# 2. Civil-aviation sector

Air-transport services encompass passenger and freight air transport carried domestically or internationally (United Nations Department of Economic and Social Affairs, 2008, p. 198[1]). Service activities incidental to air transportation include those related to air transport of passengers, animals or freight, and operation of terminal facilities such as airway terminals, airport and air-traffic control activities and ground-service activities on airfields. All these activities, alongside others such as aircraft manufacturing, rental and leasing services and refined petroleum manufacturing, may be considered as the civil-aviation industry. In this report, the term “civil-aviation industry” refers to the passenger-transport sector, the focus of the OECD’s analysis.

The civil-aviation sector has a fundamental role in the economic development and national integration of such a large country as Brazil. In fact, with near-continental proportions, flying is the fastest and the safest way to travel between Brazilian states, making air travel a key transport service in the country.1 In 2019, before the COVID-19 pandemic, civil aviation contributed to 1.4% of GDP and to 1.5 million jobs.2 The pandemic severely affected the sector and by 2020, this had dropped to 0.3% of GDP and around 400 000 thousand jobs (ABEAR, 2021[2]). Although the civil-aviation sector may not represent a large share of Brazilian GDP, it is an important part of the economy by contributing to inter-industry linkages with both upstream and downstream sectors (OECD, 2020[3]). The performance of the civil-aviation industry tends to follow the performance of the economy, illustrating the linkage between this industry and the Brazilian economy as a whole (Figure 2.1).

Similarly, employment in the Brazilian civil-aviation sector, which includes air transport and activities incidental to air transportation, tends to follow overall economic trends. The air-transport sector was affected by the 2014 Brazilian economic crisis, losing around 10 000 jobs between 2015 and 2018. Auxiliary activities were less affected by the crisis and recovered more rapidly. In 2019, before the COVID-19 pandemic, civil aviation employed around 108 000 (Table 2.1). In 2020, due to the COVID-19 crisis, formal jobs in the sector fell to 85 000.

In addition to contributing to inter-industry linkages, the civil-aviation sector contributes to world connectivity. In 2019, 4.5 billion passengers were transported by air transport globally. In 2020, the civil-aviation industry faced its worst crisis since the Second World War, as efforts to control the spread of COVID-19 closed borders, imposed lockdowns, and severely curtailed freedom of movement (International Air Transport Association, 2020[4]). In 2020, passengers numbers dropped 60% compared to 2019 to 1.8 billion (Table 2.2).

Brazil is the largest air transport market in Latin America and the Caribbean.3 In 2019, before the COVID-19 crisis, around 103 million passengers were transported by Brazilian air carriers, representing 2.4% of the global total (4.55 billion) and 33.7% of all passengers transported by Latin American air carriers (305 million). In 2020, around 45 million passengers were transported by Brazilian air carriers, a drop of 56% compared to 2019.Passenger numbers in Brazil still represent only a small percentage of the overall population, the ratio of passengers to population was 0.49 in 2019. This rate is lower than regions like Europe and Central Asia (1.41) or North America (2.79), suggesting a substantial potential for growth. A similar comparison can be made by groups of countries aggregated by income level (Figure 2.2).

In the 1990s, Brazil began a process of deregulating the civil-aviation sector, aiming to promote competition by fostering entry and investment; this process accelerated in the early 2000s. Continuous regulatory changes in recent years, such as allowing airlines to explore any desired route and to set ticket prices freely, has contributed to intense sectoral growth.

From the demand side, the civil-aviation industry has undergone significant growth. Passenger numbers for domestic flights4 more than tripled from nearly 30 million in 2000 to more than 90 million in 2019 (Figure 2.3).5 With the COVID-19 pandemic, passenger numbers decreased by half, but still remained higher than in the early 2000s at 45 million in 2020 and 63 million in 2021.

The growth trend is also seen in terms of revenue passenger kilometres (RPK),6 which for domestic flights increased more than 282% from 25.2 billion in 2000 to 96.4 billion in 2019. In 2020, with the pandemic, the RPK decreased but remained higher than in the beginning of the 2000s at 49.6 billion in 2020 and 69.7 billion in 2021.

On the supply side, the civil-aviation sector has also grown. In 2000, there were nearly 700 000 domestic flights, in 2012, nearly 1 million, and more than 800 000 before the COVID-19 pandemic, when the sector retracted and flight numbers plummeted to just under 400 000 (Figure 2.5).

The growth trend is also seen in terms of available-seat kilometres (ASK),7 which more than doubled from 43.6 billion in 2000 to 116.6 billion in 2019. Despite the pandemic, ASK remained higher in 2020 at 61.9 billion and 2021 at 86.6 billion than in the early 2000s.

In terms of capacity use, the load factor of domestic flights was 0.58 in 2000 and reached 0.83 in 2019, close to the global average of 0.8 8 (Figure 2.7) (Gomes and Fonseca, 2014[5]).

The air-transport sector presents characteristics of potentially high market concentration, such as high fixed costs, exposure to exogeneous shocks, particularly fuel-price fluctuation, and legal barriers related to security standards (CADE, 2017[6]) (ANAC, 2021[7]). In 2021, three main airline companies – Latam, Gol and Azul – had a combined domestic market shares of 98%, and have dominated the Brazilian civil-aviation sector in recent years (Figure 2.8).

The sector’s high levels of concentration is seen when measured on the Herfindahl-Hirschman Index (HHI). In 2000, the sector scored about 1 500 points or cusping on moderately concentrated, but by 2021, that figure had risen to more than 3 000 points or highly concentrated (Figure 2.9).9

Despite the sector’s high levels of concentration, the number of passengers flights has increased, while the average ticket price and yield ticket price have decreased in recent years.10 While the yield ticket price was BRL 2.8 per kilometre in 2003, it was less than BRL 0.3 per kilometre in 2021 (Figure 2.10).

The sector’s concentration can also be seen geographically. The southeast region concentrates the most flights and the main airports of the country. Six of the seven busiest airports, measure by domestic-departure passenger numbers, are located in the southeast region. More than 46% passengers, in domestic flights, boarded at São Paulo Guarulhos; São Paulo Congonhas; Belo Horizonte Confins; Rio de Janeiro Galeão; Campinas Viracopos; and Rio de Janeiro Santos Dumont in 2019. São Paulo State presents the highest number of passengers, with Guarulhos, Congonhas and Viracopos airports accounting for more than 31% of domestic passengers in 2019 (Figure 2.11).

The sector’s concentration is also particularly high in terms of routes. The 15 main routes, in number of passengers in domestic departures, present a HHI higher than 2 500. On the Rio de Janeiro Galeão to São Paulo Guarulhos route, for example, LATAM accounted for nearly 55% of the passengers and Gol for nearly 38% in 2020.11

Recent trends

As previously noted, the Brazilian civil-aviation sector has been undergoing a process of deregulation since the early 1990s, with the promotion of flexible tariffs and discounts, and the signature of the international Sub-regional Air Services Agreement, known as the Fortaleza Agreement, in 1996. As part of this process, the Brazilian Government have adopted policies and regulations that aim to foster investments for the development and expansion of the sector.

In 2011, the country started a process of introducing private-sector participation in Brazil’s major airports (see section 2.2). This concession programme has so far been divided into six rounds and generated more than BRL 18 billion in investment (Table 2.3).12 The second round of concessions, involving Brasilia, São Paulo Guarulhos and Campinas Viracopos airports, raised the most with nearly BRL 10 billion, which represented 53.5% of all investments in the first five rounds.

During these six rounds, 44 airports were awarded to private operators: 10 were individually awarded in the first four rounds13 and 34 were awarded in six regional clusters in the fifth14 and sixth15 rounds (see section 2.2.1). The seventh16 and eighth17 rounds are in progress and planned to be completed in the second half of 2022 and first half of 2023, respectively. By the end of the process, all federal airports, which until 2011 were fully controlled by a state-owned enterprise, Infraero, will have been transferred to private-sector management.

From 2012 to 2021, the total amount of public and private investments in Brazilian airports was nearly BRL 30 billion, of which almost 65% came from concessionaries and nearly 35% was made through public direct investments (Figure 2.12).

The institutions responsible for issuing or enforcing rules, instructions and guidelines in the civil-aviation sector play a significant role in the functioning of the market and can ultimately affect competition.

In Brazil, the following institutions are responsible for issuing and implementing regulation, and overviewing the civil-aviation sector.

• The Civil Aviation Council (CONAC) is an advisory body to the Presidency of the Republic established to support policy making in Brazilian civil aviation. It is composed of ministries that deal with civil-aviation matters.18 CONAC has not met since 2010.

• The Ministry of Infrastructure (MINFRA), through the National Civil Aviation Secretariat (SAC), co-ordinates and supervises the institutions of the civil-aviation system. It is responsible for developing guidelines and public policies on civil aviation and airport infrastructure.

• The National Commission of Airport Authorities (CONAERO) is the consultative and deliberative forum composed of public bodies that work directly with airport management.19 Its goal is to harmonise their actions to make airports more efficient.

• The National Civil Aviation Agency (ANAC) is an independent regulatory agency responsible for regulating and supervising civil-aviation activities, as well as aeronautical and airport infrastructure, in compliance with the guidelines and policies issued by the Federal Government.

• The Brazilian Airport Infrastructure Company (INFRAERO) is a state-owned enterprise charged with developing, managing and operating civil airports assigned by the Ministry of Infrastructure.

• The following bodies are linked to the Aeronautics Command (COMAER) of the Brazilian Air Force, which is part of the Ministry of Defence:

• Aeronautical Accidents Investigation and Prevention Centre (CENIPA) is responsible for the investigation and prevention of aviation accidents

• Department of Airspace Control (DECEA) is in charge of the management of Brazilian airspace, regulating air-traffic control (ATC) and operating certain ATC units

• Brazilian Air Navigation Services Company (NAV Brasil) is a new state-owned enterprise in charge of developing, managing and operating aeronautical infrastructure and providing air-navigation services, assigned by the Aeronautics Command.

Brazil is a member of the UN agency, the International Civil Aviation Organization (ICAO), whose main objective is the maintenance of an administrative and expert bureaucracy to support diplomatic and co-operative interactions between the signatory states of the Convention on International Civil Aviation (also known as Chicago Convention). In addition, ICAO researches new air-transport policy and standardisation innovations as directed and endorsed by its 193 member states. ICAO also provides governments with the best practice and advice to establish new international standards collectively and diplomatically and recommend practices for civil aviation internationally (International Civil Aviation Organization, 2022[8]).

The OECD has identified 120 pieces of civil-aviation legislation dealing with passenger traffic, including laws, decrees, ordinances, regulations, public-auction notices, and concession contracts. The civil-aviation sector is highly regulated, including several technical requirements that follow international standards developed to ensure aviation safety and security.

The Brazilian Aeronautical Code (CBA, Law No. 7.565/1986) provides the legal framework on civil aviation in Brazil. The CBA covers the majority of relevant issues for civil aviation in the country, such as safety, aircraft manufacturing, air-traffic control, aircraft registration, certification, and legal liability of air carriers, as well as airport infrastructure. Law for over 35 years, the CBA was enacted in a different regulatory environment in which the government controlled almost the entire sector, including routes and prices of flights. Indeed, the CBA predates the current Brazilian Constitution and the institutional framework in place today. This has left many of CBA’s rules no longer in line with the current regulatory environment, with many obsolete provisions that while de facto repealed remain in the code. Nevertheless, the CBA has been gradually updated over the years. For instance, the recently enacted Law No. 14.368/2022 has explicitly repealed most of these obsolete or superseded provisions. Furthermore, since 2016 a bill has been in Congress seeking to establish a new and fully updated aeronautical code.

Other relevant legislation is Law No. 11.182/2005, which created the National Civil Aviation Agency (ANAC), an independent regulatory agency responsible for establishing technical and economic regulation of the civil-aviation sector. The law aims to ensure aviation safety and security and to improve the quality of services, while fostering a competitive market. It also cemented the liberalisation of prices and routes in Brazil, followed by successive processes of modernisation and simplification of sectoral regulation. This has reduced the regulatory burden and improved the quality and effectiveness of regulations. These have included:

• in 2016, ANAC authorised airlines to charge for checked baggage, following international standards (see Box 2.1)

• in 2018, the civil-aviation market was opened to foreign investors (see Box 2.2)

• in October 2020, ANAC and the Ministry of Infrastructure launched the Simple Flight programme, with more than 60 initiatives to simplify civil-aviation regulation to align Brazil with international best practice; the aim of this initiative is to increase connectivity and foster a new business environment, without hampering aviation safety and security. Although the programme focuses on general aviation, commercial air transport may benefit from its outcomes.20 Among the initiatives is Provisional Measure No. 1.089/2021 (recently converted into Law No. 14.368/2022), which the government has enacted to revoke and amend many outdated provisions in the CBA, and make it easier for foreign airlines to operate in Brazil.

Other issues not directly related to regulatory barriers may increase legal uncertainty and prevent new players from entering the market, such as the high level of litigation between airlines and passengers (Box 2.3).

Airport ownership and operating models (Figure 2.14) vary substantially across jurisdictions, with different levels of public and private participation (International Air Transport Association and Deloitte, 2018[22]).

• In 2016, 67% of airports worldwide followed the public-ownership model (Steer Davies Gleave, 2016, p. 25[23]). The vast majority of public airports are operated by dedicated state-owned corporations, including Narita International Airport in Tokyo, Berlin Brandenburg Airport, and Changi Airport in Singapore. Other public airports are operated directly by a government ministry or agency, such as John F. Kennedy Airport in New York and Dubai International Airport.

• In 2016, 18% of airports worldwide used a public-private partnership model (Steer Davies Gleave, 2016, p. 25[23]) in which the airport operator is owned by a combination of private investors and public authorities. Generally, the airport operator does not own the land, but has exclusive rights to operate the airport under a fixed-term concession, with average contract lengths around 35 years (Airports Council International, 2018[24]). Examples of airports under a public-private partnership include Brussels Airport and Copenhagen Airport (majority private), Paris Charles de Gaulle and Athens International Airport (majority public) and Düsseldorf Airport (equal public and private participation). In rare cases, the operation of a publicly owned airport may be awarded to a private operator through a management contract, such as is the case at Albany International Airport, New York.

• In 2016, 15% of airports worldwide were fully privatised (Steer Davies Gleave, 2016, p. 25[23]). For the majority of these airports, the fully private operator does not own the land, but operates under a long-term concession contract; this is the case for the main airports in Australia (50 years with a 49-year extension option) and Portugal (50 years). In rarer circumstances, the airport and its land may be permanently divested to a private company, as in the major airports in the United Kingdom, including London’s three main airports Heathrow, Gatwick and Stansted.

Despite the current prevalence of fully public airports, there is a growing trend for the private sector to participate in the ownership and operation of large airports, particularly in Europe, Asia-Pacific and Latin America-Caribbean (Airports Council International, 2018, p. 6[24]). In fact, in 2017, 51% of the 100 busiest airports for passenger traffic globally had private-sector participation, and 39% of the top 500 airports were partially or fully privatised (Airports Council International, 2018, p. 5[24]). In the same year, partially or fully privatised airports accounted for 43% of total passenger traffic worldwide, and 75% in Europe, 66% in Latin America, and 47% in Asia-Pacific (Figure 2.15). As governments recognise the ability of the private sector to fund investment in capacity and improve management efficiency, private participation in airport ownership (or at least operations) is likely to keep growing in the future.

The award of airport concessions and privatisations has slowed since 2020, due to the near-collapse of the civil-aviation market during the initial stages of the COVID-19 pandemic, and it may take years to return to previous levels (Graham, 2020, pp. 7-8[25]).

In Brazil, the Federal Constitution provides that the Federal Executive Branch must operate airports, directly or through concessions.21 Following international trends of using a state-owned-enterprise (SOE) ownership model, Brazilian airports were historically run by Empresa Brasileira de Infraestrutura Aeroportuária (Infraero), an SOE established in 197322 with the purpose of developing, managing and operating civil airports under the Ministry of Infrastructure. In 2011, Infraero managed 66 Brazilian airports, accounting for more than 95% of Brazilian passenger traffic.23

Since 2011, Brazilian airport infrastructure has been undergoing a process to introduce private-sector participation in the provision of airport services. This movement was mainly motivated by the need for large investments in Brazilian airports to cope with a substantial increase in passenger traffic and the limited resources of the Brazilian Government. Indeed, in 2010, many Brazilian airports were already facing operational congestion due to limited capacity of runways, aprons and passenger terminals. These limitations were expected to worsen as Brazil was due to host the FIFA World Cup in 2014 and the Olympic Games in 2016 (McKinsey & Company, 2010[26]).

The process of introducing private capital into airport infrastructure aimed to expand and modernise Brazilian airports and improve service quality to meet international standards, while boosting competition (see Section 2.2.2 Ownership restrictions).

The model chosen by the Brazilian Government was a build-operate-transfer (BOT) concession24 in which private firms are granted rights to operate an airport for a limited period of time (Box 2.4) and receive the resulting revenue. The concessionaire pays a fee to the concession-granting authority in advance of and during the concession, invests in the airport, provides maintenance services, and collects payments from airport users. The state retains ownership of physical assets, but their use and operation are transferred to the concessionaire. At the end of the contract period, management of the assets reverts back to the government. Under BOT concessions, the risks of financing large capital expenditures are mainly transferred from the government to private investors.

BOT concessions are the most common model for private-capital involvement in airport management. According to industry body Airports Council International (ACI), BOT accounted for 78% of airport privatisations up to 2017, based upon a sample of 172 airports (Figure 2.16).

As noted above, the Brazilian airport-concession programme is divided into phases, called rounds, each with its own public auction.

In the two years following the first round of concessions,25 the second and third concession rounds awarded the operation of five of the largest Brazilian airports,26 then facing the severest operational congestion, to private operators. In these rounds the government imposed that Infraero retain a 49% share in all winning consortia to ensure the transfer of knowledge from private players to the SOE.

This hybrid governance entailed several drawbacks for private concession holders, since the mandatory participation of Infraero as public shareholder led to more rigid and complex governance. According to the concessionaires, this jeopardised their efficiency and increased their costs. Further, allowing Infraero to hold stakes in multiple airports may bring a risk of competition restriction, since minority shareholding can lead to co-ordination between competitors (Silveira, 2018, p. 552[29]).

In light of these shortcomings, the mandatory 49% Infraero share was removed from the fourth round, held in 2017, for the concessions of four airports.27 In 2019, Infraero’s stakes in the concessionaires of the second and third rounds were included in the scope of both the Investment Partnership Programme (PPI) and the National Privatisation Programme.28 This means that these stakes will be sold by Infraero to private firms in the near future.

Unlike previous concessions, the fifth round introduced the innovation of awarding airports in clusters (or blocks),29 instead of individually. Using a cross-subsidy policy, prospective concessionaires were required to bid for groups of airports that included the profitable and unprofitable. This model was also adopted in the sixth round,30 in 2021, and the same will happen in the seventh round, planned for the second half of 2022.31

Although the number of bidders has varied with each rounds, average has been four bidders in each auction (Table 2.5). This level of participation is in line with international experience.32

The auctions for airport concession were deemed successful in terms of capital receipts received by the government. Indeed, the winning bidders have generally offered large premiums in addition to the minimum prices established in the public notices, resulting in a total of around BRL 52 billion in nominal values (Table 2.5).

Data and stakeholder evidence suggest that concessions have also improved the capacity and quality of airports. Concession contracts establish minimum required investment and efficiency indexes based on quality goals, such as queue time for check-in and security screening, provision of facilities, and restroom cleaning. Since the beginning of the concession process, investments made by concessionaires appear to have reduced capacity constraints and increased passenger traffic (see Section 2.1.1).

Research published in 2019 assessed the airports awarded to private players in the second and third rounds to compare their performance with the airports still managed by Infraero (Castro et al., 2019, p. 120[30]). It concluded that, between 2012 and 2017, airports under concession invested 4.5 times more per passenger and had 10.6 higher gross capital expenditure than airports administrated exclusively by the SOE. In addition, the research showed that airports under private hands have increased by 109% their terminal space, while those still in public hands have increased it by only 31%. The research also highlighted that passenger satisfaction rose in airports where private capital was introduced, which confirms the improvement in the quality of airport services.

Concessions have restructured Brazilian airport infrastructure, modernising and expanding it, while increasing their capacity and quality, bringing it up to international standards. Different players, both national and foreign, have entered the market, once monopolised by a public operator. By the end of 2023, all airports once managed by Infraero will be run by private firms. Nevertheless, the government suggests that Infraero will remain a relevant player in the sector to promote the development of small, financially unsustainable, regional airports, financed by funds from the National Civil Aviation Fund (FNAC; Box 2.5). Furthermore, the Brazilian Government has recently announced that it would use FNAC’s budget to develop sponsored public-private partnerships (PPP)33 for private-sector construction or modernisation, maintenance and operation of small regional airports.

As noted in the economic overview, the COVID-19 outbreak has had a substantial impact on the civil-aviation sector, greatly reducing expected traffic volumes.34 Concession contracts pass the risk for events arising from force majeure to the Brazilian Government,35 meaning ANAC will need to re-establish the original economic and financial equilibrium of such contracts. In this context, predictability is paramount for economic recovery, especially in case of long-term contracts.

The economic consensus is that auctions are the most effective means of awarding concessions (OECD, 2006, p. 8[28]). In Brazil, any concession must be awarded through a competitive bidding process.36 The design of the auctions is therefore critical for an effective concession.

In addition to common requirements provided in horizontal legislation37 (see Chapter 4), two relevant potential competition limitations demand further attention: 1) technical-experience requirements, and 2) ownership restrictions.38

The airport concession tender notices require the bidders to demonstrate technical experience to participate in the auction (Table 2.6). This aims to guarantee that the winning bidder, either independently or as part of a consortium, has previous experience of operating airports, and is technically qualified to meet the concession’s goals.

Although the technical experience requirements may limit the participation of certain participants in the auction, they may be justified in light of the complexity of such contracts, which demand technical knowledge, in order to mitigate potential costs for the government and users.

It is worth mentioning, however, that tender notices have varied from round to round, and the technical requirements do not always seem proportionate to the contract being tendered. For example, the second round required bidders to prove 5 years’ experience as airport operator and having handled at least 5 million passengers for at least 1 year in the previous 10 years.39 This condition was required for the three concerned airports (Brasília, São Paulo Guarulhos and Campinas Viracopos), despite their large differences and levels of passenger traffic (Table 2.6).

From the third round, notices introduced specific experience conditions to participate in the bidding, more proportionate to the size of the airport (or group of airports) being put out to tender. Over the years, the requirements seem to have been relaxed (Table 2.6) and entry barriers reduced. For instance, the 2017 auction for Salvador (SSA), which had handled around 7.5 million passengers in the year prior to the tender notice’s publication, required previous experience operating an airport handling 9 million passengers at least 1 year in the previous 5. In 2020, when the Central cluster was auctioned, bidders had to demonstrate they had previously operated an airport handling 1 million passengers. The traffic at all airports in that cluster in the year before the tender notice’s release was 7.3 million passengers, similar to the traffic Salvador registered when it was tendered.

For foreign companies, technical-experience requirements made it necessary to bid as part of a consortium in the initial tender rounds. Because Infraero was a monopolist before the airport concession programme, no other Brazilian firm was able to comply with the technical conditions (Steer Davies Gleave, 2016, p. 43[23]).40

The rules require that the firm with demonstrated experience as an airport operator holds a minimum stake in any consortium.41 This was intended to enhance an operator’s commitment to the management of an airport, ensuring that its know-how would be effectively applied in the execution of the concession.

The sixth round introduced a new way of demonstrating technical qualifications. Rather than having previous experience, a bidder could submit a commitment to hire a technical provider that complied with the minimum technical experience requirement.42 In order to prevent co-ordination among competitors, a technical provider was forbidden from participating twice in the same auction lot, even as part of a different consortium, and could not provide assistance to another bidder. The provision as a whole reduced entry barriers to potential bidders, allowing more players to take part in the auction, such as investment and pension funds. This was especially relevant due to the impact of the COVID-19 pandemic on the civil-aviation sector, which could have prevented airport operators from participating in the bidding procedure.

Another set of restrictions provided in airport concessions relates to ownership and aims to limit vertical and horizontal integration.

Brazilian tender notices for airport concessions contain provisions that aim to prevent vertical integration between airport operators and airlines, following international practices, such as those in use in Australia and Mexico.43

Airlines and their related companies44 were not allowed to participate in airport auctions, except as part of a consortium, and only with a reduced stake and no participation in corporate governance. Concession rounds have established different maximum stakes for airlines in consortia: 10% (first round); 2% (second round); 4% (third round); and again 2% (fourth to sixth rounds).

Since the third concession round, firms with ties to airlines45 are allowed to take part in a consortium with a stake higher than the maximum established by the general rule, but only if they are also the company meeting the technical-experience requirement. Unlike these linked companies, an airline itself cannot be part of a consortium.

Furthermore, according to concession contracts from the first and second rounds, transactions that involve an increase of airlines’ stakes in a concessionaire during the first five years of a concession are subject to approval by ANAC.46 Since the third round, the concession contract expressly states that ANAC approval of such transactions is required at all times.

Additionally, concessionaire shareholders are also prevented from holding, either directly or indirectly, voting capital of airlines higher than the maximum stake provided in the general rule (10% in the first round; 2% in the second, fourth, fifth and sixth rounds; and 4% in the third round). Since the fourth round, a new provision in the tender notice states that after the first five years of a concession the participation of the concessionaire’s shareholders in the capital of an airline will be subject to prior approval by ANAC.

Although the participation of airlines in the auctions has been restricted, concession contracts do allow the transfer of shares between airport concessionaires (and their shareholders) and airlines during the execution of the concession.

Research has noted that airlines may have incentives to restrict competing firms’ access to an airport, especially at hub airports. Allowing vertical integration between airlines and airport operators could create a so-called “fortress effect”, through which an airline could dominate an airport and increase barriers for competing airlines to enter the market or to increase their market share. This could reduce possible expansion of routes and frequencies, as well as increase prices for consumers (Pereira Neto et al., 2016, p. 14[31]) (Kuchinke and Sickmann, 2007[32]).

The United States Federal Aviation Administration (FAA) highlighted that providing access to new entrants and to carriers expanding their services is paramount to maintaining airline competition. The FAA has also indicated that fares in local markets at connecting hubs dominated by one major air carrier are considerably higher than comparable markets where there is no dominant airline at a hub airport (Federal Aviation Administration/Office of the Secretary of Transportation Task Force, 1999, p. 30[33]).

On the other hand, it should be mentioned that in some cases vertical integration between airports and airlines may lead to positive efficiency effects, such as the removal of double-marginalisation, co-ordination of optimal production and inventory in supply chains (Oum and Fu, 2008[34]).

In Brazil, the transfer of shares between airport concessionaires and airlines are subject to prior approval by ANAC, which seems justified in order to prevent any vertical integration that could harm competition at the airport.

The creation of competition between airports has been one of the main reasons highlighted by the Brazilian Government to support airport concessions. With airports around the world are increasingly competing with each other (Box 2.6), international experience has shown the rationale for ensuring that different airports are operated by competing firms as opposed to horizontally integrated firms (Box 2.7).

Most efficiency gains in airport privatisation stem not from the tender itself but rather from the permanent exposure of potential concessionaires to competition. Besides specific cases such as natural monopolies, introducing in-the-market competition in the operation of the service is more important than ensuring competition for the market (Bronchi, 2003[47]) (OECD, 2019[48]).

Brazil has imposed certain restrictions on airport cross-ownership. The second concession round established that a single player (and its related companies, individually or in a consortium47) could bid for all three airports, but could only be awarded one of them. The third concession round also restricted a firm to one airport and stated that shareholders of airports awarded concessions in the second round and their related companies48 could not participate in the auction (except in a consortium, with a maximum stake of 15% and without participation in corporate governance). Finally, the fourth round provided that a same firm or consortium could bid for all airports being auctioned, but could only be awarded one airport in each region.

These restrictions were designed in light of qualitative and quantitative evidence supporting the existence of potential or actual competition among the airports being auctioned, especially for connecting passengers in hubs and, in some cases, for cargo traffic. Furthermore, the government intended to encourage the entry of a greater number of players into the Brazilian market, aiming to implement yardstick competition in regard to best practices for airport management.49 In the fourth round, the tender notice did not establish any restriction for the concessionaire of Natal São Gonçalo do Amaranto airport and its related companies to bid for the airports of the Northeast region (Salvador and Fortaleza), although there seemed to be potential competition among these airports (Secretaria de Aviação Civil/Presidência da República, 2015[49]). In practice, however, the airports were awarded to different firms.

In the second round, the concession contract prevented any share transfer involving the shareholders of other concessionaires50 and their related companies51 in the first five years of concession. After that period, any transactions were subject to prior approval by ANAC. The third and fourth rounds loosened the cross-ownership prohibition. In the first five years of concession, any share transfer less than 15% related to shareholders of other concessionaires52 and their related companies53 were permitted, as long as ANAC approved. After the fifth year, ANAC only needs to authorise transactions involving share transfers higher than 15%.

Although the concession contracts of the second, third and fourth rounds allowed transfer of shares between the concessionaires – which were awarded the airport in those rounds – and the shareholders and their related companies – which won the concession in other airports – during the execution of the concession, some of these transactions are subject to prior approval by ANAC.54 This seems justified in order to ensure that the ownership restrictions imposed for the auction are not bypassed and so guarantee competition between airport operators.

Moreover, the fifth and sixth concession rounds did not include any cross-ownership restrictions, either among the clusters of each round or among a cluster and the airports awarded in the previous rounds. In theory, one could argue that there could be potential or actual competition among some of the airports. For instance, some airports from the Northeastern cluster (sixth round) could compete with Natal São Gonçalo do Amaranto (first round), Fortaleza or Salvador (fourth round), and some airports from the Southern cluster (sixth round) could compete with Florianópolis or Porto Alegre (fourth round). Nevertheless, according to ANAC, these rounds had a different rationale, namely awarding a set of airports together in order to favour cross-subsidisation between profitable and unprofitable ones. In the Central cluster, the airports were even spread over more than one region. Also, the airport market was already well diversified, with different players operating in the country. Although prohibiting cross-ownership could have been defensible from a competition point of view, the policy aimed to ensure the effective implementation of the concession programme, assuming that a competitive market already existed.

Additionally, there has been recent debate about multi-airport systems or cities served by more than one airport, for which the potential for competition between airports could be even clearer. For example, although the city of Belo Horizonte is served by two airports, Belo Horizonte Confins (CNF) and Belo Horizonte Pampulha (BHZ), the latter is currently restricted to general aviation and regional scheduled air services.55 Pampulha was delegated to the State of Minas Gerais, which conducted an auction in 2021 to award a concession to a private operator. There was no restriction on the participation of Belo Horizonte Confins’s concessionaire, and a shareholder of that operator won the bid. It is not clear whether the limitation to the operations of Belo Horizonte Pampulha will be maintained in the future. In any case, this outcome seems to be contrary to previous Brazilian tenders, as well as to the economic literature and international best practices on competition between airports. It could be argued, however, that under certain circumstances, especially in cases of low demand, introducing competition between airports may compromise the efficiency of a multi-airport system that may justify co-ordinated management.

The seventh concession round will auction Congonhas (CGH) in São Paulo, a city also served by two airports operated by private firms, Guarulhos (GRU) and Viracopos (VCP). Although in the upcoming public tender Congonhas will be part of a cluster with ten other airports across the country, the government has not restricted the participation of concessionaires of airports in São Paulo (and their related companies). Doing so would ensure that all airports in São Paulo are managed by different players, enhancing competition in several market segments.56

A discussion about the city of Rio de Janeiro’s multi-airport system, a city currently served by two airports, arose during the design the seventh round of concessions. Galeão (GIG) is already run by a private firm, while the other Santos Dumont (SDU) is managed by Infraero and was set to be awarded to a private operator through a concession contract in the seventh round. Certain stakeholders have argued that introducing competition between both airports would be economically inefficient as there would be insufficient demand for both. In the meantime, financial difficulties led the concessionaire of Galeão to return the airport before the end of the contract term. Finally, in in early 2022, the government decided to withdraw Santos Dumont from the seventh round, and both airports are now set to be tendered together in 2023.

This outcome again appears to go against the Brazilian Government’s policy in past concessions of promoting competition between airports. Despite other issues beyond competition possibly arising when designing public policy, such as the availability of a multi-airport system, as well as socio-economic development and urban-planning issues, the potential benefits from a competitive environment for airports should not be neglected. In the absence of ownership restrictions in the oncoming auctions, competing airports may end up being managed by the same player, which is likely to harm competition.

Further, as stated above, Infraero’s stakes in the concessionaires of the second and third concession rounds will be sold to private firms in the near future. If there are no cross-ownership restrictions when designing the sale, the public policy on competition between airports advocated by the government in the past may be compromised. There is a risk that a single firm acquires Infraero’s shares in all concessionaires or a cross-ownership arrangement between concessionaires of the second and third rounds.

As noted above, concession tenders have evolved since their inception. Many of these changes were positive, the result of incorporating lessons learned from earlier rounds. Nevertheless, successive concession contracts with different clauses may affect the sector’s competitive environment.

For instance, the rules for defining how the concessionaire must pay the due fees have changed in recent rounds (Box 2.8). The first concession rounds were designed when the Brazilian economy was forecast to grow steadily alongside increasing demand for air transport, which led to extremely high bids in the initial rounds57 (Table 2.5). Since 2014, however, the Brazilian economy has fallen into deep recession, worsened by the COVID-19 pandemic. This has deeply impacted upon airport operators, with certain concessionaires facing serious difficulties to pay concession fees.

As the original agreements stated that concessionaires were responsible in cases of demand-side shock – unless in cases of force majeure, such as the COVID-19 pandemic – the concession model has played a role in the current situation. In fact, three airport operators have recently requested that a concession contract be rebid (relicitação), based upon Law No. 13.448/2017. In practice, this has seen the concessionaire return the airport before the contract term, and a public tender awarded to a new private player with a revised concession contract in line with the most recent concession rounds.

The government seems to recognise these shortcomings, and some relevant changes in the concession model were implemented in later rounds to avoid the initial pitfalls.

Airport-tariff regulation has also varied substantially across concession rounds, from price-cap regulation in the first tender rounds to revenue-cap and light-touch regulations in the most recent (see section 2.3). Since airport tariffs are a relevant source of concessionaires’ revenue, the regulatory approach has an impact on how firms can run their businesses. Some regimes are more flexible than others, allowing for more efficient management.

Concessionaires from the second and third rounds were also forced to have Infraero as a shareholder, which led to more complex governance and possibly to reduced efficiency according to stakeholders. Further, these contracts provided for certain obligatory Infraero engineering works, which had not been completed by the SOE. Concessionaires remain in discussions with ANAC about the issue.

The level of required investment is another issue. The first concession rounds – unlike later rounds – did not provide for objective triggers and deadlines for the realisation of mandatory investments resulting in an unbalanced relationship between investment and demand. As ensuring service quality is one of the reasons for investments and infrastructure investments are subject to depreciation and increased fixed costs, the results of any investments, such as infrastructure and new machines, should ideally be tied to their subsequent effective use to avoid idle capacity and unnecessary costs. Indeed, according to IATA, predetermined, fixed and overly rigid capital-investment plans do not meet demand for the right infrastructure at the right pace and price. It recommends that investments are linked to traffic volumes, not financial years (International Air Transport Association, 2020[51]).

This is particularly relevant for the early concession tenders, since pre-auction forecasts of traffic growth failed to materialise due to the 2014 economic crisis in Brazil, which was then aggravated by the COVID-19 pandemic. Despite the fact that these contracts have been amended by ANAC in recent years, establishing triggers related to increases in demand, certain investments remain that must be made before the end of the concession, without any link to demand. Further, whenever these changes are made to the contract, it is necessary to ensure the re-establishment of the original economic and financial balance of the concession contract in favour of the granting authority (Machado et al., 2019, p. 33[50]).

The most recent concession contracts do provide that mandatory investments be associated to demand triggers. The rationale is to allow concessionaires to determine the necessary investments for maintaining minimum quality standards related to facilities’ capacity, such as aircraft movements on the runway and apron, and passenger terminal services such as check-in, security, immigration, baggage reclaim, and the number of gates.

Recently, ANAC has been working to harmonise concession contracts, either through contract amendments or through broader regulation. However, these changes focus more on ANAC’s monitoring activities, rather than on substantial concessionaire duties.

The differences between concession contracts across rounds, albeit justifiable, can subject concessionaires to distinct regulatory regimes, even for similar airports, which may compromise the level playing field. In practice, this may reflect different incentives and disincentives of each specific concession model used in Brazil – say, concession fees, tariff regulation and mandatory investments – which may influence the total costs and revenue sources faced by each concessionaire. This may affect the competitive environment for airports, running counter to the Brazilian Government’s goal of creating a competitive airport market.

Ideally, all players operating in the market should be subject to the same rules to maintain a level playing field. Providing some stakeholders with advantageous tools to manage their concession may raise costs and disadvantage for others. For instance, setting distinct tariff regulation for certain concessionaires allows them to use a more flexible approach, enhancing the potential efficiency of their operations. This puts those whose concession term prevents flexible tariff setting at a competitive disadvantage, as they will not able to set tariffs in a more efficient fashion, such as implementing peak-load tariffs.

The anticompetitive impact may be more severe in multi-airport systems, such as that of the city of São Paulo, where the potential for competition between airports is clearer, as they serve a shared local market and may compete in the same catchment area, in addition to other market segments (such as connecting passengers and cargo). That city currently has two airports58 subject to different rules of, say, tariff regulation as one is managed by a private operator and the other by Infraero. In the near future, the airport run by the SOE will be awarded to a private player, which has the potential to further increase competition between both airports. This might leave the previous concessionaire in a disadvantaged position compared to the recent one.

In general, airports’ revenue structure is comprised of two sources: 1) charges for aeronautical services, known as airport tariffs; and 2) revenue from non-aeronautical sources. Aeronautical services include access to runways for take-off and landing, and to aircraft parking sites and taxiways, safety and ground handling services, including passenger check-in, arrivals and departures, and ramp services, such as passenger and baggage handling, fuelling, aircraft maintenance, water cartage, and cabin cleaning. Non-aeronautical services comprise concessions and other commercial services, such as supply of food, beverages and retail in terminal buildings, car parks, airport transfer services, office rentals, and other activities in airport buildings and on airport land.59

The regulation of airport tariffs varies substantially across jurisdictions and largely depends on an airport’s ownership and operating model. In countries where airports are owned and managed by the government, tariffs are often either unregulated or directly set by the government. There are exceptions to this rule, including Ireland and the Netherlands, where government-owned airports are regulated by independent authorities. In countries where airports are privately owned or managed by a private company, airport charges are almost always regulated by an independent authority, since airports are assumed to possess market power in aeronautical services (Czerny, 2009[52]). In Brazil, airport tariffs are regulated in both privately managed (the vast majority) and SOE-managed airports by ANAC, an independent authority.

There are two main methods for regulating airport tariffs which differ as to the incentives they provide to regulated agents to minimise their costs (Marques and Brochado, 2008[53]):

• The first is rate-of-return regulation, where the regulated tariff is variable and conditional on observed costs and demand, enabling the airport operator to earn a fixed rate of return on its investment

• The second corresponds to incentive regulation, such as price caps or revenue caps. In that case, the maximum tariff or revenue is fixed for an entire regulatory period (usually three to eight years), taking into consideration expected costs and productivity gains over that period.

The large majority of forms of airport regulation are a variation of these two methods, with the exception of certain jurisdictions that apply a more “light-handed” regulatory approach.

Regulatory methods can also be classified as single till or dual till, depending on whether aeronautical services and commercial activities are treated as a single or separate businesses (Reynolds et al., 2018[54]) (Varsamos, 2016[55]). Single-till regulation consists of setting a tariff or rate of return for aeronautical services that covers all agglomerated airport costs, deducted from the revenue of commercial activities. Under such an approach, aeronautical fees are generally lower, as they are cross-subsidised by commercial activities. Dual-till regulation sees the aeronautical charges fully cover the airport’s infrastructure costs, without taking commercial services into account. Under the dual-till approach, authorities can choose to regulate only aeronautical services or both separately. Certain jurisdictions have adopted a hybrid-till approach in which a portion of non-aeronautical revenue covers aeronautical costs.

In general, Brazil has adopted a dual-till regulatory model, with ANAC regulating airport tariffs, both in airports under concession and those operated by Infraero (see section 2.3.1).60 The adoption of a dual-till approach was justified since the main reason for airport concessions was the need for large investments in a time of fiscal restrictions on public investments (Resende and Caldeira, 2020[56]), and dual till tends to create better incentives for an operator to invest in airport infrastructure (Oum and Fu, 2008[34]).

In Brazil, non-aeronautical charges are not subject to any form of economic regulation, as prices are directly negotiated between airport operators and private firms providing commercial services in and around the airport.

Airport tariffs cover services and infrastructure related to aircraft-movement areas and passenger-processing areas. Although airport tariffs may vary from one airport to another, in general they can be classified into four broad categories: 1) landing tariffs; 2) passenger-processing tariffs; 3) parking charges; and 4) other tariffs (Varsamos, 2016[55]).

At present, there are six different airport tariffs in Brazil, concerning different aeronautical services provided by airport operators61 to passengers (boarding and connection tariffs), to airlines (landing and parking tariffs), and to other companies (storage and handling tariffs), the last related to cargo transport. Airport operators are prevented from creating their own airport tariffs.62

There are currently four different regimes for the economic regulation of airport tariffs in Brazil: 1) price-cap regulation (used in the first three airport-concession rounds); 2) price-cap regulation with possibility of tariff management (fourth concession round); 3) revenue-cap regulation (fifth and sixth concession rounds, and by Infraero for large and mid-sized airports and scheduled and non-scheduled air services, except air taxis); and 4) light-handed regulation (fifth and sixth concession rounds, and by Infraero for small airports, air taxis and general aviation). Each of these approaches offers more or less flexibility to the airport operator (see Table 2.7).

The increasing flexibility for setting tariffs introduced by ANAC throughout the concession rounds (including tariff management, revenue-cap regulation, light-handed regulation and constructive engagement) was intended to allow operators to improve efficiency and cost-effectiveness in the provision and operation of airport services.

Including stakeholders in this process through consultations aims to reduce potential risk of abuse of market power and to produce a mutually agreed solution, as recommended by ICAO.63 After all, airport operators and other market players (such as airlines and ground-handling service providers) are better informed than the regulator about the costs of services and other relevant issues for the management of airports. In any case, ANAC should monitor the implementation of these mechanisms, and may intervene if any requirement is not met by the airport operator.

Since the fourth concession round a user consultation is required for airport operators to increase tariffs, and ANAC is entitled to intervene in case of potential abusive behaviours. Yet the current regulation does not ensure that all interested parties can play a proper role in the consultation procedure. In fact, it provides no guidelines for user consultations, such as standards for defining which stakeholders should be consulted.

According to the ICAO, airport operators must establish a clearly defined, regular consultation process (International Civil Aviation Organization, 2012[57]). It also recommends that users be given notice of revision of charges at least four months in advance, and they should be provided with transparent and appropriate financial, operational and other relevant information to allow them to make informed comments. Further, airport operators should take users’ views into account in their decision, which must indicate its rationale, especially when comments from users have not been accepted (International Civil Aviation Organization, 2020[58]). In fact, consultations should not only be considered a procedural step, but rather an opportunity for parties to effectively seek to achieve mutual understanding.

As currently conducted, the process of user consultation brings a risk of favouring the views of incumbent airlines operating at the airport at the time and who might attempt to increase entry costs for (actual or potential) competitors. These procedures do not offer an opportunity for the interests of final users – passengers – to be taken into account, although ANAC is supposed to consider whether their interests are harmed when assessing the consultation implementation. In some cases airports and airlines have reached agreements to gain and share rents, not necessarily to the benefit of consumers (Oxera, 2007[59]).

Additionally, the current regulations provide no details on how airport operators should conduct a user consultation, such as procedures to be followed and standards for defining which stakeholders should be consulted. This may increase legal uncertainty.

Moreover, although it is crucial that ANAC carefully assesses any proposal arising from user consultation or constructive engagement, the provisions establishing when the regulator may intervene are vague and ambiguous. For instance, ANAC may step in if it considers that the justification given by the airport operator for increasing tariffs does not lead to a more efficient use of the airport infrastructure or is not objective and non-discriminatory; if a relevant stakeholder was not consulted by the concessionaire; or if final users might be potentially harmed. Nevertheless, there is no guidance as to how ANAC should assess these issues, which in practice may lead it to commit discretionary behaviour. For example, it is not clear what a more efficient use of the airport infrastructure might actually entail, neither how to determine when a proposal might harm final users. The most recent concession rounds did include requirements that concessionaires and ANAC must follow international practices, such as those issued by ICAO, IATA and ACI, when assessing consultations. While this has indeed reduced the discretion of concessionaires and ANAC, a degree of vagueness still remains.

Commercial services are an increasingly important component of airport operations, comprising the provision of food, beverages, retail, currency exchange, transfers, car rental, car parks, and other income derived from airport buildings and development of airport land. As noted, there are also several activities related to aeronautical services that are not directly provided by airport operators, especially ground-handling services; these services are usually considered as non-aeronautical.

Technically, Brazilian regulations refer to tariff and non-tariff revenues, the latter comprising any charge other than airport tariffs. This includes commercial services, but also other airport operational services not charged through tariffs, such as different ground handling services, including passenger check-in, ramp services, fuelling, and aircraft maintenance, as well as rentals of hangars and other airport operational areas (Section 2.3.2. Revenues from operational services).

Historically, aeronautical revenue is the primary source of revenue for airports. Nevertheless, airports have increasingly been seeking other sources of revenues (Air Transport Research Society, 2019[60]). Since aeronautical charges are often regulated, non-aeronautical services, which are generally non-regulated, allow airports to increase their total revenue (Oum and Fu, 2008[34]). This can also allow airports to reduce aeronautical charges to attract more passengers and airlines, which in turn may enhance demand for commercial services and the non-aeronautical revenues (as previously noted, airports are two-sided businesses).

In 2019, at Brazilian airports under concession, non-aeronautical revenues accounted on average for 33% of airports’ total gross revenue64 (Figure 2.17), lower than the 2019 global average of 40.2%.65 Three Brazilian airports under concession had non-aeronautical revenue share above the global average: Natal (NAT) with 45%; Brasília (BSB) with 44%; and Rio de Janeiro Galeão (GIG) with 42%.

For the majority of commercial services, the airport operator awards private suppliers with exclusive rights to operate in a designated area, generally through a concession contract,66 although the airport operator may also provide some of these services – such as car parking – directly to airport users.

In Brazil, commercial services are governed by private law, so are freely negotiated by airport operators and private firms as long as they meet obligatory safety and quality standards. Discriminatory and abusive practices are expressly prohibited.67

For airports managed by Infraero, the term of these contracts should be up to 120 months (contracts without investment) or 240 months (contracts with investment).68 In either case, the costs a firm must incur to execute the contract are taken into account when defining its length.69

As for airports under concession, the duration of commercial contracts may last as long as the concession but there are no criteria for determining how long these contracts should take (for example, depending on the level of investment incurred by the operator). Nevertheless, these contracts may in exceptional circumstances be longer than the duration of the concession, if SAC issues an authorisation.70 In such cases, it is necessary to prove that a longer term is required for a contract’s economic feasibility and the recoupment of investments. For that purpose, documents must be submitted to SAC, such as the economic outlook of the project, and there are several requirements and limitations for the contract, including periodic remuneration, in equal or increasing instalments.71 These requirements and limitations may prevent concessionaires from signing contracts that may harm the interests of any future concessionaire.

According to airport-concession contracts, ANAC may require information of commercial concession contracts at any time and they may be publicly disclosed, as long as they contain no competitive sensitive information. ANAC is yet to do so.

The current design of commercial concession contracts may restrict competition in the provision of commercial services at Brazilian airports. The barriers identified may prevent more aggressive competition between commercial providers inside the airport, leading to higher prices for airport users, but also lower quality and reduce variety. Even if the high revenues generated by commercial services may partially cross-subsidise airport tariffs, passengers may still end up spending more in total.

The relatively long lease terms of commercial-concession contracts may limit the frequency with which bidders compete for the market, preventing the timely entry of more efficient operators with better offerings. Long lease terms can be justified if contracting parties must undertake substantial investments. In these cases, the contract length should be sufficient to guarantee that the contracting firm can recoup investments and obtain a return on invested capital under normal operating conditions. By contrast, if commercial concession contracts do not impose any minimum investment requirements, these contracts should have short terms.

Furthermore, airport operators are free to determine the optimal tenant mix at the airport, including potentially strong tenants, such as popular chain stores, to satisfy the needs of passengers and increase overall consumption at the airport and so its revenue. However, this may restrict market entry and increase prices in case of exclusivity agreements that prevent competing firms from operating at the airport (Box 2.10). Except in special circumstances and duly justified based on economic grounds, airport operators should promote competitive markets at the airports to lower prices and improve products and services for consumers.

Among the quality indicators monitored by ANAC in airport-concession contracts (through consumer surveys) are a number related to commercial services, including quality, variety, and price-performance ratio of restaurants, retail shops and car parks.72 The price-performance ratio of such services is not considered as a quality factor (Q factor),73 which is used to increase or reduce the tariff or revenue cap, and therefore incentivise airport operators to achieve better outcomes.

Certain services comprising aeronautical activities are rarely provided directly by the airport operator, particularly ground-handling services, such as dispatch of aircrafts, passengers and luggage, aircraft loading and unloading, fuel and oil handling, and aircraft maintenance, which are usually provided by third parties or airlines and therefore considered as non-aeronautical services (see section 2.4). To provide these activities, firms need to have access to airport facilities, which may require leasing an airport space, such as hangars and other operational areas.

As with the regime for commercial services, the cost for the use of operational areas is not set by regulation. Rather, parties are free to negotiate prices and other conditions, and their contractual relationship is governed by private law. Regulatory differences between renting airport spaces for commercial services and for operational activities do exist, however, as the latter are directly related to aeronautical services.

A competitive tender for allocating airport space to airlines and ground-handling service providers is not necessary, even if the airport is managed by Infraero.74 The rationale for this approach is to ensure that anyone willing to enter the market for providing air transport services or ground-handling services can do so, enhancing competition at the airport. The airport operator is responsible for determining the location at and area of the airport required by companies to provide their activities.75

Nevertheless, in case of shortage of physical spaces to allocate to all companies operating scheduled air transport, the regulation provides specific non-exhaustive criteria to assist airport operators with the task of in distributing space. First, at least 10% of existing areas for activities of dispatch of aircrafts, passengers and luggage should be allocated for shared use by all airlines operating or intending to operate at the airport.76 This aims to ensure that all airlines can operate at the airport by ensuring the permanent availability of airport infrastructure to potential new entrants, while preventing the maintenance of idle spaces.

The airport operator must then limit the allocation of exclusive-use areas for activities of dispatch of aircrafts, passengers and luggage using a ratio of the number of passengers handled by the airline at the airport and the total number of passengers handled at the airport in the six months preceding the request.77 The exclusive-use areas for aircraft loading and unloading and aircraft maintenance and related services should be allocated according to the ratio of the number of take-offs and landings of the airline at the airport and the total number of take-offs and landings at the airport in the 12 months preceding the request.78

These rules are based upon objective criteria for allocation of airport space and aim to ensure a more efficient use of airport infrastructure, with spaces allocated to each airline in proportion to the numbers of services it provides. The allocation of spaces for each airline is regularly reviewed according to its market share at the airport. Moreover, newcomers will always be able to enter the market, since there is a minimum percentage of space available for shared use.

The airport operator may limit access of ground-handling service providers if there is no available space or capacity for allocation to all firms. In these cases, the airport operator must present a justification for such a restriction to ANAC, as well as possible measures to reduce the constraints. The concession contracts also provide that in case of shortage of space for ground-handling service providers, the concessionaire must require ANAC authorisation to restrict the number of players, and ANAC may establish a minimum number of providers. This intends to prevent abusive and discriminatory behaviour, as well as to ensure a minimum level playing field at the airport. Nevertheless, it should be noted that when the entry of ground-handling service providers is not possible, airlines may still hire the services of those firms, which can operate in their allocated spaces.79

As noted, airport operators and suppliers are free to negotiate the fees for the use of airport space. Since the fourth concession round, contracts have stated that these fees must follow objective and non-discriminatory criteria, such as service level, available facilities and investment forecasts. The setting and modification of prices must be subject to user consultation. This is especially relevant when leasing airport space to ground-handling service providers, because airport operators may also perform these activities and could therefore have incentives to discriminate against competitors in the downstream market (see section 2.4). To this end, concession contracts require that concessionaires keep separate accounts for their airport-management activities and the supply of ground-handling services, in order to maintain fair competition.

Unlike the contracts for leasing airport space for commercial services, ANAC can mediate potential conflicts between parties of rental contracts.80 It operates upon receipt of complaints and then seeks to identify whether the airport operator was involved in any abusive practices. ANAC may assess prices and compare them with market rates, including prices for similar spaces at airports in Brazil and abroad, as well as carry out cost analyses. As a last resort, in cases of abusive and discriminatory behaviour, ANAC may introduce economic regulation for leasing of operational spaces, either through a price cap, revenue cap or another regulatory mechanism.81

Finally, airport-concession contracts establish that a concessionaire may enter into contracts with airlines for the construction, maintenance or use of airport terminals or parts thereof, in an exclusive or preferential manner. Since the third concession round, however, ANAC must authorise such agreements, in order to prevent anti-competitive practices.

It seems reasonable not to require airport operators to use competitive tenders to select firms for leasing airport space for the provision of operational services, and this seems in line with international practices (Box 2.11). Yet, with no rules determining the allocation process for airport spaces among all players, including airlines and ground-handling service providers, airport operators are allowed a discretion that may lead to discriminatory behaviour, especially against ground-handling service providers. As airport operators may also provide these services, although this is not common in Brazil, they may have incentives to allocate less attractive spaces to their competitors.

In practice, holding an airport space is a barrier to entry for ground-handling service providers, as this requires signing a contract with the airport operator, which is in turn subject to price negotiation, space and time constraints. Although these firms may still offer services to airlines if they do not have a leasing contract, in these cases they can only access the airport if they present a contract with an airline, and they are charged every time they enter the airport facilities. According to stakeholders, this is much more expensive than a leasing agreement, which in practice makes such operations unfeasible from an economic point of view. Ensuring a transparent and impartial procedure for selecting suppliers of ground-handling services is crucial where the number of such firms is limited, as recognised by the European Union regulation (see Box 2.12).

In addition, although airport concessionaires may enter into exclusive-use or preferential-use contracts with airlines, such arrangements may restrict competition, even though the airport operator has always to ensure any airline can enter the market. In fact, dominant airlines could use their monopsony power to influence airport operators to discriminate against competing airlines or to create barriers to entry for new firms or for expansion of airlines already operating at the airport (Pereira Neto et al., 2016, p. 14[31]).

In Brazil, as noted, exclusive-use agreements between airport operators and airlines are possible, but ANAC must authorise them, in order to prevent anti-competitive or discriminatory practices. However, there are no clear guidelines for assessing these contracts, nor the need to consult CADE on their potential anti-competitive effects. This may lead to legal uncertainty and discretionary treatment by ANAC, but also to arrangements that may hamper competition at the airport.

According to Annex 6 to the Convention on International Civil Aviation, ground handling is all the services necessary for an aircraft’s arrival at and departure from an airport, other than air-traffic services. This includes ground administration and supervision; passenger handling; baggage handling; freight and mail handling; ramp handling; aircraft services; fuel and oil handling; aircraft maintenance; flight operations and crew administration; surface transport; and catering services (International Civil Aviation Organization, 2019, pp. 79-81[63]). In Brazil, ground-handling services also comprise activities related to aviation security – such as screening of passengers, aircrew and baggage; searching and checking aircraft; protection of aircraft; access control to security restricted areas; and security controls of cargo – as well as to air-freight forwarding.82

Ground-handling services are usually provided by one (or a combination) of the following methods: 1) directly by the airport operator; 2) handled by airlines themselves; or 3) by third-party, independent ground-handling companies. Although models for providing ground-handling services varies across the world,83 there has been a trend towards third-party ground-handling service providers. In fact, according to the ICAO, around 75% of all ground-handling operations worldwide are outsourced to third-party handlers (International Civil Aviation Organization, 2019, p. 16[63]).

In Brazil, despite the fact that the legislation provides for the three aforementioned alternatives for the provision of ground-handling services,84 most airlines use third parties, with the exception of one major airline, which self-handles around 90% of its own operations (Steer Davies Gleave, 2016, p. 48[23]). In fact, in 2015, around 70% of total commercial flights in Brazil involved a third-party ground-handling service provider at some point (ABESATA, 2016, p. 41[64]).

The ground-handling market was liberalised in Brazil in 2009,85 and since then an authorisation is no longer required for providing such services (except for aviation-fuel supply, as discussed in section 2.4.3). Indeed, there are no relevant regulatory restrictions to enter the market. As noted in section 2.3, to access an airport a ground-handling service provider does not need to hold an airport space,86 only a contract with an airline. In addition, the provider must demonstrate compliance with airport regulations and the airport’s operations manual, especially for aviation safety and security requirements. Further, the firm is required to provide insurance to cover any damage to people and goods arising from its operations. The supplier’s personnel must also hold the appropriate qualification for the duties to be performed, and they must hold an airport identification card.

Ground-handling services are generally not directly regulated in most jurisdictions, and therefore there are no globally applicable regulatory provisions for these activities. This had led to the creation of industry-developed and implemented standards for the management and operation of ground-handling services and standardised operational procedures (International Civil Aviation Organization, 2019, p. 16[63]).87

In Brazil, airlines are not allowed to provide ground-handling services to other air carriers, unless they operate codeshare flights.88 At the time the provision was enacted the objective was to stimulate the development of specialised companies providing ground-handling services in Brazil. CADE stated that allowing airlines to provide ground-handling services to their competitors could also reduce competition between them, including facilitating co-ordination. However, considering the current market situation, the OECD could not find the objective of the provision. According to ANAC, this is a historical prohibition, but there appear no technical or economic reasons for the restriction.

Restricting airlines to perform only their own ground-handling services limits their ability to expand their operations and to take advantage of economies of scale and scope. This may reduce the number of suppliers at a given airport, which may lead to higher prices.

The provision of ground-handling services by airlines to other air carriers is unlikely to reduce competition in their core business activity – provision of air transport – as ground-handling services represent just a small fraction of airlines’ total operating costs (ABESATA, 2016[64]) (ABEAR, 2021[2]). In other jurisdictions, it is also common that airlines provide ground-handling services to other air carriers, and this may lead to more players providing these services, possibly resulting in lower prices and higher quality.

Brazilian regulation establishes that the corporate purpose of third-party ground handlers can only be the provision of ground-handling services, and that these firms can only provide services related to activities regulated by ANAC, except for the supply of aviation fuel (which is also regulated by ANP, as discussed in section 2.4.3).89 These companies are able to hold shares in any other undertakings.

As with the previous restriction, according to ANAC, there are no technical or economic reasons for the limitation. Its historical justification was to stimulate the development of specialised companies providing ground-handling services in Brazil.

Requiring independent ground-handling suppliers to provide only ANAC-regulated services may represent a barrier to entry, since some firms already providing similar services will be prevented from entering the ground-handling market or face higher costs in order to be able to offer such services. Moreover, the restriction may also prevent ground-handling service providers to diversify their activities in other related markets, and this may reduce the number of participants in the market over time, which would likely lead to higher prices and lower innovation.

Performing activities not covered by ANAC’s regulation would not exempt firms from meeting the requirements for providing ground-handling services, including mandatory insurance and qualified personnel, which ensures aviation safety and security.

In any case, according to some stakeholders, the provision is not being applied, and many firms performing activities other than ground-handling services (and therefore not regulated by ANAC) are operating in the market. This is particularly common in the provision of surface transport, catering services and security activities (ABESATA, 2016, pp. 34-35[64]).

Nevertheless, obsolete or inactive legislation can give rise to legal uncertainty and discriminatory behaviour from competent authorities. Further, such provisions potentially raise regulatory and compliance costs for suppliers and market players, notably increasing legal costs. This may lead to extra cost for operators willing to enter the market, and may discourage new entrants.

There are two main types of aviation fuel: jet fuel and aviation gasoline (AVGAS). The two most commonly used jet fuel types for commercial aviation are Jet A and Jet A-1, while aviation gasoline is used in smaller aircraft. More recently, the industry has been developing aviation biofuel (also known as “sustainable aviation fuel”) as an alternative to conventional fossil-based aviation fuels (Davidson et al., 2014, p. 3[66]).

In Brazil, the main aviation fuel used is Jet A-1, while aviation gasoline accounts for only a small percentage of fuel used in the country (Figure 2.17). Since October 2021, the sale of Jet A has been permitted in Brazil (Box 2.15).

The jet-fuel supply chain is a complex process, from extraction plant to aircraft, in a process that includes jet-fuel production (or import), storage and transport. Although the Brazilian oil sector has officially been fully liberalised since the early 2000s, in practice, an SOE, Petrobras, holds a quasi-monopoly in the production and import of fuels, including jet fuel. Petrobras also controls most pipelines for transportation of fuel from production sites to airport fuel-storage facilities, which exist in few airports, or more frequently, intermediate storage facilities (Subcomitê de Abastecimento de Combustíveis de Aviação, 2021[69]). A recent divestment agreement signed between Petrobras and CADE might increase competition at these stages of the supply-chain process (Box 2.16).

Furthermore, just three firms control more than 99% of the jet-fuel distribution market in Brazil. In general, they transport jet fuels from the intermediate storage facilities to the airport, mostly by tanker trucks, but in a few cases, pipelines transport jet fuel directly to the airport. At the airport, each distributor may have its own storage tank or may operate a shared storage tank under a joint-venture agreement (Subcomitê de Abastecimento de Combustíveis de Aviação, 2021[69]).

After the fuel reaches an airport’s storage tank, it is delivered to an aircraft in two ways: a hydrant system or refuelling truck. The first method is operated at airports with underground-pipe networks connecting the storage tanks to each gate, and a special dispenser vehicle used to connect aircraft-tank inlets with the underground system. The second method uses a truck designed to carry fuel and transfer it to aircraft directly. The type of system used at a given airport usually depends on the rate of aircraft movements (Airport Cooperative Research Program, 2010, p. 120[72]). The hydrant system is used to fuel aircraft at most large commercial airports worldwide (Airport Cooperative Research Program, 2015, p. 25[73]) (Chevron, 2007, p. 76[74]). In Brazil, however, few airports have these facilities; those that do are amongst others São Paulo Guarulhos, Rio de Janeiro Galeão, Brasília, Recife, Fortaleza and Salvador. Most airports use refuelling trucks.

According to Brazilian regulations, both distributors and resellers90 (which buy the fuel from a distributor or other reseller) can sell aviation fuels to aircraft operators, and could therefore compete. However, in practice, most air carriers obtain jet fuel from one of the three major distributors, while other distributors and resellers compete for the provision of aviation fuel in the general aviation segment (CADE, 2020, p. 42[75]). Although there is no regulatory restriction on airlines buying and supplying the fuel for their own aircraft, those operating in Brazil appear to have no interest in using this model (ANP/ANAC, 2019, p. 15[76]).

It should be noted that jet-fuel prices in Brazil are higher than the international average. For example, jet fuel in Brazil is between 30% to 40% more expensive than in the United States, based on data up to December 2020 (ABEAR, 2021, p. 55[2]). For that reason, jet fuel accounts for around 30% of total operating expenses of Brazilian airlines, which is also higher than the international average (see Table 2.9).

Aviation-fuel supply is regulated by ANP and ANAC; the former regulates the production, distribution, storage and sales of aviation fuels, the latter is responsible for regulating activities within airports. In light of this project’s scope, the OECD has focused on the final stage of the supply chain, namely how jet fuel is received into an airport storage and delivered to an aircraft, known as into-plane supply or retail supply.

In order to become an aviation-fuel distributor or reseller a firm must obtain an authorisation from ANP, which assesses, among other things, if it has suitable facilities to ensure compliance with the technical and quality-control requirements.91 Distributors and resellers can only sell aviation fuel to final users if they have a storage tank at the airport, which may be jointly operated with other firms. However, a new entrant may face severe difficulties accessing an airport’s infrastructure for storage and delivery of jet fuel.

According to Brazilian regulations, airport operators are required to allow access to their operating areas to all qualified firms, including ground-handling service providers, such as jet-fuel suppliers, willing to enter the market, except if there is a shortage of physical infrastructural space. Abusive or discriminatory practices are forbidden.92 In the event of infrastructure limitations, the airport operator must submit a justification to ANAC, indicating the measures it will implement to reduce such constraints.93

The airport-concession contracts provide similar provisions, but go further and establish that concessionaires need to request authorisation from ANAC to restrict the number of ground-handling service providers at the airport, and the regulator may set a minimum number of providers.

In addition, since the fifth airport-concession round, the contracts also indicate that ANAC has the power to determine that a concessionaire must limit or prohibit companies operating jet-fuel pipeline and hydrants to also supply jet fuel at the airport, in order to promote more competition. Moreover, the concessionaire must submit to ANAC all contracts involving the construction and operation of jet-fuel pipelines and hydrants, prior to the signature of such agreements, for analysis and the adoption of appropriate measures, if any.

Despite the legislation currently in place that aims to enhance entry to the airport, in general, and at the jet-fuel supply infrastructure, in particular, many stakeholders have said that the provisions are unclear about whether an open-access right to new entrants exists.

In most Brazilian airports, incumbents control storage tanks and – at airports with the system – hydrant facilities, which makes it difficult for new firms to enter the market. This is one important reason for the market concentration, since incumbent firms often do not enable new entrants to access the distribution and fuelling infrastructure (Subcomitê de Abastecimento de Combustíveis de Aviação, 2021[69]).

Brazilian regulations are unclear about the scope of open-access rights to airport space. For instance, there is ambiguity about whether an airport operator is required to allocate a suitable space for new entrants to operate at the airport or if an airport operator must ensure new firms gain access to pre-existing jet-fuel supply infrastructure, for example, through their becoming members of a joint venture responsible for managing the infrastructure or on a fee-for-service basis. Even if it is assumed that open-access rights comprise all relevant airport infrastructure, new entrants could face significant barriers when attempting to use infrastructure, since the legislation states neither who assesses any request for entry nor the requirements for such a request. In practice, this has seen incumbent firms running facilities needing to agree to a new firm’s terms of access. This raises concerns about potential conflicts of interest, because incumbents have clear incentives to deny potential competitors market entry. At best, incumbents have a relevant margin of discretion in fixing prices and terms of access for new entrants.

This is especially relevant at airports with a hydrant system, which usually is jointly managed by incumbent distributors, and can present a clear competitive advantage, especially for fuelling aircraft operating international flights, over refuelling trucks. Indeed, the hydrant system is an optimal fuelling method as it provides a fast and reliable refuelling method, and has with overall positive impact on the safety and efficiency of daily airport operations (Hromádka and Cíger, 2015, p. 62[77]).

Some stakeholders argue that the construction of hydrant facilities is expensive and may be operationally impractical to implement due to space limitations at an airport, or at least financially unsustainable (ACIL Allen Consulting, 2018, p. 7[78]). Whether having access to these facilities is necessary for effective competition should be assessed on a case-by-case basis, in light of an airport’s characteristics and operational requirements. Box 2.17 provides an overview of international experience of access to these facilities and the competitive issues that may arise.

The Brazilian Government has attempted to improve the regulatory framework in the most recent concession contracts. For that purpose, concessionaires are required to submit to ANAC all contracts involving the construction and/or operation of jet-fuel pipelines and hydrants, prior to the signature of such agreements, for analysis and possible remedial measures. While this may be useful for preventing potential anti-competitive arrangements, no established criteria have been established for this assessment, which may lead to discretionary treatment and legal uncertainty.

In addition, ANAC may, for competition purposes, restrict vertical integration between firms operating in the jet-fuel supply market by determining that a concessionaire must limit or prohibit companies operating jet-fuel pipelines and hydrants to also supply jet fuel at the airport. According to ANAC, this intervention in the market might reduce entry barriers and enhance market contestability, but only in specific cases. Despite the fact that such restriction could be a regulatory measure to promote competition in the jet-fuel supply market, it may lead to discretionary treatment and legal uncertainty, as there are no established criteria indicating when and how ANAC should use it. In fact, ANAC itself recognised that it did not set a specific limitation because this would require further studies.

Airport capacity determines the number of take-offs and landings allowed in any given period of time. Since it depends on the configuration of runways, the size of the apron and terminal infrastructure, an airport may not be able to accommodate all requests for take-offs and landings (Pellegrini, Castelli and Pesenti, 2012, p. 1009[84]).

Capacity restrictions can be eased by increasing capacity. This can be done by building new facilities, which involves costly, long-term projects and may not be possible, due to geographical, environmental or socio-economic constraints. The alternative is establishing demand-management strategies, which are any administrative or economic policies and regulations restricting airport access to users. Those strategies, which may be categorised as administrative controls and market-based mechanisms, can be used to restore demand capacity with little investment and within a short-time horizon (Vaze and Barnhart, 2012[85]).

The solution adopted by most jurisdictions in this regard has been an administrative mechanism known as slot allocation. The airline trade association International Air Transport Association (IATA) has developed Worldwide Airport Slot Guidelines (WASG), which are followed by Brazil and many other countries. The WASG are not a legally binding instrument, and jurisdictions can follow their own local rules for allocating slots, or complement the WASG with specific additional rules (Egeland and Smale, 2017, p. 26[86]).

Since 2020, the WASG have been jointly published by IATA, airport-operator group Airports Council International (ACI) and slot co-ordinators, the Worldwide Airport Co-ordinators Group (WWACG), which now work together to provide and enhance global standards in airport slot allocation (Airports Council International, International Air Transport Association and World Wide Airport Coordinators Group, 2020[87]).

Applying a mechanism based upon the WASG can reduce congestion and, if appropriately designed, achieve significant welfare benefits for aviation users. Indeed, the WASG provide a mechanism to balance the benefits of competition and of slot concentration, which largely reflects current industry consensus (Egeland and Smale, 2017, p. 26[86]).

An airport slot is defined as “a permission given by a co-ordinator for a planned operation to use the full range of airport infrastructure necessary to arrive or depart at a Level 3 airport on a specific date and time” (Airports Council International, International Air Transport Association and World Wide Airport Coordinators Group, 2020, p. 10[87]). Level 3 or co-ordinated airports are those in which the demand for airport infrastructure – such as runways, aprons and terminals – significantly exceeds the airport’s capacity, and this cannot be solved through expansion in the short term or voluntary schedule adjustments.94

According to IATA, there are more than 200 slot co-ordinated airports over the world, accounting for 43% of global traffic, and this number is expected to rise (International Air Transport Association, 2022[88]).95 To land or take off in a slot co-ordinated airport, airlines and other aircraft operators must have a slot allocated by the local airport co-ordinator.

In a Level 3 airport, the slot-allocation process has three main actors: 1) the airport operator, which sets the supply-side inputs, i.e. the airport capacity for the given period or the available slots per hour; 2) the airlines, which define the demand side, seeking to obtain slots to operate at the airport; and 3) the slot co-ordinator, an independent authority responsible for allocating the slots according to WASG rules (Jiang and Zografos, 2021, p. 2[89]).

In general, slots are allocated for a six-month “season”, and requests usually consist of a set of demands for the same time, normally on the same day of the week and for a period of at least five weeks. After defining the co-ordination parameters, which include the maximum capacity available for allocation at a given airport, the co-ordinator proposes an initial allocation of slots to airlines based on their requests. Airlines and co-ordinators then meet at the biannual IATA slots conference, where airlines have the opportunity to discuss schedule adjustments with co-ordinators and may trade slots, thorough bilateral approaches. Following the slot conference, slot allocation may continue until the beginning of the season, either for new requests or modification or exclusion of existing requests (Fairbrother, Zografos and Glazebrooka, 2020, p. 116[90]).

Concerning the criteria for slot allocation, the WASG establish a principle of historic precedence (also known as a grandfather clause), according to which “an airline is entitled to retain a series of slots for the next equivalent season if they were operated at least 80% of the time during the period for which they were allocated” (Airports Council International, International Air Transport Association and World Wide Airport Coordinators Group, 2020, p. 33[87]).

Slots are therefore first allocated to airlines that had the corresponding series of slots in the preceding season, as long as they complied with minimum slot usage of at least 80%, the so-called “use it or lose it” rule. Incumbent airlines are also entitled to request a change to the time of a slot. Only after meeting the slot-allocation requests from incumbent airlines are remaining slots allocated to new entrants. An airline is considered a new entrant when it does not have significant presence at the airport (Fairbrother, Zografos and Glazebrooka, 2020, p. 116[90]).

The slots remaining after the initial allocation of historical slots constitute the slot pool. According to the guidelines, 50% of the slots from this slot pool should be allocated to new entrants and the other 50% should be allocated to non-new-entrant requests, unless the corresponding requests are less than 50%.

The WASG also state that when slots cannot be allocated through the criteria outlined above, co-ordinators should consider a set of factors to determine how to allocate the remaining slots. Those factors include the effective period of operation, operational factors, type of consumer service and market, connectivity, competition and environment (Airports Council International, International Air Transport Association and World Wide Airport Coordinators Group, 2020, pp. 35-36[87]).

“Slot mobility” through the swapping or transferring of slots between airlines in a secondary process, whether for compensation or free of charge, is not prohibited by WASG. However, special attention should be given to newly allocated slots, namely in the case of transfers, in order to prevent airlines taking advantage of an enhanced priority to obtain slots simply to transfer them to another airline (Airports Council International, International Air Transport Association and World Wide Airport Coordinators Group, 2020, pp. 35-36[87]).

Brazil uses an administrative mechanism that follows WASG for managing congested airports with slot allocation currently regulated through Resolution No. 338/2014, issued by the National Civil Aviation Agency (ANAC), the slot co-ordinator in Brazil. The main goal of the mechanism is to allocate scarce capacity in the most efficient possible way, with slots allocated to those airlines that can use them to the greatest benefit of aviation users (Egeland and Smale, 2017, p. 25[86]).

The slot-allocation process is primarily based on precedence: slots allocated to an airline in the previous equivalent season entitle it to claim the slots the next year season.96 To retain historical slots, airlines must comply with the “use it or lose it” rule: a minimum regular operation of not less than 80% and a maximum tolerated delay in arrival or departure of not more than 15 minutes.97

Use of allocated slots is monitored by ANAC,98 and if the minimum-usage requirement is not met, the respective slots are returned to the slot pool for the next equivalent season.99 Slot monitoring also intends to prevent “slot hoarding” or misuse of slots by incumbent airlines, which can include use of airport infrastructure at a co-ordinated airport to operate a flight without an allocated slot, operation of a flight in a significantly different way to the allocated slot (such as a different aircraft type, capacity or time), and holding slots that the airline does not intend to operate.100 According to Resolution ANAC No. 338/2014, in case of misuse of slots an airline loses its precedence.101

After the allocation of slots to incumbents, any remaining slots in the pool – usually around 50% – are distributed between incumbents and new entrants.102 When ANAC designates an airport as co-ordinated or Level 3, it establishes the percentage of slots from the pool that needs to be allocated to new entrants. The minimum percentage is 50% (in line with the WASG), but ANAC may determine a higher number.103 ANAC must also determine the criterion for the definition of new entrants. Resolution ANAC No. 338/2014 provides that airlines holding at most five slots on a specific day at a co-ordinated airport are considered new entrants. Nevertheless, ANAC may establish that airlines holding more than five slots are also considered new entrants.104

The remaining slots from the pool (usually 50%) are allocated to new entrants and incumbents. Requests for the continuation of the previous season’s slots are prioritised over new operations.105 If there are similar requests based on the same grounds – either for continuation or for new operations – the slots are allocated equally among all airlines that presented a request.106

Resolution ANAC No. 338/2014 forbids the sale or lease of slots, even fee free, but regulatory changes have recently been made.107

Allocated slots may be exchanged between air carriers, however, but only one for one and each transaction is subject to ANAC approval. Slot swaps may be annulled by ANAC if one of the airlines does not effectively use the corresponding slot. Resolution ANAC No. 338/2014 prohibits swapping slots allocated to a new entrant, unless 1) the series of slots have been operated for two equivalent seasons; 2) both airlines are new entrants; or 3) the swap benefits the airport infrastructure, at the discretion of ANAC.108

At the time of drafting this report, ANAC was in the process of approving Resolution ANAC No. 682/2022 to replace Resolution ANAC No. 338/2014, which occurred in June 2022.109 The new resolution retains the main features of the old regulation, but makes two important changes.

First, slot trading becomes legal, with ANAC approval. Only slots operated for three equivalent seasons are allowed to be traded. If an airline transfers its slots, it will not be entitled to obtain new slots from the pool for three equivalent seasons, unless no other airlines are interested. These limitations aim to prevent speculation and distortions through a market-based mechanism.

Second, when designating a given airport as co-ordinated, ANAC may establish a slot cap for each airline, unless no other airlines are interested in obtaining the slots. When this is the case, the ceiling also applies to slots acquired through trading and mergers. This intends to limit concentration and foster market contestability.

Although administrative-demand management strategies, particularly WASG scheme, aim to reduce delays and increase the efficient use of airport infrastructure, several competition problems may arise from the current system.

The main issue concerns the grandfather clause, which grants incumbent airlines more favourable treatment, possibly preventing (or at least restricting) new entries. In fact, the need for slots is the most critical barrier deterring entry into congested airports, especially on certain routes, since in these cases most of slots are already allocated to incumbent airlines (OECD, 1999, p. 11[91]) (OECD, 2014, p. 15[92]) (Egeland and Smale, 2017, p. 26[86]).

Indeed, incumbent airlines are the leading firms at the largest co-ordinated airports in Europe and in the United States, controlling most slots at these airports (Table 2.10).

One 2013 study indicated that the non-availability of slots at major airports was perceived as the most severe entry barrier to aviation markets by managers of airlines from the European Union and European Free Trade Association states (Kappes and Merkert, 2013, p. 62[94]).

Due to the grandfather clause, slot mobility is low at many congested airports. A 2011 study for the European Commission indicated that at the most congested airports in the European Union, only one – London Gatwick, then in the EU – had undergone a relevant change in slot holdings in the previous five years (Steer Davies Gleave, 2011, p. 123[95]).

Furthermore, the current system contributes to the market’s low contestability, since the new-entrant rule results in schedule fragmentation, allocating a small, post-incumbent number of slots to a large number of airlines, which may not have sufficient presence at the airport to be able to provide effective competition (Steer Davies Gleave, 2011, p. 196[96]). Indeed, mid-sized incumbents, already holding a set of slots, are a stronger competitive threat to dominant airlines than smaller new entrants, with no or only few slots (Haylen and Butcher, 2017, p. 13[97]).110

From a competitive perspective, the present model may also lead to sub-optimal or undesirable mergers and acquisitions, which may contribute to market concentration. A merger or acquisition consolidates all slots previously held by the airlines involved in the transaction. Although concentrations may create synergies, they may also be used by the buyer solely as a means to acquire slots, without any further efficiency arising from the merger. Even if competition authorities might require divestiture of certain acquired slots, the others remain available for use by the acquiring airline to develop its own route portfolio (Gillen and Starkie, 2015, p. 8[98]).

Besides the lack of contestability, the slot-allocation system is criticised as inefficient from an economic point of view. Indeed, the mechanism may discourage airlines from optimal use of available airport infrastructure as the regulations may allow incumbent airlines to cancel unprofitable flights systematically, while retaining the ability to deter the entry of potential rivals at congested airports (Miranda and Oliveira, 2018, p. 201[99]). The “use it or lose it” rule may not be enough to ensure the efficient use of the infrastructure, since airlines may not have incentives to cede slots out of fear of rival entry (Avenali et al., 2015, p. 27[100]).

In fact, the literature points out several cases of so-called “slot hoarding” behaviour (also known as “slot babysitting”), when airlines use slots sub-optimally by operating low load factors or small aircraft at highly congested airports, in order to preserve their slots. This limits the total number of passengers transported and may lead to higher fares (Haylen and Butcher, 2017, p. 12[97]).

Moreover, the current slot-allocation mechanism is insulated from market forces (Ball, Berardino and Hansen, 2018, p. 190[101]). Airports are not allowed to charge market-clearing prices for slots, which means airlines with the greatest willingness to pay have no opportunity to do so, and incumbents may pay less than a possible market price, thus earning economic rents (Haylen and Butcher, 2017, p. 12[97]). This prevents efficient outcomes, such as the possibility of creative use and novel business models (Ball, Berardino and Hansen, 2018, p. 193[101]).

Slot allocation can also lead to higher prices for consumers (Ball, Berardino and Hansen, 2018, p. 190[101]) (Oliveira, 2016, p. 44[102]). For example, one 2014 study found that routes involving slot-controlled airports have airfares 7.0% higher on non-stop routes and 4.3% higher on one-stop routes, which suggests the scarcity value of airport slots (Zou and Hansen, 2014, p. 63[103]).111

In 2017, the International Transport Forum (ITF) held a roundtable to discuss how to improve the efficiency of airport-infrastructure use, and promote a more competitive environment at congested airports (Box 2.18).

Today, Brazil has 5 Level 3 or co-ordinated airports: Belo Horizonte Pampulha (PLU), São Paulo Congonhas (CGH), São Paulo Guarulhos (GRU), Recife (REC), and Rio de Janeiro Santos Dumont (SDU).112

The concerns raised in academic literature and international experience of slot allocation also apply to Brazil. Indeed, the current system may actually be increasing concentration, enhancing market power of incumbents, preventing new airlines from entering the market, and promoting inefficient use of airport infrastructure.

São Paulo Congonhas airport (CGH) is the most congested airport in Brazil. It is located in the centre of the country’s largest city and economic capital, which prevents any further increase of its capacity. Congonhas was the second busiest airport in Brazil in 2019, third busiest in 2020, and fourth busiest in 2021 (ANAC, 2022[105]). This makes discussions about slot allocation particularly important at Congonhas.

Two major carriers have traditionally provided most flights at Congonhas: Varig and Tam in the early 2000s, and Tam (later Latam) and Gol from the mid-2000s. In 2007, Varig was acquired by Gol, allowing the latter to access its once-competitor’s slots at Congonhas (Box 2.20). From 2008 to 2013, Tam/Latam and Gol together accounted for around 90% of all flights at the airport, a concentration that remained similar until 2018 (Miranda and Oliveira, 2018, p. 206[99]) (DEE/CADE, 2019, p. 9[106]). In 2019, Avianca, at the time the fourth-largest airline in Brazil with the third-largest market share at Congonhas, went bankrupt. This allowed ANAC to take innovative decisions to increase competition at that airport, even if the two dominant air carriers maintained their market share (Box 2.19).

Figure 2.18 demonstrates how slots were allocated at four Brazilian co-ordinated airports from 2015 to 2022, and shows that the main Brazilian airlines holding large market shares at these airports has changed little over this time.

The issue of slots at co-ordinated airports has been highlighted by CADE as a relevant barrier to entry in the airline market. For instance, Brazil has experienced mergers whose main goals appeared to be the acquisition of airport slots, such as Gol’s acquisition of Varig in 2007. In particular, a merger may be a practical solution to bypass the prohibition of trading slots. Box 2.20 illustrates how CADE has assessed airport slots in some merger-control cases involving airlines.

There is no minimum aircraft capacity – the number of seats on each flight – to operate at congested airports in Brazil. In fact, smaller airlines can obtain slots to operate low-capacity aircraft, which means that fewer people can be transported at the congested airport, potentially reducing overall consumer welfare. Also, it is unclear whether allowing small airlines to enter the market to operate such flights actually poses a competitive threat and substantially enhances competition. When reallocating slots at Congonhas in 2019, limiting slot allocation to a minimum aircraft capacity was expressly refuted by ANAC, which stated the need to ensure new entry in the market, regardless of the total number of passengers transported.

In light of the slot-allocation model implemented by ANAC, one study evaluated Congonhas from 2002 to 2013 using an econometric model (Miranda and Oliveira, 2018[99]). It found evidence that market concentration on a given route is likely to reduce flight disruptions such as delays and cancellations, as more intense competition tends to force airlines to improve their service quality to passengers. Moreover, airlines strategically manage flight disruptions and employ schedule padding, adding extra time to a flight’s scheduled arrival time to reduce the risk that the flight is considered delayed by the authorities. It was also pointed out that flight-disruption costs appeared to be passed onto consumers.

The study also noted that airport slots may have a role in strengthening the internalisation of congestion costs by dominant airlines. Although slot concentration may induce “slot hoarding” behaviour by airlines, the assessed period showed that those practices were not effective. In fact, over the study’s duration, the number of flight delays at Congonhas dropped by 50% and flight cancellations by 69%. Nevertheless, the study found evidence that the average aircraft size decreased over the period, which may indicate a potentially inefficient use of airport infrastructure.

In conclusion, the paper stated that a traditional model of slot allocation (grandfather clauses combined with the “use it or lose it” rule) would be sufficient to lead to the internalisation of congestion externalities (some of which are currently borne by consumers, such as flight cancellations or delays) by dominant airlines (Miranda and Oliveira, 2018[99]).

A more recent study by a consulting firm contracted by the Brazilian Ministry of the Economy, with support from the United Nations Development Programme (UNDP), to propose regulatory solutions for an optimisation of airport slot allocation in Brazil, seems to be in line with the earlier paper (LL Advogados and PEZCO, 2021[110]). The study developed an econometric model to assess whether Resolution ANAC No. 338/2014 had impacted consumers. The results showed that slot concentration at Congonhas (as already noted, the most restricted airport in Brazil) has relevant, but specific effects on fares in the São Paulo region. This suggests that not all cases of slot concentration are detrimental to price competitiveness. Although in some cases slot concentration produces market power, in others it may generate pro-competitive effects. Indeed, the current regulatory framework has allowed the market to increase consistently, including with lower prices for consumers. However, the study highlighted that market shares of incumbent airlines have now stabilised, which indicates a need to focus on market contestability.

Other studies have been carried out by the Brazilian Government in order to evaluate whether and how Resolution ANAC No. 338/2014 should be amended or replaced. For example, SEAE and the World Bank have carried out a study on slot allocation regulation in Brazil, concluding that the current regulation did not reduce market concentration at congested airports (Secretaria de Advocacia da Concorrência e Competitividade, 2021[104]).

Another issue that may limit competition in Brazil is the restriction on transferring slots. Until recently, only free transfer between airlines belonging to the same economic unit or free one-for-one swaps not involving new entrants, were allowed. Slots may have different economic values, and the restriction of swapping one slot for more than one may prevent transactions that would be mutually beneficial for the parties and that could improve efficiency.

The WASG do not prohibit slot transfers between airlines, whether or not for compensation or consideration, although they highlight that national law may prohibit such transactions (Airports Council International, International Air Transport Association and World Wide Airport Coordinators Group, 2020, p. 40[87]). At least in theory, the inclusion of a market mechanism could enhance competition and efficiency, even though it seems reasonable to keep some sort of regulatory control, especially to prevent abusive behaviour by dominant airlines (see Annex 2.A). As previously noted, in the recently approved Resolution ANAC No. 682/2022, ANAC has allowed airlines to trade slots, under certain circumstances.

In summary, competition concerns related to airport slot allocation in Brazil seem to be aligned with concerns already identified in the economic literature and verified in other jurisdictions. This is the case of increasing market concentration and market power, as well as the inefficient use of airport infrastructure. This is not surprising since Brazil follows the WASG, which is also used by most jurisdictions.

The personnel working in civil aviation includes employees from the entire air-transport industry, with airlines, air-navigation service providers, airports, and the civil-aerospace sector (Air Transport Action Group, 2020, p. 19[111]). This includes pilots, cabin-crew members, flight dispatchers, air-traffic controllers and ground-handling and aircraft-maintenance staff, jobs that in many cases require specialised qualifications, such as a licence, and a significant amount of training.113

A licence, according to the International Civil Aviation Organisation (ICAO), is a way that a state can authorise its holder to perform specific activities that, unless performed correctly, could jeopardise aviation safety. Therefore, the licence provides evidence that the issuing state is satisfied that the holder has demonstrated an internationally acceptable degree of competency (International Civil Aviation Organization, 2012, p. 22[112]). In Annex 1 to the Convention on International Civil Aviation, ICAO also provides international standards and recommended practices for licensing flight crews114 and other personnel.115

Accordingly, licensed aviation professions are subject to regulations that seek to promote aviation safety.116 These requirements vary according to the specific profession, but usually comprise training, practical experience, examinations, and characteristics such as age, citizenship and language competence.

In Brazil, the following civil-aviation professions are regulated by ANAC:117

1. 1. pilots118

2. 2. flight mechanics119

3. 3. flight attendants120

4. 4. flight dispatchers121

5. 5. aircraft-maintenance technicians.122

The first three professions compose the aircrew, which provides services on an aircraft during a flight, with pilots and flight mechanics comprising the flight crew and flight attendants the cabin crew.123 The number of members of a flight and cabin crew varies according to the type of aircraft.

On the ground, flight dispatchers are responsible for the control and supervision of flight operations and aircraft-maintenance technicians ensure the continuing airworthiness of an aircraft (International Civil Aviation Organization, 2007[113]).

In line with Annex 1 to the Convention on International Civil Aviation, there are different kinds of pilot licences: 1) private; 2) commercial; 3) multi-crew; 4) airline transport; 5) glider; and 6) free balloon. The total number of civil-aviation licences issued by ANAC between 2010 and 2022 is presented in Table 2.11.

Each type of licence has different requirements (Table 2.12).

Although many of the requirements for obtaining civil-aviation licences in Brazil are in line with Annex 1 to the Convention on International Civil Aviation, there is room for regulatory reforms that would be effective in promoting market entry and competition.

Applicants for a civil-aviation licence must undergo practical training at a civil-aviation instruction centre (CIAC). Additionally, they may also be required to receive theoretical instruction at a CIAC, depending on the requested licence. A CIAC must be certified by ANAC to provide courses for licences for pilots, flight mechanics, flight attendants, flight dispatchers, and aircraft-maintenance technicians. For that purpose, it must demonstrate compliance with requirements related to the training programmes, facilities, equipment, personnel and training material, according to the courses it intends to offer.124 This aims to ensure that training courses meet instructional quality and safety criteria, and are in line with the standards set out in Annex 1 to the Convention on International Civil Aviation.

In addition, if the CIAC also gives flight instruction on board an aircraft, it requires an ANAC authorisation to operate, since flight training of aircrew is a specialised air service.125 This rule intends to guarantee that the firm will follow all technical requirements when providing such a service, in order to protect aviation safety.

Since 2017, Law No. 13.475/2017 states that a flight instructor on board an aircraft must be hired by the training organisation on an employment contract.126 This aims to enhance their employment protection.

Further, to be allowed to give skill tests, a CIAC must be authorised by ANAC and one or more of its instructors certified as an examiner. For that purpose, an instructor must meet different requirements, including: 1) minimum experience (for aeroplane examiners, at least 500 hours of aeroplane flight instruction); 2) a valid licence and ratings for the type of licence to be examined; 3) completed an examiner training course given by ANAC or an organisation authorised by it; and 5) passed a skill test as a certified examiner.127 These rules aim to ensure that examiners have appropriate qualifications and experience to assess whether an applicant is able to hold a licence, based on objective, transparent and non-discriminatory criteria.

Currently, 333 training organisations are certified as a CIAC in Brazil, although 13 of them have their certification suspended (ANAC, 2022[115]).

Training organisations are free to offer their services in the market and to establish their own prices.

Requiring a training organisation to be certified by ANAC seems reasonable to guarantee a minimum level of training programmes, and so aviation safety. Indeed, many jurisdictions also require such an approval by the civil-aviation authority, following Annex 1 to the Convention on International Civil Aviation. Nevertheless, this may be burdensome, and increase entry costs, especially for SMEs.

The European Union has introduced an alternative system for training general-aviation personnel that is more appropriate for and proportionate to the needs of these activities. The requirements applicable to approved training organisations (ATOs) were considered too demanding for small general-aviation training providers, mainly run by private flying clubs or private individuals (Euripean Aviation Safety Agency, 2016[116]). Since 2018, what are known as declared training organisations (DTOs) can provide training for non-commercial pilot licences (including private pilot licences) on the basis of a declaration submitted by the representative of the organisation, confirming that it has implemented a safety policy and will comply with the applicable requirements.128

This solution is believed to lessen the costs for obtaining a non-commercial pilot licence (Euripean Aviation Safety Agency, 2016[116]). In the long term, this outcome is also likely to reduce the costs of getting a commercial-pilot licence, since obtaining a private-pilot licence is mandatory for becoming a commercial pilot.

As for the need for an authorisation by ANAC to provide flight instruction on board an aircraft – in addition to the required certification – it is worth noting that recent regulation issued by ANAC129 no longer requires an authorisation for a Brazilian firm to provide air transport services, including specialised air services such as on board training. Instead, a national airline must only be certified by ANAC and operate an aircraft in an airworthy condition and compatible with the intended service. Hence, provisions that demand an authorisation to provide flight training are obsolete. This can raise regulatory and compliance costs facing market players. Furthermore, it can lead to extra costs for operators willing to enter the market, and may discourage new entrants.

Additionally, obliging a CIAC only to hire flight instructors to provide flight training on board an aircraft through an employment contract increases their costs, and so the cost of obtaining a pilot licence. This also prevents commercial pilots holding a flight-instructor certificate from doing freelance work, which could increase their flight experience more flexibly. This may be crucial to becoming a more competitive pilot in the job market, as a higher number of flight hours is usually decisive for getting a job, as well as helping these commercial pilots to achieve the required hours to obtain an airline transport pilot licence. According to ANAC, this is not a technical requirement and does not enhance aviation safety. In fact, before Law No. 13.475/2017 was enacted in 2017 doing freelance work was a common practice.

To obtain certain licences, an applicant must take a theory course at a CIAC before taking the technical examination. This is the case for licences for commercial pilots, flight mechanics, flight attendants, flight dispatchers and aircraft-maintenance technicians. For a flight-dispatcher licence, the theoretical course may be substituted by two years of service as an airline-transport pilot or flight mechanic. Those holding a bachelor’s degree in aeronautical, electrical, electronics, mechanical or aeronautical-mechanical engineering may be exempted from the technical course for obtaining an aircraft-maintenance technician licence. Applicants for pilot licences (except commercial-pilot licences) must only pass the technical examination.

The need to take a theoretical course at a CIAC before taking the technical examination increases the costs of getting a licence, and might reduce the number of licensed professionals in Brazil. The examination aims to ensure that applicants have the necessary knowledge of the privileges granted to the holder of the requested licence. Yet requiring a theoretical course may prevent applicants from using self-study methods, which could be both more affordable and satisfactory. For instance, certain licences (such as private pilot and airline-transport pilot licences) do not require a theoretical course.

Annex 1 to the Convention on International Civil Aviation only establishes that the applicant must demonstrate a level of knowledge appropriate to the privileges granted to the licence holder. This gives each signatory state the right to decide how the required level of knowledge is assessed.

In Australia, for example, applicants to private, commercial and air-transport pilot licences, as well as to aircraft-engineer licences only require a theory exam, which can be self-taught.130 New Zealand similarly only requires an examination for private, commercial and airline transport pilot licences and aircraft-maintenance engineer licences.131

According to Brazilian legislation, the aircrew of domestic flights must be composed only of native or naturalised Brazilian citizens.132 For international flights provided by Brazilian airlines, up to a third of flight attendants on board can be foreigners.133 In that case, the flight crew – including pilots and flight mechanics – must still be Brazilian citizens. There is no nationality requirement for flight dispatchers and aircraft-maintenance technicians.

Although there is no official recital on the objective of this requirement, it can be assumed that it is intended to support the national labour market and ensure that Brazilian workers acquire the necessary skills to perform as aircrew members. Furthermore, it also seeks to establish a Brazilian workforce to prevent dependence on foreign aircrews. According to ANAC, there are no technical reasons for the nationality requirement.

In case of a shortage of Brazilian workers, foreign instructors may be provisionally admitted, but an ANAC authorisation is required and only valid for the time required to qualify new Brazilian aircrew members and for a maximum of six months. The rationale is to ensure that Brazilian airlines can operate, even without sufficient domestic personnel, but only until enough qualified crew members have been employed.

Foreigners may also be admitted by Brazilian airlines as aircrew members in case of bilateral agreement between Brazil and the country of the workers’ nationality, on the basis of reciprocity.134 However, only a few specific examples of such agreements, with particular airlines and with limited impact, are currently in force.

The Brazilian nationality requirement is discriminatory. Excluding nationals of other countries reduces the number of people able to offer services in the market. Moreover, the requirement may make the entry of potential market participants more difficult as a consequence of the difficulty and cost of finding suitable crew.

For international flights, even though one-third of cabin crew members may be foreigners, all pilots and flight mechanics must be Brazilian citizens. The nationality requirement only applies to Brazilian airlines, and therefore foreign air carriers providing international flights to and from Brazil and competing with Brazilian firms on the same routes can hire foreign workers. In case of shortage of Brazilian manpower, foreign companies will not be affected, and Brazilian firms will be put at a competitive disadvantage on the routes on which they face foreign competition. Furthermore, multinational crew members can be commercially attractive and constitute a competitive advantage, especially for international flights.

In addition, Brazilian legislation allows foreigners to be employed as a last resort (in case of shortage of Brazilian personnel), but this requires an authorisation from ANAC for which there are no established criteria for assessing such requests, especially how to determine when there is a shortage of workers. This may lead to discretionary decisions and legal uncertainty. Moreover, as the authorisation for hiring foreign workers is limited to the period necessary for instructing new Brazilian aircrew members (up to six months), if no interested national citizens are found to qualify, the shortage of personnel will remain in place.

There appears to be no current shortage of aircrew members in Brazil, and the flexibility on the nationality requirement does not seem to have been applied in practice. On the other hand, Brazilian airlines may not have access to a sufficient supply of aviation personnel in the future. ICAO estimates predict that Brazil will require 9 807 new pilots and 15 922 flight attendants by 2037 (International Civil Aviation Organization, 2018[117]). According to one 2021 study, despite the uncertainties about the recovery of the civil-aviation industry from the COVID-19 crisis, a global pilot shortage will emerge in some regions in the years ahead. Although Latin America is likely to remain closer to equilibrium for pilot supply and demand, Brazilian crew members may be recruited to supply demand in regions facing a pilot shortfall (Murray, 2021[118]).

In most jurisdictions, nationality is not a requirement for working as an aircrew member, but foreigners willing to work in a third country must have the right to work in that country (in addition to hold the appropriate licences or certifications). For example, this is the case in the United States, Canada, the European Union, Chile, China, United Arab Emirates, and Qatar. In Argentina, foreigners can also work as a pilot or flight attendant, but only foreigners with permanent residency can work as a flight mechanic.

Aircrew cannot be outsourced in Brazil: cabin and flight crew members must be directly hired by the aircraft operator, through an employment contract.135 This restriction aims to protect workers, especially considering that these activities concern airlines’ core business. Where it is allowed outsourcing has resulted in less advantageous working conditions marked by lower union penetration, lower wages, and reduced benefits (International Transport Forum, 2015, p. 20[119]).

Outsourcing aircrew may be a competitive advantage for airlines, and may reduce their costs. Indeed, in order to increase cost efficiency, flexibility and access to resources, airlines have been increasingly outsourcing functions to third-party organisations (Steer Davies Gleave, 2015, p. 181[120]). Outsourcing aviation personnel is not unlawful in several other jurisdictions, such as the United States and the European Union.

Although in the past few airlines outsourced flight and cabin crew employment, this has been changing in recent years, for example, in the United States and in the European Union (Rutner and Brown, 1999[121]) (Callaci, 2020[122]) (European Parliament, 2016[123]). For instance, in Europe, certain low-cost carriers and even a network carrier were outsourcing flight and cabin crew in 2015 (Steer Davies Gleave, 2015, p. 188[120])

Outsourcing can be especially relevant for small regional air carriers and new entrants, since it allows greater flexibility (as the services are only paid when required) and reduces costs for hiring and training specialised personnel. This might increase the number of players in the market and ultimately reduce air fares to consumers.

Recent changes in Brazilian labour law have allowed outsourcing even for firms’ core business activities.

Part I of Annex 6 to the Convention on International Civil Aviation provides that member states shall establish regulations for the purpose of managing fatigue,136 with the aim of ensuring that flight- and cabin-crew members can safely perform their duties at an adequate level of alertness.

Indeed, academic literature highlights that the absence of tight regulations can compromise safety standards. The number of fatigue-related safety incidents has grown, and crew fatigue and sleep loss are often the causes of operational errors (Efthymiou et al., 2021[124]).

Fatigue management may be implemented by: 1) prescriptive regulations for flight time, flight duty-period limitations, and rest-period requirements;137 and 2) authorising operators to use a fatigue risk-management system (FRMS).138

The ICAO’s “Guidance Material for Development of Prescriptive Fatigue Management Regulations” indicates that limitations for flight times and duty periods should be divided by time periods (International Civil Aviation Organization, 2011, p. 3[125]). For instance, many countries prescribe daily, monthly and yearly flight-time limitations, as well as cumulative duty limitations for specified periods. However, the time periods established by countries vary substantially, according to the perceptions as to what is acceptable. ICAO recommends member states consider the results of relevant scientific principles and knowledge, past experience, cultural issues, and the nature of operations, as well as to examining other states’ practices.

Brazil has adopted a prescriptive fatigue-management system, establishing flight-time and duty-period limitations, as well as rest-period requirements.139 Airlines may mitigate these limitations by introducing an FRMS, which comprises ongoing risk assessment and monitoring, and can develop FRMS that establish other maximum values for flight times and duty periods, based upon data, scientific principles and operational experience to ensure that crews operate at an adequate level of alertness. To be implemented, a FRMS must be approved by ANAC.140 If an FRMS provides a duty period longer than 12 hours or a rest period of fewer than 12 hours for operations with the minimum required crew, it must be negotiated between airlines and unions thorough a collective labour agreement.141

Although establishing flight-time and duty-period limitations is necessary to prevent fatigue impacting upon aircrew performance and so aviation safety, Brazilian regulation seems to be more restrictive than other jurisdictions, including neighbouring countries (Table 2.13).

For example, while the maximum flight time for aircrew in Brazil is 16.5 hours (with a 4-pilot crew), in Argentina and the United States, it is 17. The Chilean regulation provides that the maximum flight duty period can be up to 20 hours with a 4-pilot crew, a period longer than the 18 hours in Brazilian legislation. Additionally, the annual flight-time limitation set out in Brazilian legislation is lower than comparable jurisdictions, such as Canada, Chile and the United States.

These limitations increase costs for Brazilian airlines on long-haul flights compared to foreign competitors. These limitations only apply to Brazilian airlines, which means that foreign air carriers providing international flights to and from Brazil are not subject to the Brazilian flight-time limitations. This reduces Brazilian competitiveness compared to neighbouring countries, and may discourage foreign investors from entering the Brazilian market.

According to stakeholders, these restrictions have already prevented Brazilian airlines from providing flights on some routes, because the flight could not be operated, even with four-pilot crews. Although ANAC has recently mitigated these outcomes through RBAC No. 117 (which provides longer flight-time and duty-period limitations under the scope of a fatigue risk management), these limits are still below other countries. Also, despite the fact that since 2020 Brazilian airlines may establish an FRMS with the aim of derogating flight-time limitations, stakeholders suggest that implementing such a system may be costly. In any case, many countries also provide for a FRMS, which does not mitigate the impact of the higher flight-time and duty-period limitations set by the Brazilian legislation.

This annex will further analyse slot auctions and slot trading, which are two of the most discussed solutions for increasing competition in the process of allocating slots. Both options have advantages and disadvantages.

Slot auctioning may allow the allocation of scarce airport capacity to those airlines that value it most (or are most willing to pay) and so will provide more innovative and competitive services (Egeland and Smale, 2017, p. 27[86]) (Bichler et al., 2021[126]).

If the auction is appropriately designed and managed, it may allocate slots in a way that increases efficiency and encourages competition between airlines (Egeland and Smale, 2017, p. 27[86]). Indeed, auctioning slots may reduce barriers to entry, increase regulatory stringency, and prevent the possibility of windfall profits (Pertuiset and Santos, 2014, p. 67[127]).

Auctioning slots would improve overall system performance, as regards the available options between city-pair markets, the daily flight delays, as well as financial considerations for both passengers and airlines (Ball, Berardino and Hansen, 2018, p. 187[101]). Furthermore, auctioning slots could raise funds for the development of new infrastructure to help ease the problem of scarce airport capacity, where expansion is feasible (Egeland and Smale, 2017, p. 27[86]).

Slot auctions may completely or partially replace the current slot-allocation mechanism. Auctions may involve all slots (eliminating the grandfather clause) or only selected slots (such as slots from the pool, slots withdrawn from incumbents, or newly created slots).

Designing smart slot auctions is, nevertheless, a great challenge. They must be allocatively efficient to maximise the value of the allocation and incentive compatible, giving airlines and airports the necessary incentives to take part and bidders an interest in reporting their valuation honestly. They also need to be flexible, allowing airlines to develop a strategy to schedule take-offs and landings, as well as understandable, easily implementable and transparent (Pertuiset and Santos, 2014, p. 67[127]).

Academic literature suggests different approaches to designing slot auctions. One paper, for instance, proposes a Vickrey-Clarke-Groves auction mechanism, which would result in a division of the set of the auctioned slots across several bidders, maximising the seller’s income (Pertuiset and Santos, 2014[127]).

Another paper notes that auction markets have been used around the world in similarly challenging environments with successful outcomes (Bichler et al., 2021[126]). Moreover, the authors emphasise the recent advances in economic modelling, computation and algorithms, which should improve the auction design, and consequently allocative efficiency.

Nevertheless, without a periodic reallocation of slots, the same outcomes produced by the present slot allocation model would be reproduced. In other words, an auction allocating unrestricted slot ownership would result in a new status quo, similar to the current one. Periodic slot reallocation through auctions would therefore achieve a vibrant, competitive environment, allowing a new or growing airline to obtain slots at congested airports (Bichler et al., 2021[126]) (Ball, Berardino and Hansen, 2018, p. 192[101]).

Another study used an economic model to investigate the effectiveness of airport slot auction and showed that a slot-auction mechanism is more effective than alternative allocations by a regulator when there is substantial demand uncertainty (Sheng et al., 2015[128]). Furthermore, although auctioning some slots can improve social welfare, the marginal effect may decrease quickly. In conclusion, the paper indicated that regulators should carefully chose the number of slots to be auctioned, because the acquisition of slots from current users may cause operational disruption and generate transaction costs.

Despite the advantages, studies have highlighted several limitations of slot auctions (Avenali et al., 2015, pp. 32-33[100]) (Sheng et al., 2015, p. 82[128]). The main criticism is that bids in a slot auction would not reflect slots’ social value, but rather issues of market power. Usually, an auction is driven by bidders’ profits, which do not take into account consumer welfare (and expected consumer surplus would hardly be measured beforehand). In addition, bidders’ valuations rely upon the market structure (such as the degree of competitiveness in a given market) and how the auction was designed, including factors such as the number of available slots, how the bids can be made, and incentives to collude.

The strong complementarity between slots in origin and destination is also relevant, and airlines may manipulate the auction. In fact, the literature has described how when multiple complementary objects are sold that will subsequently be used by winning bidders to compete against each other in downstream markets (such as rights for electricity and gas transmission, mobile licences, and airport slots), auctions can behave in problematic ways, as they can be manipulated by bidders to build market power (Jehiel et al., 2003[129]). In those cases, valuations made by bidders for the multiple auction objects are interdependent, and allocations to one bidder create negative externalities for others. Severe conflicts may be produced between different goals of the auction, especially between revenue maximisation and efficient allocation. Therefore, auctioning slots could lead to rents to dominant air carriers to the detriment of passenger interests (Sheng et al., 2015, p. 82[128]).

The implementation of a slot-auction system may also be difficult from a political point of view. Incumbent slot holders have strong vested interests against change and it might be necessary to consider compensation for grandfather clauses (Ball, Berardino and Hansen, 2018, p. 201[101]). In addition, the withdrawal of slots from incumbents carries the risk of extreme disruption in the airline market, especially for airlines’ route scheduling and for airports that rely on long-term airline partners for their business. This could also significantly affect airlines’ business values (Egeland and Smale, 2017, p. 28[86]).

In 2008, the United States Federal Aviation Administration (FAA) endeavoured to auction off 10% of the slots at New York’s three major airports: JFK, LaGuardia and Newark.142 The proposition met with strong criticism, especially from IATA, incumbent airlines, and the airports’ operators, who argued that the auction would produce an adverse effect on airport operation, airline services, and the quality of consumer services. The proposal was challenged before the US Court of Appeals for the District of Columbia Circuit and later completely dropped (Avenali et al., 2015, p. 28[100]) (Sheng et al., 2015, p. 81[128]).

In 2015, China announced it would, for the first time, use a market approach to allocate 50% of newly created slots for domestic flights at Guangzhou Baiyun and Shanghai Pudong airports.143 At Guangzhou Baiyun, nine pairs of slots were auctioned for a three-year period. The winning bidders were the four largest, state-owned Chinese airlines and their subsidiaries, even though some privately owned carriers participated in the proceeding. A lottery (“lucky draw plus charge” model) was used at Shanghai Pudong airport for the allocation of the available slots, and six Chinese airlines obtained slots, including some small carriers. In both cases, winners were allowed to transfer, lease and sell the slots throughout the allocation period (Wen, 2015[130]) (Ballantyne, 2016[131]) (Civil Aviation Administration of China, 2016[132]) (Civil Aviation Administration of China, 2016[133]). This experience showed that auctioning slots does not necessarily lead to more competition in the market, albeit this can be a possible outcome.

Secondary slot trading may be an alternative for improving the slot allocation at congested airports without changing the primary allocation (the traditional administrative scheme). Monetised slot trading could exert market pressure to alleviate inefficient slot utilisation and enhance economic efficiency, since airlines valuing slots the most would be able to purchase them, regardless of the initial allocation (Haylen and Butcher, 2017, p. 18[97]) (Egeland and Smale, 2017, p. 28[86]). The increased efficiency of this regime would incentivise long-haul over short-haul services and larger over smaller aircraft, and would enhance the average number of passengers per slot.144 Indeed, the literature indicates that there are greater efficiencies in using slots for larger aircrafts over longer distances with higher payloads of passengers (de Wit and Burghouwt, 2008, p. 154[134]) (Mott MacDonald and European Commission, 2006, pp. 1-11[135]).

Slot trading would allow airlines to recognise the opportunity cost of slots, including the cost of keeping slots in low-value uses. This would establish a market for slots, and it would be easier for new airlines to enter the market and for smaller air carriers to expand their services, promoting more slot mobility (Guiomard, 2018, p. 132[136]).

Allowing slot trading may also prevent mergers aiming to incorporate slots from a third firm, without any further efficiency, which is common in jurisdictions where trading slots is unlawful.

In addition, the ability to participate in a secondary-slot market may lead to an uplift in equity values of airlines as they would be able to include slots valuations as assets on their balance sheets. Moreover, airlines may obtain greater access to debt markets if slots could be collateralised, which could be particularly relevant to air carriers facing financial difficulties (Mott MacDonald and European Commission, 2006[135]). However, this may end up favouring incumbent airlines controlling most slots and so simply further increase their market power.

There are several concerns about slot trading’s ability to achieve a more efficient and competitive distribution of slots. One is that a set of factors may restrict the contestability of the secondary slot market, for example, airlines may hoard slots and not cede prominent slots to rivals. Furthermore, dominant airlines could engage in predatory bidding for slots to keep entrants out of the market and reinforce their dominance at congested airports (Haylen and Butcher, 2017[97]) (Starkie, 2003, p. 59[137]) (Egeland and Smale, 2017, p. 28[86]). Yet, according to the UK’s Office of Fair Trading (OFT) – now the Competition and Markets Authority (CMA) – this outcome is unlikely to be produced in cases where the airline does not already have a strong position prior to the secondary trading and would not be the result of secondary trading itself (Office of Fair Trading, 2005[138]).

A potential solution for this concern would be the establishment of a slot cap for each airline at a given congested airport. This restriction would prevent companies from buying slots if they already have a relevant market share at the airport (Secretaria Nacional de Aviação Civil, 2020[139]). Care should be taken on this measure, however, since it may undermine a more efficient distribution of slots, which is slot trading’s main goal. Other possible conditions on slot trading in order to promote competition and efficiency are auctions, congestion or peak-load pricing, and trading through a clearing house (OECD, 2014, p. 17[92]). Introducing conditions allowing a new entrant to sell its slots to incumbent airlines may also contribute to the level playing field.

Other potential pitfalls of slot trading are indicated in the economic literature. For example, due to information asymmetry and lack of transparency, potential buyers and sellers may be unable to meet each other. Moreover, as slots give air carriers flexibility regarding future network developments, airlines may be induced to keep their slots, even if they are not necessary at the moment. Further, airlines may not sell slots due to uncertainty on the stability of the slot-management regime (Avenali et al., 2015, p. 33[100]).

In the European Union, Council Regulation (EEC) No. 95/93, amended by Regulation (EC) No. 793/2004, does not expressly prohibit secondary slot trading. Although financial compensations for slot trading were mostly considered illegal, in the Guernsey case, heard in 1999, UK courts deemed the practice to be legal and in line with Regulation No. 95/93 (Guiomard, 2018, p. 130[136]). Since then, a grey market of secondary trading and monetary exchange has developed, especially at London Heathrow. In 2008, the European Commission issued a clarification of Regulation No. 95/93, in line with the UK model (Pertuiset and Santos, 2014, p. 67[127]).

A 2011 report indicated that it was unclear whether secondary trading was taking place in other EU airports, and that slot trading seemed to be mostly limited to London Heathrow and London Gatwick airports (then in the EU), even though this conclusion may be partly due to lack of transparency (Steer Davies Gleave, 2011, pp. 84-85[95]).

The UK Civil Aviation Authority (CAA) asserts that the secondary market helps airlines enhance their presence at congested airports, such as London Heathrow, since those airports are operating at full capacity, and only a very small number of pool slots are available for allocation (Civil Aviation Authority, 2014, pp. 84-85[140]).

For instance, at London Heathrow, in 2016, only 22 slots were made available by the pool, but 224 slots were traded in the secondary market (Haylen and Butcher, 2017, p. 6[97]). Annex Figure 2.A.1 indicates the number of traded slots, as well as slots available at the pool, from 2000 to 2016. It shows that slot trading has increased in recent years, while pool slots have significantly dropped.

Prices paid by airlines on the secondary market vary considerably by time and day. A 2017 study found reported slot prices at London Heathrow airport were around GBP 15 million for an early-morning slot pair; GBP 10 million at midday; and GBP 5 million in the evening. In past cases, airlines have already paid up to USD 75 million for a pair of slots, although many transactions are not publicly reported (Haylen and Butcher, 2017, p. 7[97]).

Empirical evidence from London Heathrow airport shows that a secondary market has helped dominant airlines, such as British Airways, to increase market share at the airport, but has also aided strong second-tier airlines, including Virgin Atlantic, to emerge and compete effectively with them. Slot trading has also allowed a more efficient use of airport capacity, since traded slots were used for flights with higher average seat capacities and longer average stage lengths (Avenali et al., 2015, p. 33[100]) (de Wit and Burghouwt, 2007, pp. 51-52[141]).

Mixed results from slot trading have also been seen at US congested airports where secondary slot markets have been introduced. On the one hand, congested airport capacity was used in a more efficient fashion, and slot mobility grew, resulting in a relatively fluid and dynamic market. Slots have become a valuable asset, which may be particularly relevant during economic downturns. On the other hand, trading slots was associated with consolidation and market concentration, especially at Chicago O’Hare, the hub of American Airlines and the United Airlines. At that airport, some suggest that slots have not been used efficiently, since they have been employed for the operation of regional jets in the two airlines’ hub-and-spoke systems rather than being limited to long-haul flights with larger aircrafts (de Wit and Burghouwt, 2007, pp. 52-53[141]).

This outcome at US airports in general is not straightforward. For example, a 2007 paper highlighted that an airport’s characteristics may also play a role (de Wit and Burghouwt, 2007, pp. 48, 53[141]). For instance, at Chicago O’Hare, slots continued to accommodate small regional jets following the introduction of secondary trading. This would be in line with the airport’s economic orientation which is to be a national hub for two US major airlines, allowing them to take advantage of network economies and resulting in a more efficient airport use. At New York LaGuardia, an increase in the aircraft size was seen after the implementation of slot trading, which is justified since it is a domestic airport, served by many US airlines. The authors also doubted whether secondary slot trading had had a causal relationship with concentration at constrained airports in the US. In their view, other factors are at stake, such as the consolidation in the US airline industry.

Over the years, the European Commission has conducted several studies into the effects of trading slots on the EU slot-allocation mechanism to inform a potential regulatory reform on the issue. In general, this research has indicated substantial gains from implementing market schemes for slot allocation. For example, a 2006 study, based on an assessment of eight heavily congested EU airports, estimated that secondary slot trading would improve consumer welfare by up to EUR 31 billion annually and producer welfare by up to EUR 1 billion annually, at 2006 rates (Mott MacDonald and European Commission, 2006[135]).145 It also estimated an improvement in finances of major airports by around 7% and strong benefits for economies around such airports. However, the conclusions of the impact on airline competition are mixed. Existing dominant airlines are expected to increase the share of slots from an average 47% to around 49%. Consequently, competition between major European hubs is likely to be increased. Long-haul flights tend to be more competitive than intra-EU flights. A slight rise in diversity of users at airports on the different route types is also foreseen. Besides, impact on routes to peripheral points is predicted to be negative, unless they are protected, since they may be forced out of congested airports to secondary airports.

To mitigate some anti-competitive effects, the study proposes measures such as banning of restrictive covenants in slot-exchange contracts that prohibit using slots in competition with the seller; active policing by competition authorities in the slot market; and operating “blind” slot trading, preventing participants from knowing from whom they are buying available slots (Mott MacDonald and European Commission, 2006, pp. 10-18[135]).

The OECD recommends changes to jet-fuel distribution regulation in Brazil in order to reverse restrictions on new entry. One recommendation is that airport operators must ensure open access for new fuel suppliers. It is expected that this access policy should address safety, security and environmental protection. The policy would guarantee that incumbents should provide access to competitors at the same time that the investments are recoupable. These regulatory changes, if implemented, are expected to affect jet-fuel markets by promoting entry and lowering prices through more competition.

Lower jet-fuel costs would lead to likely reductions in airfare prices, the ultimate goal of the regulatory changes. Their estimated impact on the benefits or surplus of airfare passengers can be calculated by:

$CB=\left(\rho +\frac{1}{2}\left|ϵ\right|{\rho }^{2}\right){R}_{i}$Equation 1

CB is the measure of consumer (passenger) benefit or surplus in Brazilian reals (BRL); ρ the percentage change in airfare prices related to entry in the fuel-distribution market; R the airfare revenue at location i; and $\left|ϵ\right|$ the absolute value of price elasticity of demand for air travel (OECD, 2019[61]) (OECD, 2019[142]).

The simulation assumes that there will be a pass-through from the fuel-cost reduction to the airfares. Pass-through from costs to prices has been studied in detail in the literature for airlines and jet fuel. A recent and best estimate suggests a pass-through elasticity of 0.66 (Gayle and Lin, 2021[143]).146

Passenger benefits from a change in the regulations were calculated for selected international airports: Guarulhos (GRU) in São Paulo State; Galeão (GIG) in Rio de Janeiro State; and Brasília (BSB) in Federal District. These airports were selected because they are or will soon be directly connected to jet-fuel pipelines147 and together are responsible for about a third of regular journeys with a Brazilian airport as their origin (28% of national take-offs and 34% of passenger volume in 2019), according to National Civil Aviation Agency (ANAC) Database.148

Annex Table 2.B.1 shows the results of ANAC’s data aggregation for airfare revenues. The data present the value of aggregated revenues for 2019 for routes in which the respective airport was the origin for both domestic and international destinations. The seat and fare data released by ANAC used to calculate annual ticket revenues are monthly for each company, airport of origin, and destination.149 Data from 2019 was used as the baseline for the simulations, as the air-travel sector has been particularly affected by the COVID-19 pandemic since 2020.

Market estimates of the price change after entry into an airport market for jet-fuel distribution were obtained from a market test conducted by the Brazilian Competition Defense System (SBDC) in a Brazilian merger case (Annex Table 2.B.2).150 The information obtained reflects the perception of the market player after entry in selected geographical relevant markets, Galeão (GIG) in Rio de Janeiro and Brasília (BSB). Annex Table 2.B.2 shows that after entry the players obtained a reasonable market share and were able to affect market conditions. The OECD estimates the jet-fuel price decrease in these markets to be 2 to 3% in real terms.

These price-reduction estimates are relevant since, as an example, the average gross-margin percentage of final price in jet-fuel distribution was 10% between January 2017 and 2018, ranging from around 8% to 12% (ANP/ANAC, 2019, p. 13[76]).

The value of ρ for airfares is calculated by taking the product between the 2 to 3% jet-fuel price decrease and the 0.66 pass-through rate from jet fuel to airfare prices. Therefore, after successful implementation of the regulatory changes, the estimated airfare price decreases would be in the range of 1.3% to 2.0%. Both estimates are shown in Annex Table 2.B.3.

The absolute value of price elasticity of demand for airfares used in the analysis range from 1.15 to 0.99, which follows literature estimates for the Brazilian industry that are in line with international estimates, as seen in Annex Table 2.B.3. Both alternative values are also included in our consumer benefits estimates in the Annex Table 2.B.4.

The annual benefit to passengers of a potential entry into the jet-fuel distribution market resulting from the increase in competition in the three most relevant airports in Brazil is estimated between BRL 58.40 million and BRL 88.03 million a year.

This benefit may increase over the years with economic growth and the increase in passenger demand for air travel. The Ministry of Transportation of Brazil has estimates on the growth of passenger travel by airport, ranging from 3.9% to 5.4% depending on the year and airport (Ministério dos Transportes, 2018[144]). The OECD has used these annual airport growth rates to calculate the benefits up to 2032 (Annex Table 2.B.6).

The estimated aggregated consumer benefit over the next 10 years (from 2022 to 2032) varies from BRL 896 million to BRL 1 351 million.

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## Notes

← 1. The Brazilian territory covers an area of 8 547 403 km².

← 2. Accounting for direct, indirect, induced and catalysed jobs (ABEAR, 2021[2]).

← 3. According to IATA, Brazil was the sixth largest domestic market in the world in 2019 considering the single origin-destination (O-D) air-travel market (74 million passengers). The US domestic passenger market continued to be the world’s largest (614 million passengers), followed by China (550 million passengers), India (125 million passengers), Japan (87 million passengers) and Indonesia (83 million passengers) (International Air Transport Association, 2020[4]). 2020).

← 4. Comprising only paying passengers, i.e. excluding passengers traveling free of charge such as persons traveling on tickets purchased at rates or discounts available to airline employees or children who do not occupy a seat, for example.

← 5. The decrease in passenger numbers in 2016 and 2017 was driven by the Brazilian recession that began in the second trimester of 2014 and lasted until the fourth trimester of 2016; see, http://portalibre.fgv.br/codace.

← 6. RPK corresponds to the number of revenue passengers multiplied by the distance flown of each flight.

← 7. ASK is the number of seats multiplied by the distance flown by each flight.

← 8. The effect of spare capacity on firms’ pricing behaviour is not straightforward: “on the one hand, where firms hold spare capacity they will have strong unilateral incentives to reduce prices to fill that capacity. On the other hand, the existence of spare capacity, particularly when distributed systematically, may promote co-ordinated behaviour. There is also a relationship between spare capacity and entry deterrence. The existence of spare capacity enables incumbent firms to threaten to increase supply and lower price in the event of entry, which may deter potential entrants if they are aware of the existence of the spare capacity” (OECD, 2021, p. 47[155]).

← 9. HHI ranks markets below 1 500 as unconcentrated; between 1 500 and 2 500 as moderately concentrated; and above 2 500 as highly concentrated (CADE, 2016[145]). The European Commission, for example, generally considers no horizontal competition concerns in a “merger with a post-merger HHI between 1000 and 2000 and a delta below 250, or a merger with a post-merger HHI above 2 000 and a delta below 150, except where special circumstances”. See, https://eur-lex.europa.eu/legal-content/EN/LSU/?uri=celex:52004XC0205(02).

← 10. The average ticket price represents the average cost paid by passengers for a one-way flight calculated from the weighted average of commercialised domestic air tickets and the corresponding number of commercialised seats. The yield ticket price represents the average cost paid by passengers per flown kilometres and is calculated by dividing the average ticket price by the average direct distance between the passenger’s origin and destination. For that reason, it is commonly used to compare prices between flights with different distances (ANAC, 2018[146]).

← 11. ANAC Data and Statistics, www.gov.br/anac/pt-br/assuntos/dados-e-estatisticas.

← 12. Although the sixth airport concession round took place in 2021, private operators only assumed control of the airports in 2022. For that reason, data on investments do not include airports from that round.

← 13. First round: Natal São Gonçalo do Amaranto (NAT). Second round: Brasília (BSB), São Paulo Guarulhos (GRU), Campinas Viracopos (VCP). Third round: Belo Horizonte Confins (CNF), Rio de Janeiro Galeão (GIG). Fourth round: Florianópolis (FLN), Fortaleza (FOR), Salvador (SSA), Porto Alegre (POA).

← 14. Northeast cluster: Recife (REC), Maceió (MCZ), João Pessoa (JPA), Aracaju (AJU), Campina Grande (CPV), and Juazeiro do Norte (JDO). Midwest cluster: Cuiabá (CGB), Sinop (OPS), Rondonópolis (ROO), Alta Floresta (AFL). Southeast cluster: Vitória (VIX), Macaé (MEA).

← 15. Southern cluster: Curitiba (CWB), Foz do Iguaçu (IGU), Navegantes (NVT), Londrina (LDB), Joinville (JOI), Bacacheri (BFH), Pelotas (PET), Uruguaiana (URG), Bagé (BGX). Central cluster: Goiânia (GYN), São Luís (SLZ), Teresina (THE), Palmas (PMW), Petrolina (PNZ), Imperatriz (IMP). Northern cluster I: Manaus (MAO), Porto Velho (PVH), Rio Branco (RBR), Cruzeiro do Sul (CZS), Tabatinga (TBT), Tefé (TFF) and Boa Vista (BVB).

← 16. General aviation cluster: Rio de Janeiro Jacarepaguá (RRJ) and São Paulo Campo de Marte (RTE). Northern cluster II: Belém (BEL), Macapá (MCP). SP-MS-PA-MG cluster: São Paulo Congonhas (CGH), Campo Grande (CGR), Corumbá (CMG), Ponta Porã (PMG), Santarém (STM), Marabá (MAB), Carajás Parauapebas (CKS), Altamira (ATM), Uberlândia (UDI); Montes Claros (MOC), Uberaba (UBA).

← 17. Rio de Janeiro Santos Dumont (SDU) and Rio de Janeiro Geleão (GIG).

← 18. According to Article 3 of Decree No. 3.564/2000, CONAC is composed of the Ministry of Defence; Ministry of Foreign Affairs; Ministry of the Economy; Ministry of Development, Industry and Foreign Trade; Ministry of Tourism; Chief of Staff of the Presidency; Ministry of Planning, Budget and Management; Ministry of Justice and Public Security; Ministry of Infrastructure; and Commander of the Brazilian Air Force. The Decree is partially outdated as certain of these ministries no longer exist.

← 19. According to Article 3 of Decree No. 10.703/2021, CONAERO is composed of the following bodies: Ministry of Infrastructure (Executive Secretariat); Executive Office of the President of Brazil; Ministry of Justice and Public Security; Ministry of Defence (Department of Airspace Control of Aeronautics Command); Ministry of Economy (Federal Revenue); Ministry of Agriculture, Livestock and Food Supply; Brazilian Health Regulatory Agency (ANVISA); and National Civil Aviation Agency (ANAC).

← 20. According to ICAO, general aviation operations refer to all civil-aircraft operations other than a commercial air-transport operation and aerial-work operation. This includes, for example, operations involving air taxis and private aircraft (International Civil Aviation Organization, 2007[113]).

← 21. Besides concessions, moral persons may also operate private aerodromes – those without commercial purpose – or public aerodromes providing private air services, specialised air services, and air taxis under an authorisation system.

← 22. Law No. 5 862/1972.

← 23. The remainder were operated by states and municipalities, by the air force, and by private firms.

← 24. According to the ACI, “the build-operate-transfer (BOT) model and its variations are used when a specific investment in the airport is needed, but the government is unwilling or unable to invest in or construct the capital asset required, such as a new terminal” (Airports Council International, 2018, p. 8[24]).

← 25. Brazil launched the first concession tender as a pilot project in 2011 with Natal São Gonçalo do Amaranto (NAT), a mid-sized airport in the northeast of Brazil.

← 26. Second round: Brasília (BSB), São Paulo Guarulhos (GRU), and Campinas Viracopos (VCP). Third round: Belo Horizonte Confins (CNF) and Rio de Janeiro Galeão (GIG).

← 27. Florianópolis (FLN), Fortaleza (FOR), Salvador (SSA), and Porto Alegre (POA).

← 28. Decree No. 9 972/2019.

← 29. Northeast cluster: Recife (REC), Maceió (MCZ), João Pessoa (JPA), Aracaju (AJU), Campina Grande (CPV), and Juazeiro do Norte (JDO). Midwest cluster: Cuiabá (CGB), Sinop (OPS), Rondonópolis (ROO), and Alta Floresta (AFL); Southeast cluster: Vitória (VIX), and Macaé (MEA).

← 30. Southern cluster: Curitiba (CWB), Foz do Iguaçu (IGU), Navegantes (NVT), Londrina (LDB), Joinville (JOI), Bacacheri (BFH), Pelotas (PET), Uruguaiana (URG), and Bagé (BGX). Central cluster: Goiânia (GYN), São Luís (SLZ), Teresina (THE), Palmas (PMW), Petrolina (PNZ), and Imperatriz (IMP). Northern cluster I: Manaus (MAO), Porto Velho (PVH), Rio Branco (RBR), Cruzeiro do Sul (CZS), Tabatinga (TBT), Tefé (TFF) and Boa Vista (BVB).

← 31. General aviation cluster: Rio de Janeiro Jacarepaguá (RRJ) and São Paulo Campo de Marte (RTE). Northern cluster II: Belém (BEL) and Macapá (MCP). SP-MS-PA-MG cluster: São Paulo Congonhas (CGH), Campo Grande (CGR), Corumbá (CMG), Ponta Porã (PMG), Santarém (STM), Marabá (MAB), Carajás Parauapebas (CKS), Altamira (ATM), Uberlândia (UDI); Montes Claros (MOC) and Uberaba (UBA). An eighth round is planned for 2023, aiming at awarding together Rio de Janeiro Santos Dumont (SDU) and Rio de Janeiro Geleão (GIG), both profitable airports.

← 32. According to ACI, from a sample of 127 airports worldwide, the average number of bidders at the final bid stage for concession contracts was 4 (Airports Council International, 2018[24]).

← 33. According to Law No. 11.079/2004, these are concessions in which the government pays a complementary revenue to the concessionaire, in addition to the ordinary revenue sources obtained from the exploitation of the service (i.e. tariffs charged to users).

← 34. The economic crises that hit Brazil from 2014 affected the sector; its slow recovery was halted by the COVID-19 pandemic.

← 35. In April 2020, the Attorney General’s Office (AGU) concluded that the COVID-19 pandemic was a force majeure or an act of God event, allowing the amendment of transport infrastructure concession contracts in order to maintain their initial economic and financial balance (AGU Advisory Opinion No. 261/2020/CONJUR-MINFRA/CGU/AGU).

← 36. Article 175 of the Federal Constitution and Article 14 of Law No. 8.987/1995.

← 37. These can include bid bonds, performance guarantees, insurance policies, minimum capital, and specific requirements for foreign bidders, such as sworn translations, a representative in Brazil, and authorisations to operate in the country.

← 38. Another example is the requirement for bidders to submit a statement issued by a financial institution on an offer’s economic viability, which aims to allow ANAC to verify the economic feasibility of an offered project. This even though the tender notice already required other documents to prove bidders’ economic qualification. The need of an additional document raised unnecessarily entry costs and was removed in the sixth round.

← 39. The first round required bidders to prove they employed professionals with a college degree and experience in specific activities: 1) at least 1 professional with at least 5 years’ experience in administrative management; 2) at least 1 professional with a year’s experience of risk management in transport operations; 3) at least 1 professional with at least 5 years’ experience in management of airport handling at least 1 million passengers a year; 4) at least 1 professional with 5 years’ experience in airport, aircraft and/or industrial-maintenance management; 5) at least 1 professional with 5 years’ experience in aviation-security management; and 6) at least 1 professional with 5 years’ experience in execution or inspection of works on airport passenger terminals.

← 40. In practice, in the first airport-concession rounds the technical-experience requirements prevented Brazilian companies to bid independently as Infraero (as the historical incumbent) was the only firm with necessary years of experience. Only in 2019 an entirely Brazilian consortium managed to win a cluster, in the fifth concession round.

← 41. The obligation of the technical operator to hold a minimum stake in the consortium seems reasonable, otherwise the technical experience requirement could be bypassed by an insignificant stake in the consortium. However, it should be noted that the required minimum share of the technical operator in the consortium has varied across concession rounds: 10% in the second round; 25% in the third round; and 15% since the fourth round (Table 2.6).

← 42. Other companies in the consortium financially would support the experienced operator while also gaining experience that would allow them to bid in future concession rounds.

← 43. Division 4 of Part 3 of the Australian Airports Act 1996 establishes a 5% limit on ownership by airlines of airport-operator companies, while Article 29 of the Mexican Airports Law limits vertical integration between airlines and airport operators to a 5% stake.

← 44. This includes their parent companies, subsidiaries and related companies, as well as the subsidiaries and related companies of their parent companies and subsidiaries.

← 45. A parent company, subsidiary or related company to an airline or subsidiary or related company to its parent companies and subsidiaries.

← 46. A prior authorisation from CADE may also be required if the Brazilian merger control threshold is fulfilled.

← 47. Including parent companies, subsidiaries and related companies.

← 48. Including their parent companies, subsidiaries and related companies, as well as the subsidiaries and related companies of their parent companies and subsidiaries.

← 49. “There is no precise definition of what is called yardstick competition, given that the associated theory has led to various ways of implementation, as described in chapter 3. However, we can distinguish two main senses given to the term ‘yardstick competition’. On the one hand, this expression refers to a regulatory framework, based on comparisons. It is a virtual form of competition between similar regulated firms, like Shleifer’s proposal (see next page). It consists in estimating what should be the best prices and subsidies, by comparing the performances of various regulated firms. The regulator, by setting the correct prices and subsidies, can lead the firms to produce an effort that increases the welfare. On the other hand, yardstick competition refers to the basic and relatively informal use of comparisons by a regulator who wants to improve its expertise and reduce the informational asymmetry he [sic] faces. In that sense, yardstick competition is an additional expertise tool used by the regulator to improve the efficiency of another regulatory framework (franchising, for example)” (ECMT, 2006, p. 75[156]).

← 50. Of airports from the second round.

← 51. Including parent companies, subsidiaries and related companies.

← 52. Of airports from the second or third rounds (in case of the second round) or from the other airport at the same region (in case of the fourth round).

← 53. Including parent companies, subsidiaries and related companies.

← 54. A prior authorisation from CADE may also be required, if the Brazilian merger control threshold is fulfilled.

← 55. Resolution CONAC No. 01/2017. For a definition of general aviation, see endnote 20.

← 56. This was also highlighted by SEAE on its opinion on this airport concession round (Secretaria de Advocacia da Concorrência e Competitividade, 2021[150]).

← 57. Certain stakeholders have suggested that this was at least partially due to “winner’s curse” when bidders overestimate an object’s value at auction.

← 58. São Paulo also has a third airport, Viracopos (VCP), located in the nearby city of Campinas.

← 59. Although ground-handling services are related to aviation activities at an airport, they are generally not considered to be a core business activity, and are often not directly provided by airport operators. For that reason, revenue from ground-handling services can be considered as non-aeronautical (although technically part of aeronautical revenue). Furthermore, the rental of hangars and other operational areas is considered as part of aeronautical services, but charges vary substantially across airports and tend to represent a small fraction of an airport’s aeronautical revenue (Air Transport Research Society, 2019[60]). In Brazil, these services are not charged through airport tariffs and so their prices fall under airports’ non-aeronautical revenue, as discussed in more detail in Section 2.3.2.

← 60. The only exception is Natal São Gonçalo do Amaranto (NAT), the first airport offered for concession, for which the contract establishes that if the ratio between non-tariff revenues and the total revenue exceeds 35%, part of the non-tariff revenue will be used to reduce airport tariffs.

← 61. Resolutions ANAC No. 350/2014, No. 392/2016, No. 432/2017 and No. 508/2019, as well as Ordinance Aeronautics Command No. 219/GC-5/2021.

← 62. In addition to airport tariffs, there are tariffs covering air-navigation services (including air-traffic control, meteorological services and aeronautical telecommunications). In Brazil, air-navigation services are not provided by airport operators, but two main service providers. The first is the Department of Airspace Control (DECEA), subordinated to the Aeronautics Command (COMAER), which is linked to the Ministry of Defence, which is responsible for regulating these activities (including setting air navigation tariffs), as well as providing services related to national defence and sovereignty. The second provider for the remaining air navigation services is an SOE, NAV Brasil Serviços de Navegação Aérea.

← 63. This mechanism has been included in concession contracts since the fourth round, as well as in Resolution ANAC No. 508/2019, which establishes the airport-tariff regulation for airports managed by Infraero.

← 64. Considering only concessions with available and detailed data. The Midwestern cluster, Central cluster, Northern cluster and Southern cluster are not included in the analysis.

← 65. According to Airports Council International (ACI) data for financial year 2019; see, www.wsp.com/en-GL/insights/fuelling-airport-recovery-via-non-aeronautical-revenue.

← 66. “Concession in its original context means the payment that the airport authority charges the owner or manager of an operation to conduct commercial activities in the airport, whereas rent or lease refers to the right to occupy certain defined premises or a specific area of realty. In general, however, concessions confer all commercial activities to sell goods and services in the airport, and sometimes the meaning of concession, rent and lease is used indiscriminately” (Vojvodić, 2008[148]).

← 67. Article 1 of Resolution ANAC No. 302/2014.

← 68. Article 49 of Infraero’s Internal Bidding and Contract Regulation.

← 69. Articles 25 to 29 of Infraero’s Internal Rules No. 13.13/2020.

← 70. Article 4 of Ordinance SAC No. 93/2020.

← 71. Articles 5 and 6 of Ordinance SAC No. 93/2020.

← 72. Annex 2 to the concession contracts (Airport Exploration Plan or PEA).

← 73. According to airport-concession contracts, tariffs are annually updated by ANAC following a formula that takes into account an inflation index, as well as a productivity factor (X factor) and a quality factor (Q factor). The productivity factor refers to efficiency savings, which is subtracted from the final cap, in order to share productivity gains with users. The quality factor comprises service quality indicators, such as how the services have been performed, the availability of equipment and facilities, as well as a passenger satisfaction survey.

← 74. Article 40 of Law No. 7.565/1986 (Brazilian Aeronautical Code).

← 75. Article 2, paragraph 2 of Resolution ANAC No. 302/2014.

← 76. Article 6, item I, of Resolution ANAC No. 302/2014.

← 77. Article 6, item II, of Resolution ANAC No. 302/2014.

← 78. Article 6, item IV, of Resolution ANAC No. 302/2014.

← 79. Article 8 and Article 9, paragraphs 1 and 2 of Resolution ANAC No. 302/2014.

← 80. According to stakeholders, ANAC has recently engaged in this activity, which has led to many disputes being resolved out of courts.

← 81. Article 11 of Resolution ANAC No. 302/2014.

← 82. Annex to Resolution ANAC No. 116/2009.

← 83. For instance, in the United States the ground-handling market is dominated by the major airlines’ own operations, which provide the services either directly or through subsidiary companies (Steer Davies Gleave, 2016, p. 157[23]). In Europe, many airports still provide extensive ground-handling services (Air Transport Research Society, 2019[60]).

← 84. Article 2 of Resolution ANAC No. 116/2009.

← 85. Resolution ANAC No. 116/2009.

← 86. Holding space at an airport seems to be paramount for the provision of more competitive services. Indeed, in practice, the majority of ground-handling service providers sign a leasing agreement with the airport operator.

← 87. For example, the Brazilian ground-handling association (ABESATA) has recently developed a certification programme, aimed at ensuring compliance of ground-handling service providers with the legislation (comprising regulatory, financial, operational, labour and environmental, social and corporate-governance dimensions). The certificate is issued by an independent organisation and can be obtained by any firm which demonstrates that it meets the minimum requirements (ABESATA, 2022[147]).

← 88. Article 2, item II of Resolution ANAC No. 116/2009.

← 89. Article 2 of Resolution ANAC No. 116/2009.

← 90. According to ANP, Brazil currently has more than 250 jet fuel resellers.

← 91. The requirements to be qualified as an aviation-fuel distributor and/or reseller are established, respectively, by Resolution ANP No. 17/2006 and Resolution ANP No. 18/2006. Furthermore, as aviation-fuel supply is a type of ground-handling service, and since suppliers need access to airport operating areas to provide the service, it is also covered by Resolutions ANAC No. 116/2009 and No. 302/2014, as well as the airport-concession contracts.

← 92. Article 1, paragraph 1 of Resolution ANAC No. 302/2014. Although the regulation does not indicate any examples of what could constitute an abusive or discriminatory practice, they could include, for example, refusing access to the airport, imposition of unreasonable requirements, and price discrimination between competitors.

← 93. Article 9, paragraph 2 of Resolution ANAC No. 302/2014.

← 94. The WASG classifies airports in three categories. Besides co-ordinated or Level 3 airports, these are: 1) non-co-ordinated or Level 1 airports, where the infrastructure capacity is adequate to meet the demands of airport users at all times; 2) schedule-facilitated or Level 2 airports with the potential for congestion during some periods of the day, week, or season that requires schedule adjustments mutually agreed between the airlines and the facilitator (Airports Council International, International Air Transport Association and World Wide Airport Coordinators Group, 2020, p. 20[87]).

← 95. Only three airports in the United States follow the WASG; these are New York JFK, New York LaGuardia and Washington Ronald Reagan. At all other airports, airlines can generally schedule flights as they wish, in co-ordination with airport operators. On the one hand, the absence of an interventionist approach is likely to lead to delays created by airlines over-subscribing airport slots during the busiest periods of the day. On the other hand, some argue that the marginal costs of delays at airports dominated by an air carrier or an alliance are often overstated, since these costs would be internalised by that airline or alliance. In practice, though, it is unlikely that all flights at Level 2 airports such as Chicago O’Hare, Los Angeles, San Francisco, and Newark Liberty are completely freely scheduled by airlines, as they are expected to seek and obtain schedule approval from the Federal Aviation Administration (FAA). Otherwise, if the airport becomes Level 3, the airline will not receive priority for any of the non-approved flights (Egeland and Smale, 2017, p. 25[86]).

← 96. According to WASG, equivalent seasons are “consecutive summer seasons (two summers) or consecutive winter seasons (two winters) as opposed to two consecutive seasons (a summer and a winter season)” (Airports Council International, International Air Transport Association and World Wide Airport Coordinators Group, 2020, p. 62[87]).

← 97. Article 8, paragraph 3 of Resolution ANAC No. 338/2014. The criterion on maximum delay is not contained in the WASG.

← 98. ANAC has developed a system to monitor slots that feeds a database allowing any interested party to follow slots usage; see, https://sas.anac.gov.br/sas/samu/(S(bwv0mwd0lgb5c5fs222425vd))/view/frmConsultaBases.

← 99. Article 38 of Resolution ANAC No. 338/2014.

← 100. Article 2, item XVI-A of Resolution ANAC No. 338/2014.

← 101. Article 43, item II of Resolution ANAC No. 338/2014. It is worth noting that misuse of slots constitutes an administrative infringement, as long as an airline’s intent can be proven. This aims to prevent airlines from losing slots for circumstances beyond their control, such as weather conditions. In case of misuse of slots, besides the loss of historical precedence, ANAC may inflict a fine from BRL 7 000 to BRL 90 000 for each flight, although this has not been common practice. In theory, misuse of slots could also be considered an anticompetitive practice, and CADE could investigate and impose sanctions basing on Law No. 12 529/2012 (Brazilian Competition Act). According to the OECD, however, only rarely can a slot-trading tactic amount to a restrictive agreement or an abuse of dominance (OECD, 2014, p. 17[92]). In Brazil, no such case has ever been prosecuted.

← 102. Article 22 of Resolution ANAC No. 338/2014.

← 103. Article 8, paragraph 2 of Resolution ANAC No. 338/2014.

← 104. Article 2, item XIII, and article 8, paragraph 4 of Resolution ANAC No. 338/2014.

← 105. Article 22 of Resolution ANAC No. 338/2014.

← 106. Article 22, paragraph 3 of Resolution ANAC No. 338/2014.

← 107. Article 31 of Resolution No. 338/2014. According to ANAC, this rests on the premise that slots are permission given by the regulator to an airline, free of charge, for a planned operation, and comprise no property rights; i.e. airlines do not own slots. This makes slots public assets, from which airlines can take no financial advantage. Only the co-ordinator can allocate a slot, according to the established criteria. The only exception is slot lease between companies belonging to the same economic group, as they already function as a single economic entity (Article 31, paragraph 1 of Resolution ANAC No. 338/2014).

← 108. Article 32 of Resolution ANAC No. 338/2014.

← 109. Resolution ANAC No. 338/2014 will continue to apply until the winter season 2022.

← 110. The fact that many slots allocated to new entrants are returned to the pool after only one season might illustrate this. In addition, at the most congested airports in the European Union (at the time of the study), such as London Gatwick, Düsseldorf and Frankfurt, less than 50% of slots were allocated according to the new entry rule, partly because there were no requests that met the criteria (Steer Davies Gleave, 2011, p. 5[96]).

← 111. However, one study signalled that the main goal of allocating slots is not to reduce average fares, but to ensure that airport infrastructure is used efficiently and that downstream airline markets operate at the highest level of economic efficiency (Valdes and Gillen, 2018, p. 257[158]). It also suggested that reallocating slots to smaller airlines does not necessarily lead to higher consumer welfare. Indeed, outcomes depend on the current distribution of slots, which routes lose services, which routes gain services from which airline, as well as how market power is exercised at the route level.

← 112. It should be noted that Belo Horizonte Pampulha airport (PLU) is currently restricted to general aviation and regional scheduled air services.

← 113. It is worth mentioning that although no specific licensing requirement for cabin-crew members exist in ICAO’s provisions, Annex 6 to the Convention on International Civil Aviation does provide training and competency requirements for the profession. In certain jurisdictions, flight attendants are required to hold a qualification other than a licence to prove their qualifications to perform duties related to the safety of passengers and flight during operations. For instance, in the United States, flight attendants must hold a certificate of demonstrated proficiency issued by the Federal Aviation Administration (49 USC 44728); in the European Union, they are required to hold an attestation, issued upon application, with which the applicant has demonstrated that he or she complies with the essential requirements (Articles 22 and 23 of Regulation EU No. 2018/1139 of 4 July 2018); Argentina requires a certificate of competency issued by the aeronautical authority (RAAC 64). In other jurisdictions, such as Chile (DAR 01), Colombia (RAC 63), Mexico (Reglamento para la expedición de permisos, licencias y certificados de capacidad del personal técnico aeronáutico), and Brazil (Law No. 13 475/2017), a licence issued by the civil-aviation authority is required to perform cabin-crew duties.

← 114. Pilot, flight navigator, and flight engineer (known in Brazil as flight mechanic).

← 115. Aircraft maintenance, including technicians, engineer, and mechanics; air-traffic controller; flight-operations officer and flight dispatcher, and aeronautical-station operator.

← 116. Besides holding a licence, operating certain types of aircraft may also require holding a type rating to ensure that the holder has knowledge and skills to operate that specific aircraft type.

← 117. In addition, the Department of Airspace Control (DECEA) regulates the professions related to air-navigation services, and a licence is required to be an air-traffic controller; aeronautical information professional; aeronautical meteorology professional; aeronautical station operator; offshore radio operator; and air-traffic manager (ICA 63-31, approved by Ordinance DECEA No. 137/DGCEA, of 27 September 2021). However, considering that air-navigation services are provided either directly by DECEA or through NAV Brasil, an SOE, only civil servants from these organisations are allowed to perform these activities. This report will not assess the requirements for these professions.

← 118. RBAC No. 61.

← 119. RBHA No. 63. This activity is likely to disappear in the near future. Today, according to ANAC, only one type of aircraft (for the provision of air cargo transport) requires a flight mechanic.

← 120. RBHA No. 63.

← 121. RBAC No. 65.

← 122. RBAC No. 65.

← 123. Articles 2 and 3 of Law No. 13.475/2017.

← 124. RBAC No. 141.

← 125. Articles 180 and 201 of Law No. 7.565/1986 (Brazilian Aeronautical Code), both recently revoked by Provisional Measure No. 1.089/2021, converted into Law No. 14.368/2022.

← 126. Article 5, paragraph 1, and Article 20 of Law No. 13.475/2017.

← 127. Item 141.91 of RBAC No. 141.

← 128. Commission Regulation (EU) No. 2018/1119 of 31 July 2018 amended Commission Regulation (EU) No. 1178/2011 of 3 November 2011, laying down technical requirements and administrative procedures related to civil-aviation aircrew pursuant to Regulation (EC) No. 216/2008 of the European Parliament and of the Council.

← 129. Resolution ANAC No. 659/2022.

← 130. Part 61 and Part 66 of the Australian Civil Aviation Safety Regulations 1998, and (Civil Aviation Safety Authority, 2022[154]).

← 131. Part 61 and Part 66 of the New Zealand Civil Aviation Rules.

← 132. Article 156, paragraph 1 of Law No. 7 565/1986 and Article 6 of Law No. 13.475/2017.

← 133. Article 156, paragraph 3 of Law No. 7 565/1986 and Article 6, paragraph 1 of Law No. 13.475/2017.

← 134. Article 157 of Law No. 7 565/1986 (Brazilian Aeronautical Code).

← 135. Article 20 of Law No. 13 475/2017.

← 136. According to Annex 6 to the Convention on International Civil Aviation, fatigue is “a physiological state of reduced mental or physical performance capability resulting from sleep loss, extended wakefulness, circadian phase, and/or workload (mental and/or physical activity) that can impair a person’s alertness and ability to perform safety-related operational duties”.

← 137. Flight time is the total time from the moment an aeroplane first moves for the purpose of taking off until the moment it finally comes to rest at the end of the flight (Annex 6 to the Convention on International Civil Aviation). Flight duty period is a period that commences when a flight or cabin crew member is required to report for duty that includes a flight or a series of flights and that finishes when the aircraft finally comes to rest and the engines are shut down at the end of the last flight on which he or she is a crew member (Annex 6 to the Convention on International Civil Aviation). Duty period is a period which starts when a flight or cabin crew member is required by an operator to report for or to commence a duty and ends when that person is free from all duties (Annex 6 to the Convention on International Civil Aviation). Rest period is a continuous and defined period of time, subsequent to and/or prior to duty, during which flight or cabin crew members are free of all duties (Annex 6 to the Convention on International Civil Aviation).

← 138. Fatigue Risk Management System (FRMS) is a data-driven means of continuously monitoring and managing fatigue-related safety risks, based upon scientific principles and knowledge, as well as operational experience that aims to ensure relevant personnel are performing at adequate levels of alertness (Annex 6 to the Convention on International Civil Aviation).

← 139. Law No. 13 475/2017 establishes the main flight-time, duty-period and rest period-limitations. However, section 117.61 and Appendixes B and C of RBAC No. 117 also set limits for flight-time, duty-period and rest-period limitations, the so-called fatigue risk-management rules. These rules are also prescriptive, but they are more detailed than those provided in Law No. 13 475/2017, since they take into account different variables, such as the start time of the duty period and on board rest facilities provided to the crew. This allows longer periods than those stated in Law No. 13 475/2017.

← 140. Section 117.63 of RBAC No. 117.

← 141. Article 19, paragraph 4 of Law No. 13 475/2017.

← 142. According to the US Federal Aviation Administration (FAA), Newark Liberty is today a Level 2 airport and no longer a Level 3 airport; www.faa.gov/about/office_org/headquarters_offices/ato/service_units/systemops/perf_analysis/slot_administration/slot_administration_schedule_facilitation/level-2-airports. As explained in endnote 103, this means that today the airport has potential for congestion during some periods of the day, week, or season that requires schedule adjustments mutually agreed between the airlines and the facilitator.

← 143. Newly created slots for international flights continued to be allocated through an administrative scheme; www.gdjv.cn/article/8626852.

← 144. This outcome has been seen at London Heathrow airport, where commercial slot transfers seem to have increased the average aircraft size by around 80%, from 139 to 250 seats for each slot. Furthermore, there is evidence at the same airport to indicate that airlines operating short-haul routes have tended to sell slots either to the dominant airline or to other airlines operating long-haul routes (Mott MacDonald and European Commission, 2006, pp. 3-35-8-4[135]).

← 145. Other studies suggest greater benefits from market-based mechanism in general. One indicated that secondary slot trading, higher runway charges, slot auctions or combinations of these would ensure a more efficient use of slots, leading to an increase in passenger numbers at congested airports of about 7%, equivalent to around 52 million additional passengers per year at those airports (National Economic Research Associates, 2004[152]). In the Impact Assessment accompanying the Proposal for a Regulation of the European Parliament and of the Council on common rules for the allocation of slots at European Union airports (Recast), the European Commission estimated that adopting a market-based mechanism expressly allowing slot trading across the EU would result in an average annual increase of 1.6% (or 23.8 million) in the number of passengers carried, a net economic benefit of EUR 5.3 billion, and an increase in employment of up to 62 000 full-time jobs (European Commission, 2011[151]). The legislative proposal to review Regulation No. 95/93 was published in December 2011, the Council adopted its general approach in October 2012 and the European Parliament adopted its first reading position in December 2012. At present, the proposal is waiting for the Council’s first reading position and remains blocked; www.europarl.europa.eu/legislative-train/theme-transport-and-tourism-tran/file-allocation-of-slots-at-eu-airports-common-rules-recast.

← 146. Estimating pass-though elasticity is notoriously difficult as 1) data limitations do not match flight dates with airfare dates; and 2) airlines have a variety of financial tools to hedge fuel and oil price uncertainty. Gayle and Lin’s recent paper takes these factors into account and is able to rationalise the unexpectedly lower estimates previously obtained in the literature (Gayle and Lin, 2021[143]).

← 147. Brasília International Airport will soon be directly connected through fuel pipelines. The test phase has started and the project is expected to be operational in October 2022; https://tnpetroleo.com.br/noticia/petrobras-leva-querosene-de-aviacao-por-duto-para-brasilia.

← 149. ANAC, www.anac.gov.br/acesso-a-informacao/dados-abertos/areas-de-atuacao/voos-e-operacoes-aereas/tarifas-aereas-domesticas. The annual airfare revenue by airport was calculated by placing ANAC’s national and international fare data into a single base; revenue from airline tickets was calculated by multiplying the value of the fare charged and the number of seats sold for the respective value for each company, month and departing airport, aggregated to the year and airport level.

← 150. AC 08012.004341/2009-73 – Cosan/Shell.