Air Traffic Futures Market

August 27, 2007

This article explains a bit about why there are so many flight delays in the US. It seems planes fly prescribed routes at set distances between each other. Therefore, there are a finite number of slots available. When bad weather disrupts a route, then all those planes must be rescheduled, but there aren’t any spare slots in the very tight route schedule. Some of those slots are taken up by private jets. Planes pay the FAA a fee based on weight(!!); therefore, private jets pay much less than a commercial plane for the same traffic slot. The obvious solution is to have a futures market for airplane traffic slots. Airlines will bid for all the slots they need for their schedule, thus paying the real market price for those scarce slots. If there’s bad weather or other mishaps, then those slots are lost. Too bad, though they can hedge in the weather futures market (yes, there’s one in Chicago). Airlines can buy new slots in the market to reschedule their flights. There’s more certainty in this market then there is in the existing system, which is ad-hoc and poorly managed. There’s a dude at Stanford that’s already worked out the details.

[edit: this problem is not solved when they switch to GPS instead of ground beacons to keep track of planes. Instead, the issue reasserts itself because a limited number of planes can take-off or land at airports, where they have a small number of landing strips and airport gates. It’s still competition for a limited resource.]

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