The Australian aviation sector will want to forget the year 2024. Rex (Regional Express) Airlines became the second aviation venture to go into voluntary administration this year after Bonza’s collapse in April.
The courts have given the administrators, Ernst & Young, until November 25, 2024, to find a buyer/s. The administrators have argued that this outcome, as opposed to liquidation, is the best case for creditors.
However, liquidating the airline will likely be politically unacceptable to the Australian government, given that it is the sole carrier in many regional and rural airports, and its demise could have significant implications ahead of 2025’s federal election.
Instead of discussing what went wrong for the airline, our article will focus on the “Slot Hoarding” theory that emerged after Rex’s failure.
Presenting the Slot Hoarding theory
In July 2024, Qantas CEO Vanessa Hudson stated that Australia does not have enough passengers to support more than three domestic airlines. She emphasised that the high costs of providing services across the country, coupled with its small population and heavy reliance on domestic aviation, make it difficult for more airlines to operate successfully.
While some analysts argue that the narrative suits Qantas and Virgin Australia in maintaining their domestic airline duopoly, another theory suggests that Rex is a victim of strategic management by other airlines. This strategy, known as “slot hoarding,” involves limiting the number of airport slots available to Rex, thereby hindering its ability to operate flights between the capital cities.
The former chair of the Australian Competition and Consumer Commission (ACCC), Rod Sims, told ABC radio, “The government outsources the management of the slots at Sydney airport to a company that’s majority-owned by Qantas and Virgin, it is just unbelievable.”
In fact, reports emerged in August 2024 about Sydney Airport facing a major shake-up of how flights are scheduled and who can get access, as the federal government sought to quash alleged issues of “slot hoarding” by Qantas and Virgin at the nation’s biggest airport.
A company majority-owned by Qantas and Virgin was in charge of deciding which carriers get access to limited and in-demand time slots at Sydney’s Kingsford Smith gates. The pair faced the accusation of keeping spaces for themselves even when they did not have flights to run in those slots, as a tactic to lock out competitors.
Transport Minister Catherine King has now opened a tender for that slot management job as part of an effort to make that system more transparent.
Rod Sims believed that the management of airport slots should not be open to any carriers. He asserted that carriers should be excluded from bidding for this responsibility.
What are airport slots and can they be hoarded?
Back in the 1970s, the International Air Transport Association (IATA) developed the airline slot system to reduce airport congestion. The aim was to improve traffic flow during peak travel times at “Level Three” high-traffic density airports, a category that includes Sydney and Melbourne.
Under the system, airlines are allocated a daily number of slots they can use. Importantly, there is a set number of slots available, as they represent specific time windows for aircraft to take off or land.
Doug Drury, Professor/Head of Aviation, CQUniversity Australia, said, “Airlines schedule their slots ahead of time as part of a yield management programme. This plan looks across the whole calendar year, taking into account projected peak and off-peak travel times for business and leisure travellers. An airline owns the time slot it is designated by the airport infrastructure capacity, whether it gets used or not.”
“The IATA system relies on what’s called the “80/20 rule”, which states an airline must use 80% of its allocated slots or it will lose its unused slots. The 20% is a buffer. But it has been criticised as overly generous. Airlines can also buy sell or lease, slots they are not using due to slow demand or the need for financial gain. These can sell for huge sums,” he added.
Slot hoarding is the practice of booking slots for use only to cancel them in bad faith, preventing other airlines from getting access to premium travel times.
In June 2023, Rex’s then-deputy-chairman John Sharp accused Qantas of engaging in the practice, as he stated, “It’s as plain as the nose on your face that Qantas is hoarding slots by cancelling sufficient flights to remain within the 80/20 rule. Slot availability is a particular issue for Sydney Airport, because take-offs and landings are capped at 80 per hour.”
In February 2024, the federal government unveiled a range of reforms for Sydney Airport’s slot system. These included requirements for increased transparency on how slots are used, and new independent audits. Notably, it made no change to the 80/20 rule.
In testimony to a Senate enquiry in 2023, Rex said it was not allocated the slots it had applied for and only had 20 peak slots out of the 800 daily peak slots available.
Changes needed
Professor Doug Drury pitches a reform where a predefined number of slots can be sold to the major participating airlines. The applicants will have to make a business case outlining their proposed needs over the next calendar year.
“Currently, airlines request slots from the airport slot management team at no cost to the airline, a system which favours established airlines that have met the 80/20 rule. However, a key criticism of this proposal is that the cost of purchasing slots would be passed down to the flying public, likely resulting in higher airfares. Bidding for slots would also add new cost barriers to entry for would-be start-up challengers,” Drury stated.
Another possibility is to reexamine slot allocation based on fairness, measuring an airline’s needs against airport infrastructure. Airlines that had historically used 80% of their allocated slots can be given priority bidding on up to 50% of the following year’s total airport slot allocation.
The remaining 50% of slots can then be prioritised for new airlines without an established history, to award them take-off and landing times that aren’t necessarily premium, but close enough.
Drury advocates that airlines not achieving the above-mentioned 80% target or found to be abusing the slot hoarding rules should be removed from the top-tier fairness status and placed in a slot allocation “sin bin” until their performance measures are brought up to standards.
Government steps in
As of October 2024, a newly introduced legislation has given the Australian government the power to impose civil penalties on carriers that hoard slots at Sydney Airport. The system will be made more transparent, with the administration gaining the power to compel airlines to produce information on slot use.
If passed, the bill would allow the government to impose civil penalties on airlines that fail to use a slot, apply for slots with no reasonable prospects of using them, and fail to return or transfer unused slots. Authorities will be able to increase access for new entrants and New South Wales-based regional airlines, potentially bringing down airfares and ensuring regional connectivity.
No changes will be made to the curfew system or the overall daily movement cap. But a recovery period will be introduced for major disruptions such as extreme weather, adding further flexibility and hopefully reducing cancellations. Following disruptions, the airport will temporarily be allowed an extra five movements per hour so that airlines can catch up with their schedule.
Virgin and Qantas Group, which also owns budget carrier Jetstar, welcomed the proposed reforms which they said would prove claims of slot hoarding wrong. Qantas said it was operating over 90% of its allocated slots, above the international standard of 80%.
A Virgin spokesperson said the company had always been committed to fair slot allocation and supported greater transparency on how airport charges were determined.