Written by Gonzalo Yelpo with Yelpo y Facal in Uruguay

Ground handling is an essential component of the airport ecosystem, with a direct impact on operational efficiency, costs, and air transport safety. Its regulation determines the market structure and shapes competition among different operators. In Uruguay, Decree No. 280/002, enacted in 2002, established a framework for the liberalization of the ground handling market, allowing both airlines and independent operators to provide these services under free competition. However, the recent Decree No. 57/025 has introduced significant changes by allowing the airport concessionaire to directly provide these services or subcontract them, reshaping the competitive landscape and generating risks in terms of competition.

Decree No. 280/002 established an open regime for airport ground handling services, eliminating the exclusive concession model and allowing free competition. This scheme enabled airlines to self-handle or contract independent operators, under the supervision of the National Directorate of Civil Aviation and Aeronautical Infrastructure (DINACIA). However, the effectiveness of this liberalization has been questionable in practice, due to specific regulations within the decree itself that have led to a de facto monopoly in ground handling services.

A critical issue in this regard is Article 11 of Decree 280/002, which requires third-party service providers to have adequate and sufficient equipment and personnel to safely and efficiently handle all types of aircraft operating at Carrasco International Airport, ensuring standby capacity to attend to unscheduled flights within a reasonable time. From a market regulation perspective, this provision does not seem reasonable or proportionate, as it imposes an extremely high operational burden on any potential competitor, requiring them to have infrastructure and capacity to handle the entire airport traffic, including unforeseen situations.

The immediate consequence of this regulation has been the creation of an effective entry barrier for new operators, resulting in the same service provider that existed before deregulation remaining the sole market player 23 years after the decree was enacted. This is particularly relevant considering the context in which the decree was issued: in 2002, the 10-year concession granted to the existing ground handling operator was coming to an end, which suggests that the regulation may have been designed to maintain that operator’s position as the sole provider over time.

From a competition law perspective, this regulation could be analyzed under Article 4 of Law No. 18.159, which prohibits practices that limit or restrict the production and distribution of services to the detriment of competitors or consumers. If a regulation, even without an anti-competitive intent, produces exclusionary effects without sufficient objective justification, it could be considered a market regulation that unduly restricts competition. In this case, the disproportionate requirement for infrastructure and capacity to enter the ground handling market at Carrasco appears to have had such an effect.

Furthermore, it could be argued that Article 11 of Decree 280/002 has been tacitly derogated by Law No. 18.159. This law establishes general principles of free competition that are incompatible with a regulation imposing entry barriers without reasonable justification. According to the principle of normative hierarchy, a lower-ranking provision, such as a decree, that contradicts a subsequent law becomes ineffective. Additionally, under Article 6 of Law No. 18.159, any act involving an abuse of dominant position that excludes competitors from the market is illegal. In this context, the requirement that any ground handling provider must be capable of handling the entire air traffic at Carrasco has resulted in the consolidation of a de facto monopoly, which directly contradicts the competition principles established by law and the objectives declared by the decree.

With the enactment of Decree No. 57/025, the airport concessionaire now has the authority to provide ground handling services itself or through subcontracting. This regulatory change, far from reversing the existing lack of competition, may further consolidate it, as the concessionaire now has the power to decide who provides services within the airport, without clear guarantees of fair access for other operators.

Given this scenario, it is crucial to adopt mitigation measures to ensure effective competition in the sector. Some strategies implemented in other countries can serve as a reference to guarantee a fairer and more competitive market:

• Separation of activities: It is recommended to establish structural or accounting separation between airport management and ground handling services to prevent the concessionaire from using its position to unduly favor its own company.
• Non-discriminatory access to infrastructure: Ensuring fair and transparent access to airport facilities for all ground handling operators is essential. Access fees and conditions should be public and regulated to prevent abuse.
• Supervision by independent authorities: DINACIA should implement effective monitoring and regulatory mechanisms to prevent anti-competitive practices and ensure equal conditions for all service providers.
• Liberalization of the ground handling market: Allowing multiple operators, including airlines, to offer these services would reduce concentration and promote greater competition.
• Regulation of tariffs and service quality: Establishing controls over the fees that ground handling providers can charge, as well as defining minimum service quality standards, would help protect airlines and passengers.
• Formal elimination of the requirement under Article 11 of Decree 280/002: As a key measure, it is recommended to explicitly repeal this provision, given that its incompatibility with the Competition Defense Law implies its inapplicability and potential illegality.

The regulatory change introduced by Decree No. 57/025 represents a turning point in the regulation of the ground handling market in Uruguay. While the regulator’s intention may have been to improve efficiency and ensure service provision, in practice, the reintroduction of the concessionaire into this market generates significant competition risks. To prevent this situation from leading to a setback in the sector’s openness, it is essential to implement control mechanisms that guarantee a competitive and fair environment for all stakeholders in the airport ecosystem.

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