Economics of Air Traffic Management in the Drone Era

26 August 2021
Dr. Hector Lopez and Richard Marsden

Drones and air taxis will soon join commercial aviation to provide a multitude of flight services encompassing delivery, imaging, security, maintenance, freight, and mobility. By 2035, millions of units, thousands of people, and innumerable products could continuously be flying over our cities. The integration of drones into our airspace will require a clear definition of “flight rights”: where, when, and who can fly. At least four classes of allocation systems have been discussed: open road (developed by NASA), first-come first-served (FCFS, similar to commercial aviation), licensing (similar to spectrum), and real-time markets (similar to electricity or online advertising).

NERA Associate Director Dr. Hector Lopez and Managing Director Richard Marsden consider the economic trade-offs of these four models and argue that none of them on their own will be able to ensure the efficient allocation of flight rights in the long run. They propose a hybrid framework that provides for both the short-term and the long-term allocation of flight rights using a combination of real-time and forward markets for airspace. The real-time market would manage congestion whenever it arises, and the forward market would provide certainty of access to support long-term investments.

Implementing the hybrid system would involve imposing an additional layer of rules on a nascent industry, but could help avoid unmitigated congestion allowed by open road systems and the competition problems linked to incumbency advantages under the FCFS and licensing systems.