Reduced Airline Traffic Means DCA Airport May No Longer Need Slots

Slots are a way the government limits traffic from an airport. At one point, airports like Chicago’s O’Hare and Newark were slot controlled, but they no longer are. Today, only three U.S. airports have federal government imposed slot controls. These are both LaGuardia and Kennedy in New York, and Reagan National that serves D.C.

It may be time to postpone, not permanently remove, slots from DCA airport. That’s because the airport’s local traffic base, meaning people leaving from or going to the airport, has shrunk since the pandemic. The way the largest carrier at DCA, American Airlines, has had to respond to this is counter to why the slots are there in the first place. Here is the detail:

Why DCA Airport Has Slots

Among many reasons, there are two that stand out as to why DCA airport is slot-controlled. One is proximity to so many important buildings and elected officials. The noise potential, less an issue today than when slots were first put in, is part of this. The operational reality of flying planes so close to such important places makes many people nervous, too. That said, other airports are also very close to their city’s downtown and central business district. Boston’s Logan, Dallas Love, and Chicago Midway quickly come to mind.

Another reason for slots at DCA is to help develop the market for Washington’s Dulles airport. Both airports are managed by the Washington Metropolitan Airports Authority (MWAA), and Dulles is further away from D.C. but larger and capable of more growth. One could argue that putting long international flights at Dulles, and creating growth capacity for new entrants, can be better served at Dulles. DCA also doesn’t allow international flights unless pre-cleared (like Toronto, for example).

The single biggest reason that DCA has slots, however, may be because it has had them since 1969.

Pandemic Impact On DCA Traffic

DCA Airport was hard-hit by the pandemic, as all airports were. But, unlike other airports, the airport didn’t recover as quickly because of its somewhat unique customer base. The airport took advantage of this, in a sense, by completing some significant capital projects at a time of limited traffic. Called Project Journey, these included a new terminal for regional operations, and moving security out so that all piers are inside security.

The biggest loss for DCA is visits to government offices. Reportedly, almost half of all Federal workers still are working from home, and there is no updated sense as to when they might return to their offices. Even D.C. Democratic Mayor Muriel Bowser has called for end to telework because this is affecting all business in D.C., not just the airport. Airline business traffic has been linked to a return to offices, and with fewer people to visit, fewer are flying in also. This loss of business traffic has hit DCA airport especially hard.

It’s not just business flyers missing. School trips have historically created a lot of traffic into DCA for the annual visits to D.C. While a few busses have returned from closer-in districts, most of the flights have yet to return. The combination or traffic losses as put DCA on a slower trajectory for recovery. According to Cirium, DCA’s total traffic today is not far off the rest of the country. But that’s because of what the airport’s largest carrier, American Airlines, has done.

How American Has Been Forced To React

American Airlines has converted DCA airport into a connecting facility, because they had to. That’s because the slots they hold at the airport have a “use it or lose it” rule, and thus if they fail to operate as many flights they would lose a valuable asset in their slot portfolio. By booking more connections through DCA, American can fill seats that have gone empty by the loss of local-to-D.C. traffic. This makes sense, but comes at a cost to American and to the airport as well.

The cost to American is that the connections in DCA, to some extent, cannibalize traffic that might more efficiently connect through American hubs in Philadelphia (PHL) and Charlotte (CLT). Years ago, when USAirways was the largest airline at DCA, USAirways went though bankruptcy and shrunk from over 400 aircraft to about 270. In this process, they didn’t lose a single O&D market. This means they could still serve everyone from each city served to every other city served, even with so many fewer airplanes. That’s because they had so many duplicative ways to route traffic from the Northeast to the south and Florida, and by shrinking they became much more efficient. DCA airport, at that time, was sized for the significant local traffic and de-emphasized as a connecting facility.

The cost to DCA is that there are many seats flying into DCA that are not serving the local market. If the goal of slots is to limit traffic at DCA, that policy effect has been turned on its head. That’s because American has to fly flights it may not want to, just to keep its slots, and thus DCA is getting more flights because of slots!

Threat Of Slots Will Be More Effective Than Slots

By ignoring slot controls, for some period, DCA airport may be better served. This is because of what economists call “contestable market theory.” The idea is that, with few barriers to entry, even a single large competitor will act competitively because of the threat of entry by another company. If slot controls are ignored, but not formally removed, the rush to add flights to DCA by other airlines won’t happen. That’s because it would be too risky for an American Airlines competitor to reallocate a lot of capacity to DCA, only to have to pull it all back if and when slots are reinstated.

With this, American would likely reduce flying into DCA, at least until local demand returns, in favor of their more efficient connecting operations at PHL and CLT. DCA could be re-sized for the local market, both with gauge (aircraft size) and frequency. The policy goals of reduced flying at DCA, the reason for the slots in the first place, would be re-established.

A Practical Policy Proposal

To make this happen, the government should formally suspend, but not eliminate, the slot program at DCA airport. As part of this ruling, they should specifically state that all slot holders retain their ownership and that slots will return when market conditions warrant. This has a lot of benefits: fewer flights at DCA, at least for a while, means less noise, fewer carbon emissions, and seats sized for the local market. Yet all of this would come will no loss in competition and no increase in prices.

Further, to the extent that DCA slots really exist in part to promote traffic at IAD, this would still be true. In fact, being forced to connect at DCA discourages even American from more flights at IAD. American may at first be nervous about this, fearing that they may ultimately lose their position at DCA. But that risk is very low, and the benefits from the proposal far outweigh that tiny risk.