Saturday, May 2, 2009

EU Moving Toward Suspension of "Use or Lose" Slot Rule

As discussed on the blog previously, the European Commission has forwarded a proposal to the European Parliament and Council to temporarily suspend Council Regulation 95/93's "use or lose" rule where a carrier must operate 80% of its slots during the period for which they have been allocated in order to retain them for the next equivalent period.  Under the Commission's original proposal, COM (2009) 121 final (Mar. 10, 2009), "slot coordinators [at EU airports] shall accept that air carriers are entitled to the same series of slots during the summer 2010 scheduling season as were allocated to them during the summer 2009 scheduling season."  In other words, the airlines would be allowed to drop below the 80% threshold without risking slot forfeiture.  The Commission's proposal also seeks to use the so-called "comitology" procedure to allow it to extend the slot rule suspension into the winter 2010-11 season if the Commission unilaterally determines that such a measure is warranted by the ongoing economic crisis.

A number of industry stakeholders and observers were immediately critical of the measure, charging that it would economically harm EU airports due to a decrease in the number of flights operated and bar potential new entrants from capturing surrendered slots.  Initially, the cries did not go unheeded.  In its draft report on the Commission's proposal, 2009/0042 (COD) (Mar. 31, 2009), the Parliament's Committee on Transport and Tourism offered a substantial amendment to the Commission's suspension plan which would lower the operating threshold from 80% to 75% to accord with an estimated 5% decrease in passenger demand rather than suspend the rule altogether.  The Committee also added the following:

If, for a series of slots, the air carrier does not meet the 75% threshold for the summer 2009 scheduling period, it will be entitled to this series of slots only if no other air carrier has applied to use it for the same route.  If one or more other carriers have applied to use it for this route, the slot shall be allocated by auction to the carrier making the highest bid.  Air carriers, including incumbent carriers, to which a series of slots is new allocated under this paragraph, must commit themselves to use it for that same route for at least the next two corresponding periods.

This tempered modification of the "use or lose" rule could have assuaged fears that the Commission is moving to protect incumbents, undermine competition, and pass costs onto the airports and consumers.  Unfortunately, the measure was short lived.  In the Parliament's approved first reading of the Commission's proposal, A6-0274/2009 (Apr. 24, 2009), the full suspension of the "use or lose" rule for the summer 2010 season is back in.  What is noticably out, however, is the Commission's hopes to use the comitology procedure to allow further unilateral suspensions.  Any future proposals to suspend the "use or lose" rule would have to go through the Parliament and Council in conformity with the so-called "codecision" procedure.  Interestingly, the Parliament also adjusted the second recital of the Commission's proposal to urge that any future proposal to suspend or modify the "use or lose" rule "should be made only if it forms part of a proposal for a general revision of" Regulation 95/93.  In the opinion of the Committee on Transport and Tourism's Rapporteur, "[Regulation 95/93] on slot allocation requires a general overhaul in the near future, which addresses, among other things, competition issues as well as questions of slot ownership, trading etc."  Assuming that such revisions would ensure that market-based measures are used to more efficiently (re)allocate slots and alleviate the capacity crunch at EU airports, they would be most welcome.

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