Airport Concession Research Articles

Navigating multi-airport systems: A case study of brazilian airport concessions and the multi-airport system of rio de janeiro

The public hearing on the seventh round of Brazilian airport concessions gave rise to debates on the multi-airport system and its coordinated modelling. Considering that the airport sector is an important source of both passenger and cargo traffic in a country the size of a continent such as Brazil, this article reviews the evolution of Brazilian airport concessions and outlines their perspectives and opportunities in Brazilian multi-airport systems, particularly the Rio de Janeiro multi-airport system.

Application of Airport Concessions to The Status of Airport Business Entities Owned by State-Owned Enterprises

Defining concessions will always be related to the concept of Public Private Partnership (PPP) and privatization of the public sector. Broadly speaking, PPP is a long-term engagement between the Government and/or public bodies and business entities, while privatization means the transfer of something under the control of the public sector to the private sector followed by commercialization. These things are in line with the concept of Concession, which is basically the transfer of management of a service/product which is basically the responsibility of the government to the private sector with a return from the government budget or revenue obtained directly from the end user (consumer) of the project and/or service. Based on Article 235 of Law Number 1 of 2009 concerning Aviation, airport services carried out by airport business entities are carried out based on concessions and / or other forms in accordance with the provisions of laws and regulations provided by the Minister and stated in the agreement. Currently in Indonesia one of the largest airport management business entities in Indonesia is PT Angkasa Pura I which was previously entirely owned by the Ministry of State-Owned Enterprises of the Republic of Indonesia, but is now controlled by PT Aviasi Pariwisata Indonesia (Persero) which is a State-Owned Enterprise. This creates a complexity in connection with the imposition of concessions, considering that based on its capital structure, PT Angkasa Pura I contains separated state wealth.

The before and after of the airport concession at the International Airport of Rio de Janeiro: a survey of tourist demand

Airport concessions in Brazil began in 2011 due to the need to improve passenger services and adapt airports to international standards. Physical and managerial transformations were adopted and, among the concessioned airports is the Tom Jobim International Airport - AIRJ, located in the metropolitan region of the state of Rio de Janeiro, which is the object of study of this work, which aims to understand the perception of passengers of the AIRJ in relation to the changes through quali-quantitative, bibliographical and explanatory research. Data were collected through interviews and online questionnaire. Respondents were people who used the AIRJ service before and after the concession process, covering the period prior to August 2014, when there was no intervention by the concessionaire, and from 2016, when most of the works were completed for the Rio de Janeiro Olympics. As a result, it was understood that passengers have perceived the AIRJ changes in a positive way, although some negative aspects are still signaled.

Airport concession revenue sharing and entry deterrence

This paper investigates how concession revenue sharing between an airport and an incumbent airline affects the strategic flight frequency choice of that airline for entry deterrence and thus, profits and welfare. Specifically, we construct a model in which the incumbent airline confronts the entry threat of an entrant airline and strategically decides whether to deter or accommodate the entrant airline by choosing its flight frequency. We show that concession revenue sharing between the airport and the incumbent airline may enhance the market power of the incumbent airline, which improves or harms welfare. In addition, concession revenue sharing also diminishes the incentive for the incumbent airline to deter entry, which improves welfare. Our novel results provide important policy implications by determining that the effects of concession revenue sharing depend on the revenue share rate and the airport capacity.

Enhancing the feasibility of airport PPP projects with hybrid funding

In transport infrastructure concessions, the sources of revenue to the private partner (or concessionaire) may include (i) the infrastructure users (e.g., landing fees, in the case of airports), (ii) the government (e.g. through availability payments), and (iii) both users and government, which might be called a hybrid concession. An example of the latter is a highway concession where the concessionaire charges tolls to the road users but, because of relatively low revenues, the government agency complements the toll revenue with availability payments.Focusing on airports, this paper summarizes the cases where it may be justified for the government to complement users’ revenues and describes a model developed for the financial assessment of airport concessions involving payments by both the government and airport users, through the collection of several charges. The methodology described in the paper is also used to review the flexibility in new or ongoing airport concessions to mitigate traffic risks, which have been aggravated by the COVID-19 pandemic. The methodology can also be applied to other forms of transport infrastructure.A practical application of the model is demonstrated in the paper, using publicly available information, as well as basic assumptions, to build case studies for the Larnaca and Paphos airports in Cyprus. The model can also be used to carry out sensitivity analyses of the impact of key input parameters on outputs such as the investor's return on equity and annual debt service cover ratio.

Airport concession in Japan: Current status, problems, and future directions

While the privatization of airports has progressed around the world, Japan has witnessed a rapid increase in the application of concessions to airports. Concessions have been introduced in Japan under the conditions that Japan has a unique airport governance structure, no foreign companies have experience in airport development and operation, and there are no domestic professional airport operators. This has caused social problems such as poor initial response to typhoons at Kansai International Airport which was converted to concessions in 2016. In this paper, we examine the current status of airport concessions in Japan based on published data by airport administrators etc. and consider issues through interviews with related parties and social network analysis on Japan's concession market. We also present solutions or future prospects for problems such as the rigidity of airport operations caused by over-specified proposals, the monitoring system on the public side, risk sharing between the public and private sectors, and the difficulty of innovative airport operation and the cultivation of the airport operation industry. The implications of this paper's findings can serve as policy suggestions for improving future projects.

Does privatization make Brazilian airports more efficient?

Airport concessions to private management began in Brazil in 2011 to address infrastructure bottlenecks and the need for investments. Productivity improvements after privatization need to be measured and efficiency gains can help to identify strategic points where to intervene both in current and upcoming concessions. However, previous studies have applied neither the Slacks-Based Measure Data Analysis Envelopment models nor the second stage Tobit regression to evaluate airport efficiency, especially in the context of Brazilian airport privatization. The objective of this study is to verify if privatization contributes to improving Brazilian airports' productive efficiency compared with public airports, using variable slacks and identifying new socio-economic variables that may influence the productive efficiency index. A two-stage SBM-DEA approach found that only 40% of the sample among 28 airports are efficient, evidencing poor management overall, and the slacks show the sectors that need most attention and investments. Based on the productive process and the sample evaluated, the study concludes that privatization of Brazilian airports did not improve their production efficiency. A revision of the contracts in the first round of concessions is suggested, as contractual obligation may result in lower production efficiency.

Forecasting upon a star: Forecasting or wishful thinking?

The purpose of this paper was to perform a detailed analysis of the challenges faced while developing and using econometric models to forecast future transportation demand. To this end, a comparative analysis of the state of practice and state of the art was undertaken on a concrete example – Viracopos Airport in Brazil. A review of relevant technical and scientific literature identified a number of approaches and each representative example was synthesized into a specification “template”. We then compared the performance of each “template” with the observed demand, through an intra-series forecast. A general finding was that econometric model specifications proved to be somewhat homogenous and simpler in nature, with results indicating a relatively small difference in fit and forecast capability across models. Even with the elimination of what is typically considered the main culprit for deviations – the forecast uncertainty of the explanatory (input) variables – the forecast is still subject to sizeable deviation. To address this issue, we proposed developing some sanity check indexes, particularly relevant for long-term forecasts. We conclude that the challenges faced at the Viracopos Airport Concession were far from econometric ones, that the success of the demand forecast and the concession itself required more than a well estimated econometric model. Finally, regarding investment obligations within the concession agreement, we strongly recommend making them conditional to meeting demand milestones, given the inherent unpredictability in forecasts.

DESDOBRAMENTOS ECONÔMICOS DOS INVESTIMENTOS DAS RECENTES CONCESSÕES AEROPORTUÁRIAS BRASILEIRAS

Este artigo tem como objetivo analisar os desdobramentos econômicos dasconcessões aeroportuárias realizadas entre 2012 e 2014 e propõe uma avaliação dosinvestimentos empregados na ampliação e modernização dos aeroportos brasileirospelo Fundo Nacional da Aviação Civil (FNAC). O exercício de simulação das inversõesprevistas pelas concessões aeroportuárias em um horizonte de até 30 anos é realizadoa partir de uma matriz de insumo-produto para ano de 2008 e conta com as informaçõesda Secretaria de Aviação Civil. Os principais resultados alcançados projetamum provável aumento de R$ 11,3 bilhões no PIB brasileiro, a possível criação de 282mil ocupações diretas e indiretas no país e um acréscimo de 0,68% na arrecadação totalda administração pública ao longo dos 30 anos. Por outro lado, as projeções setoriaisdessas inversões indicam efeitos positivos sobre a atividade do setor de comércio, tantoem termos de produção quanto de emprego. Os resultados alcançados podem contribuirpara o debate em curso sobre as concessões de transporte no Brasil ao sinalizaros desdobramentos e direções dos efeitos transmitidos no sistema produtivo brasileiro.

Whether low-cost-carrier passengers spend more on duty-free goods at the airport? Evidence from Incheon International Airport

With a dramatic growth in the low-cost carrier (LCC) traffic around the world, many airports have built budget terminals to accommodate the LCC flights with cheaper airport charge to the airlines but inferior shopping environment and service quality to the passengers. This study aims to answer the following research questions: i). Whether the LCC passengers have higher purchasing power than FSC (full-service carrier) passengers for the airport concessions, particularly the duty-free goods? ii). Would the budget terminal design contribute to or jeopardize the LCC passengers' airport concession expenditure? iii). How could the airport operator maximize its concession revenue by re-designing terminal or re-allocating flight slots? We collect the actual airport duty-free transaction data from Incheon International Airport (ICN) for an empirical investigation. Our empirical evidence first suggests that LCC passengers could have comparable or even higher purchasing power than FSC passengers in consuming duty-free goods at the airport. Among all the LCC passengers, Chinese have the highest purchasing power. Second, the inferior shopping environment and service quality of budget terminal seriously jeopardize the duty-free sales from the LCC passengers. Third, counterfactual analyses show that, if ICN could convert its budget terminal into a conventional terminal, 44 million USD more duty-free sales can be generated per year. Even keeping the current terminal design, re-allocating the LCC flights between the budget terminal and conventional terminal could bring approximately 4.9 million USD more duty-free sales per year. The findings provide managerial implications to ICN and other airports for effective airport revenue management. First, the budget terminal design may not be ideal to accommodate LCC traffic as it damages the concession revenue from particular LCC passengers with high purchasing power. Second, exploring the concession revenue from the growing LCC traffic could help maintain an airport's advantage in aeronautical charge under single-till regulation.

The Financial Effect of Airport Concessions: An Empirical Analysis

The Financial Effect of Airport Concessions: An Empirical Analysis

The Rio De Janeiro international airport privatization: a problem of overbidding?

We analyze the case of the Rio de Janeiro International Airport concession, which suffered severe financial difficulties after it posted the highest auction bid premium of the 2011–2013 Brazilian government airport privatization program. Given that this airport had significant potential for future expansion, we investigate whether this could have justified the high bid, or whether the value of this flexibility was overestimated. The concession is analyzed using the real options approach because these expansion opportunities have option-like characteristics. The results suggest that these options may have been overpriced, because they are insufficient to justify the bid premium offered.

A Real Options Model for Evaluating Investments in the Guarulhos Airport Concession Program

The Brazilian government began, in 2012, the program of concessions of the administration of Brazilian airports in order to improve customer service through private capital. One of the main subjects of this concession plan was the airport of Guarulhos, in the state of São Paulo (Brazil), which is the largest airport in the country, responsible on average for over 20,000 flights and transporting approximately 4 million passengers per month. Concessions of this scale demand large investments, which in turn can result in greater uncertainties regarding future cash flows. In certain cases, the NPV (Net Present Value) of these investments may become negative, which does not necessarily mean that the undertaking is unfeasible, or that it should not be encouraged. Changes in the overall economic scenario can subsequently lead to updated results in the expected cash flow, making the investment viable. One of the ways to evaluate a project under an uncertain scenario is to use the Real Options model as a strategic complement to cash flow analysis. This article presents an application to calculate the value of the expansion option for the Guarulhos international airport. For the models of uncertainty related to passenger load and flight volume, the value of the expansion option using the Black-Scholes-Merton model is calculated. The article concludes with the recommendation for the expansion to be carried out on a 4-year horizon, which in this period results in a positive strategic NPV, in addition to optimizing the utilization of the airport’s terminal capacity.

Granting airport concessions for regional development: Evidence from Peru

Airport activity has been linked with economic development in urban areas, and with their improved facilities (by construction or expansion), given the importance of connecting territories and the positive externalities for society. We investigate whether the change in airport ownership and management control has a direct effect on regional airports performance and catalytic effects on regional employment. By employing an interrupted time series evaluation design we address some threats to internal validity such as history and selection bias. Then with a difference-in-differences estimation technique, unbiased estimates of the causal effect for a concession policy on regional airports activity and regional sectoral employment are provided. Our main results suggest that regions with granted airport concessions exhibit higher airport activity and sectoral employment than regions with non-granted airport concessions; and, after controlling for different covariates (macroeconomic, socio-economic and infrastructure characteristics), regions with granted airport concessions have mainly higher aircraft movements, and more goods and hotels and restaurants sectoral employment than regions with non-granted airport concessions.

Managerial performance of airports in Brazil before and after concessions

This paper examines the performance of airports under Brazil’s state enterprise for airport infrastructure, Infraero, which managed the country’s main airports until major airport concessions began to be granted in 2012. The dataset comprised the 60 main airports that were under Infraero administration in 2009 and 2015, three years before and three years after concessions began to come into effect. In that period, concessions were granted on 5 major airports previously administered by Infraero, which are among the main hubs in Brazil, and one smaller, new airport. DEA modelling was used to analyse performance in the study years. In 2009, the airports considered accounted for 56% of the market; in 2015, the percentage fell to 52%. The findings show that not only did this set of airports lose market share, their performance declined significantly. In the study period, the enterprise’s overall performance index fell from 71.48% to 62.73%, as it failed to encounter pathways to improvement in the scenario of concessions of airports to private administration.

Hybrid governance structure between public company and private partners: the case of Infraero in the Brazilian airline sector

Abstract A public-private partnership (PPP) model has been adopted in Brazil for the modernization of its main national airports. Until 2017, the institutional setup imposed the public company Infraero to participate with 49% in the joint venture for the management of the airports subject to PPP. The remaining 51% shares belong to private companies, namely those that constitute the consortium group that won the correspondent public tender. This paper analyses this hybrid governance structure, including the main advantages and disadvantages, for both government and private parties, in maintaining a state-owned enterprise with a mandatory 49% share in the winner consortium. It focuses on five main aspects: access to knowledge; government influence on decisions, funding, and risk-sharing; cross subsidization and competition. The paper also summarizes its main findings and recommendations for future rounds of airport concessions in Brazil, in particular to underline overall inconveniences of the mandatory rule that imposes to Infraero a 49% share in all winner consortiums.

Communicating airport concession operating costs

The long-term success of a concessions programme can depend on well-constructed business plans through which concessionaires demonstrate a thorough understanding of the cost of doing business at an airport. Sharing information upfront can allow concessionaires to make informed business decisions and is the first step to successful airport and concessionaire relationships. The layers of complexity and associated costs of operating a restaurant or shop in an airport are factors that prospective concessionaires need to fully understand in order to judge the potential for success and profitability of business opportunities. Operating at an airport presents a unique set of challenges not found in traditional street operations. Aside from basic operating costs associated with the business, airport concessionaires must operate longer hours to accommodate passenger traffic, comply with federal and airport laws and regulations, pay minimum rents and capital investment requirements, as well as a myriad of other fees associated with operating at the airport. Unfortunately, there is not an industry manual available that clearly defines the operating costs of doing business at airports, nor is there a consistent list of fees common to all airports. Each airport is unique, with their own set of specific operating requirements. Furthermore, only some airports offer a comprehensive list of anticipated concession operating costs at the onset of the request for proposals (RFP) process — at the point at which interested concessionaires are evaluating business opportunities. A prospective concessionaire — particularly new, small and/or inexperienced concessionaires — may have insufficient information to evaluate an airport business proposition. Consequently, these concessionaires may incur unexpected costs that challenge their financial viability and affect the customer service they deliver to airport passengers. Unison Consulting, along with the Airport Cooperative Research Program (ACRP), completed a synthesis to help identify gaps in the communication of cost data from airports to retail and food and beverage concessionaires. Armed with more complete information regarding the full costs of operating in the airport environment, prospective concessionaires — particularly less experienced businesses — will be better able to gauge the opportunity being offered by airports. This will result in better proposals submitted for airport consideration, featuring more accurate business plans and pro formas.

Pro-competition rules in airport privatization: International experience and the Brazilian case

This article aims to demonstrate the importance of establishing pro-competition rules in the concession of multiple airports to private companies by describing the recent Brazilian experience. More specifically, it addresses: (i) how the economic literature deals with potential competition among different airports, and how this competition was dealt with in the concession programs of Australia, Mexico and the United Kingdom; and (ii) Brazil's recent experience with airport concessions, where international benchmarking led to cross-ownership restrictions. As a conclusion, this paper defends that governments should design regulatory restrictions that account for the existence of competition among airports. Nevertheless, these restrictions must be carefully planned and designed to achieve their goals.

Greek airports in transition: From public ownership to PPP concessions

The third air transport liberalisation package in the EU was fully implemented in Greece in July 1998. Nevertheless, little has changed since then in terms of the geographical dispersion of air traffic flows. The recent financial downturn of the Greek economy led to a substantial deterioration of traffic, particularly in the domestic market. The Greek state concluded an airport concession tender process in late 2014 with potentially important repercussions not only for the 14 regional airports in question but also for the wider aviation market in Greece. Nonetheless, a newly elected government announced in early 2015 that it will re-examine the whole issue, building, among other factors, on the opinions, concerns and reactions expressed by various interested groups including senior staff in affected airports. On these grounds, the present paper discusses the findings of semi-structured telephone interviews with all 39 Greek airport managers to identify the rationale behind this stance. Moreover, issues related to airport operations and development prospects are addressed from various viewpoints. The paper concludes with policy suggestions, taking into account the existing literature on airport management and ownership while combining the findings from desk and empirical research undertaken by the authors.

Modelagem econométrica da demanda em aeroportos privatizados: estudo de caso do Aeroporto Internacional de Confins, Belo Horizonte

Resumo O objetivo desse artigo é desenvolver um modelo empírico de demanda por viagens de um aeroporto recentemente privatizado pelo governo federal: o Aeroporto Internacional de Confins -Tancredo Neves, em Belo Horizonte. As estimativas da modelagem sugerem que o futuro da concessão do aeroporto está bastante atrelado ao futuro do crescimento econômico do País: com uso de dados setoriais e modelo econométrico com uso de variáveis instrumentais, foi possível estimar elasticidades PIB e preço da demanda em torno de 2 e -0,15, respectivamente. A robustez das estimativas obtidas foi checada por meio de um conjunto de análises de sensibilidade com uso de estimadores alternativos. Como conclusão temos que, se por um lado, um baixo crescimento da economia pode afetar negativamente o retorno esperado da concessão dada a alta elasticidade-PIB da demanda aeroportuária, por outro lado, a baixa elasticidadepreço pode gerar pressões dos entes regulados por realinhamentos tarifários que mantenham o equilíbrio econômico-financeiro e a rentabilidade do operador.