slots to WOW Air between 7 a.m. and 8 a.m. for flights to Europe and two slots in the afternoon between 4 p.m. and 5:30 p.m. for flights to North-America.
  • Isavia shall prepare guidelines for the independent slot allocation coordinator to adhere to where it clearly states that coordinators should ensure that due account is taken of competitive factors in the allocation of available slots. The guidelines should require that if there are two or more applications for the same slot for a particular destination, priority should be given to the airline that has the lower market share according to the numer of passengers.
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