TO: Secretary Elizabeth Dole, Department of Transportation
             SUBJECT: Recommendation that the Department of Transportation should implement a competitive market system of slot allocation as a means of achieving efficiency. In this scheme, supply and demand determines the market price for slots, resulting in an optimal price and output of landing slots for all airlines.
             This policy memo recommends shifting to a market system of slot allocation. Airport deregulation and various other issues have led the FAA and the Department of Transportation to make a decision to resolve competing demands for airport slots. This analysis describes options ranging from auctions to "grandfathering," allowing airlines that had based decisions on large amounts of slots to avoid disruption. Implementing a solution that encompasses the auctioning off of slots in an effective manner and then shifting to a market system is clearly the most socially efficient solution. In order to gain the support of large incumbent airlines it has been suggested that those airlines receive discounted prices at the time of the auction ensuring equity and efficiency.
             The Federal Aviation Administration (FAA) coined the term a landing "slot" to describe the right of an airplane to land at an airport at a designated time. As a way of controlling congestion and easing the flow of traffic, slots have been assigned to airlines at the nation's four busiest airports since 1969. For the first decade of this slot system, the airline industry committee made assignments with little controversy. Airline pricing deregulation, however, increased demand for slots in the 1980's and vastly increased pressure on the committees to distribute the slots. The FAA became further involved after the 1981 Professional Air Traffic Controllers Organization (PATCO) strike. This strike decreased the capacity of the system and led the FAA to lower the number of slots...