What do you think it costs for a pair of Heathrow 'slots'?

As you are constantly hearing from the Government, from British Airways and from Heathrow Airport itself is that the airport is – to all intents and purposes – ‘full’.

This is, to put it mildly, a bit of a shame if you are an ‘up and coming’ airline which wants to launch or expand its service from what remains arguably the leading global hub airport.

All you can do, in these circumstance, is ‘buy’ a pair of landing and take-off slots.  And the prices are stratospheric.

Before we get onto price, I should say that, technically, you cannot buy or sell Heathrow slots.  It is not clear who they belong to, if anyone.  However, what you can do is ‘swap’ them.

If airline A wants to sell a slot to airline B, then airline B needs to apply for a slot very late at night (a few slots are available, despite what you hear!).  Airline B then ‘swaps’ its late night slot, together with a large bag of money, for the slot held by airline A.  Airline A then does not use the new late-night slot and automatically forfeits it after a set period.

Heathrow

Over the years, many airlines have found that their entire value was basically in their Heathrow slots.  GB Airways, for instance, obtained a small fortune for its slots a few years ago – a sum probably greater than the profits it had made it its entire history.

Two recent slot transactions show you how much Heathrow slots are still valued.

Back in February, Etihad paid $70m for three slot pairs from Jet Airways of India.  Ironically, Etihad has no interest in using these slots and did the transaction as part of its deal to acquire an equity stake in Jet.  They are currently being leased back to the airline.

Meanwhile, last month Delta Airlines of the US revealed in its accounts that it paid $47m last year to acquire two slot pairs.  It used these to add an extra daily flight to New York and Atlanta.

These prices are actually well short of the peak prices achieved a few years agoIn 2008, Continental of the US paid a record $209m for four daily slot pairs.  Two of these came from GB Airways, one from Air France and one from Alitalia.  This deal was done just before the ‘open skies’ deal on EU airlines flying into the US (and vice versa) came into force.

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Comments

  1. Phillip says:

    Also very recently Virgin Atlantic paid €22 million for a slot pair from Cyprus Airway!

  2. Sir Stamford says:

    Don’t forget IAG (the parent company of British Airways) purchased our much beloved British Midlands International (BMI) for its valuable 56 landing slots in Heathrow. I believe IAG subsequently had to give up 14 slots by the regulators.

    Sir Stamford

    • richie says:

      the 14 would be the new little red virgin Atlantic domestic routes i presume?

      • Sir Stamford says:

        Not quite. I understand that two of the slots were taken by Transaero for the Moscow route. The remaining 12 slots could only be used for domestic and short/medium haul flights. Virgin obviously secured some of the slots in order to operate their new domestic routes but I don’t know if they did manage go secure all of them.

        Sir Stamford

  3. Kenneth Tan says:

    Why is it referred to as a pair of slots or a slot pair?
    Is it one slot for landing and the other for takeoff?

  4. Sir Stamford says:

    Even though the airlines do not have the legal title to the slots, they have ‘grandfather’ rights. Initially, the EU Slot Regulations (95/93) was intepreted as not containtaing any provisions for a secondary market for slots (i.e. free trading between air carriers) but they did permit simple exchanges under Article 8(4). There were questions as to whether exchanges for monetary consideration are legal.

    In the UK, the legality of the exchanges for monetary consideration (i.e. effectively a sale) was confirmed by a High Court review in 1999 in connection with the “Guernsey” case which I believe involved a transaction between BA and Air UK. The European Communication also released a communication in April 2008 (re COM(2008) 227 final) which effectively endorsed the UK model of slot trading.

    Interestingly, slot allocations are within the remit of Airport Coordination Limited (ACL) rather than the airport owners or operators. ACL provide a “Slot Trade” web service to facilitate sale, swap or lease of slots. Interested airlines simply complete an online posting form which helps them initiate dialogue with an account manager at Slot Trade and information about the desired transaction is sent to all interested parties. Upon completion, the details of the slot trade are posted on the web platform, although the price paid is only disclosed on a voluntary basis.

    Deloitte LLP conducted a survey back in 2008 which suggested a value of £25m – £30m per slot in Heathrow. This ball park number of £25m per slot was also mentioned by Lord James of Blackheath during a House of Lords Select Committee inquiry regarding airport slot allocation in March 2012. (Lord James was the chairman of Dan-Air when it was sold to British Airways)

    According to Deloitte’s analysis, the value of BA’s landing slots could be at least £2bn compared with a current market capitalisation for the group of £2.6bn at the time of the survey in 2008.

    Given the highly valuable nature of landing slots, many airlines have started to capitalise them on their balance under provisions of FRS 10 and/or IFRS 38 as there is now a “readily ascertainable market value” for these slots. However both British Airways and Virgin Atlantic have said that they have no immediate intention of capitalising the slots in their balance sheet perhaps given the difficulty in estimating its useful economic lives as well impairment consideration as a result of a new runway being built or by using larger aircrafts.

    I am sure the City analysts or “people familiar with the subject matter” amongst the Headforpoints readers can provide a further update on this interesting subject.

    Sir Stamford

  5. Raphael says:

    What does this compare with other places like Gatwick, Stanstead and Luton?

    • Stansted and Luton slots are free, I think, as there is a lot of capacity. Flybe is currently looking at selling a lot of Gatwick slots to easyJet but only at £20m for quite a large pile of well timed ones.

    • Sir Stamford says:

      London Assemby Transport Committee recently published a report which shows the usage of London’s airports during Summer of 2012 as follows.

      •Stansted Airport: 47 per cent of runway slots are available
      •Luton Airport: 51 per cent of runway slots are available
      •Gatwick Airport: 12 per cent of runway slots are currently available
      •Heathrow Airport: at 99 per cent capacity

      Despite the relatively healthy headroom for STN and LTN, there is actually shortage of slots at specific times of the day (such as between 6.30am/7.30am on Fridays and Sundays etc). However, these shortages can be met by shifting the flight times to earlier or later.

      As far as I am aware, there has not been any recorded slots trading for STN and LTN.

      Sir Stamford

  6. richie says:

    SO what will become of this situation. Does anyone have any views on the future and what is actually likely to happen. in terms of 3rd runway Heathrow, 2nd at Gatwick, Thames estuary etc. iv read all the various articles, however i’m still wondering whether anything will be done in a short enough timescale before Heathrow looses its place as the main airport to/from/within Europe.

    • Phillip says:

      I think a third runway at Heathrow is much more likely, if not inevitable, than an entirely new airport. I expect it to become a much more hot topic in about a year and a half in the run up to the general elections! I can’t see why a third runway at Heathrow could not be complimented by second runways elsewhere – however, no other airport has been able to attract other airlines like Heathrow can. The suggestion for one of the global alliances to move to another airport other than Heathrow is highly unlikely to materialise, due to strong relationships of airlines outside alliances (i.e. Delta and Virgin, Etihad and AF/KLM, etc etc). Other than ground infrastructure, one of the most important factors attracting an airline to a particular airport is the ability to offer connections with partner airlines, and Heathrow is the only one that can offer that by a mile!

  7. Farringdon says:

    Does the value of the slots fluctuate depending on timing during the day? Presumably so if the mechanism for transferring them is based on swapping a low value, late night slot. However, are there certain times of day where the value is even higher than normal?

    • Yes, basically. Morning landing slots are very highly valued, for example, as US flights all come in then, and the flight times attract customers as they can hit Heathrow in time for a mid-morning connection into Europe.

  8. Sir Stamford says:

    To put this in the context of numbers, I understand that the typical price for a pair of slots fall by circa 30% by midday and 50% in the evening.

    Sir Stamford