On Airport Time Slot Auctions: A Market Design Complying with the IATA Scheduling Guidelines

The growth in air traffic (before the Covid-19 pandemic) made airport time slots an increasingly scarce resource (and it is believed that this growth will continue after recovery). It is widely acknowledged that the grandfathering schemes used nowadays lead to inefficient allocations and that auctions would be a means to allocate valuable airport time slots efficiently. It has, however, also been pointed out that the design of such slot auctions is challenging due to the various constraints that need to be considered. The present paper proposes a market design for the sales of airport time slots at EU airports that complies with the Worldwide Scheduling Guidelines of the International Air Transport Association (IATA), most notably the reference value systems at level 3 airports. These guidelines need to be considered but lead to significant additional complexity in the market design. Capacity constraints are defined for overlapping time windows, which render the maximum welfare flight scheduling problem NP-hard. Auction formats with good incentive properties such as the Vickrey-Clarke-Groves mechanism or core-selecting auctions require an exact solution to the allocation problem. Given its hardness, it is far from obvious that the allocation problem can be solved to optimality sufficiently fast for practically relevant sizes of real-world problems. We introduce a mathematical model formulation for the maximum welfare flight scheduling problem that complies with all specified IATA constraints and evaluate it on near real-world data sets of flight requests for a full season of a major international airport. We show that the allocation can be computed within minutes and that all the payment computations for the winners can be done in less than two hours on average for realistic problem sizes. The consideration of values of airlines within the proposed auction mechanism leads to significant welfare gains of more than 35% as compared with benchmarks resulting from different standard objectives. These include the maximization of the number of movements, the minimization of the number of movements for which deviations from requested times occur, and the minimization of the total deviation of scheduled from requested times. Whereas the results indicate that auctions can be solved quickly for realistic problem sizes and promise significant welfare gains under the standard independent private values assumptions, the implementation of auctions in the field leads to additional serious challenges. For example, the regulator might have to impose allocation constraints to mitigate the market power of incumbent airlines. In addition, the valuation of slots and the interdependencies of the slot assignment with those at other coordinated airports need careful attention.