The consumer welfare effects of slot concentration and reallocation: A study of Mexico City International Airport

Abstract
This paper utilizes a data panel of domestic flights to/from Mexico City International Airport to estimate a structural model for air travel. The model provides parameter estimates of the impact of slot control, flight frequency and market structure on airfares. The model is used to develop measures of consumer welfare changes with slot reallocation from a legacy carrier to two LCCs. We show that under wide differences in slot reallocation criteria, the impact of reallocation on consumer welfare is non-trivial, eight percent in our case, and can be negative as well as positive. We identify the numerous factors that affect consumer welfare with slot reallocation and show that the conventional notion of simply shifting slots to LCCs is no guarantee of a significant consumer welfare improvement and may lead to a decrease in welfare.