THE IMPACT OF AVIATION REFORMS IN THE DOMINICAN

AIR TRANSPORT CASE STUDY

ICAO/IDB

REPUBLIC: A MODEL OF SOCIOECONOMIC GROWTH AND

DEVELOPMENT

The Inter-American Development Bank

Eduardo Café

Victor Gomes

Reinaldo Fioravanti

Reviewed by Manuel Rodriguez Porcel

2

1. Introduction ..................................................................................................................... 4

2. Executive Summary ........................................................................................................ 6

3. State Profile .................................................................................................................. 11

4. State of Air Transport and Connectivity ......................................................................... 12

4.1. State of Air Transportation: general statistics, main destinations and airlines ........ 12

4.2. Dominican Republic Airlines .................................................................................. 20

4.3. Cargo Statistics ..................................................................................................... 21

4.4. Air Connectivity: Direct Routes, Destinations and Airlines...................................... 27

4.5. The Caribbean: Regional Benchmarking ............................................................... 31

5. Policy and Regulation ................................................................................................... 35

5.1. National Framework for the Air Transport Sector ................................................... 35

5.2. Air Services Agreement (ASAs) and Share Code Agreements .............................. 39

5.3. Aviation and Environment ...................................................................................... 41

5.4. Other Policies that have benefited the Aviation Sector ........................................... 44

6. Civil Aviation Safety and Security Oversight: Regulatory Framework, Operations and

Capacity Building ................................................................................................................. 46

6.1. Regulatory Framework and Operations ................................................................. 46

6.1.1. Aviation Security ................................................................................................ 46

6.1.2. Safety Matters .................................................................................................... 47

6.2. Certification of Airplane Ground Handling Services Companies ............................. 48

6.3. Capacity-Building ................................................................................................... 48

6.3.1. Superior Academy of Aeronautic Sciences ......................................................... 49

6.3.2. Security and Safety in the Civil Aviation School.................................................. 51

6.3.3. Universidad Nacional Pedro Henríquez Ureña ................................................... 53

7. National Air Navigation Services ................................................................................... 54

7.1. Infrastructure and Personnel .................................................................................. 55

7.2. Safety Management System (SMS) ....................................................................... 58

8. Safety Audit Results and Lack Effective Implementation (EI) ........................................ 60

8.2. The Dominican Republic Results in the USOAP .................................................... 62

8.3. Overall Performance of the Dominican Republic .................................................... 63

9. Benefits of Aviation to the Dominican Republic: An Impact Evaluation Analysis ........... 65

9.1. Policy Evaluation Strategy ..................................................................................... 66

9.2. A Model for GPD per Capita .................................................................................. 68

8.3. Market Results: Microeconomic evidence .............................................................. 75

8.4. Some considerations on Taxation and Charges ..................................................... 83

8.5. Conclusion ............................................................................................................. 87

8. Policies that could further enhance the economic contribution of civil air transport in the

Dominican Republic ............................................................................................................. 88

ANNEX 1: Dominican Republic Airlines ............................................................................... 88

ANNEX 2: Impact Evaluation variables and robustness checks ........................................... 93

3

ACRONYMS

ASAs

Air Services Agreements

ASCA

Superior Academy of Aeronautic Sciences

CESAC

The Airport and Civil Aviation Safety and Security Board

DR

Dominican Republic

EI

Effective Implementation

ESAC

School of Security and Safety in the Civil Aviation

FIR

Flight Information Region

GDP

Gross Domestic Product

ICAO

International Civil Aviation Organization

IDAC

Dominican Institute of Civil Aviation

JAC

Civil Aviation Board

NCLB

No Country Left Behind

SARPs

Standards and Recommended Practices

SDG

Sustainable Development Goals

SIDS

Small Island Developing States

USAP

Universal Civil Aviation Security Program

USOAP

Universal Oversight Audit Program

4

1. Introduction

The international air transport sector, directly and indirectly, supports the employment of

62.7 million people worldwide. The sector contributes 2.7 trillion dollars in global Gross

Domestic Product (GDP), provides 4.1 billion people transport and moves more than a third

of world freight by value on 37 million flights each year.

In September 2015, Heads of State and Government adopted the United Nations

Transforming our World: the 2030 Agenda for Sustainable Development, including its 17

Sustainable Development Goals (SDGs) and 169 targets. The Agenda is a commitment to

eradicate poverty and achieve sustainable development by 2030 worldwide. The adoption of

the 2030 Agenda was a landmark achievement, providing a shared global vision toward

sustainable development. The 2030 Agenda for Sustainable Development called special

attention to Small Island Developing States (SIDS), as they face unique vulnerabilities in their

sustainable development.

Achieving the 2030 Agenda’s SDGs will depend on advances in mobility, including air

transport that is safe, secure, efficient, economically sustainable and environmentally

responsible. While sustainable transport and aviation do not have a specific SDG, it is widely

recognized that both are essential enablers in the achievement of the 2030 Agenda for

Sustainable Development. In 2017, the International Civil Aviation Organization (ICAO)

completed a thorough analysis of how its 2017-2019 Business Plan supports the 2030

Agenda for Sustainable Development. Through this analysis, the Organization mapped

linkages with 15 of the 17 SDGs.

In the interest of helping States to have access to the significant socio-economic benefits

of safe and reliable air transport, ICAO has launched the No Country Left Behind (NCLB)

initiative. This initiative focuses the efforts of the Organization to assist States in

implementing ICAO Standards and Recommended Practices (SARPs), which the main goal

is to help ensure that SARPs implementation is harmonized globally.

The Dominican Republic (DR), due to its outstanding aviation growth and dynamic

interaction with the States and the region, serves as a model to the Small Island Developing

States (SIDS). Other SIDS share many of the same characteristics as the DR, such as the

reliance on tourism and air transport as the primary means of transportation. During the past

12 years, the island has emerged as one of the safest and most reliable countries to fly to,

owing to a number of reforms in the aviation sector that brought the nation’s air transport into

compliance with the ICAO SARPs. These reforms, coupled with other policies to foster

tourism on the island, increased the number of passengers who fly to the Dominican

Republic, thus positively impacting island’s economy.

5

The study describes these reforms from 2006 onwards and measures, through rigorous

econometric models, the impact of these reforms on passengers flows to the State as well as

the impact on the economy as a whole. The main reforms can be summarized as:

modernization of the institutional framework, defining and separating functions between

autonomous institutions for each group of activities; liberalization of the aviation market,

fostering a free competitive market and signing air services agreements with more than 60

countries; capacity-building of public officers in order to deliver better services; modernization

of the international airports and of the air navigation system; incorporation of ICAO SARPs in

the internal legal framework; developing the Action Plan for the Mitigation of CO

2

emissions

in the aviation sector with goals and measures; and others.

This case study provides a more relevant and accurate representation of the impact of

such measures on Small Developing Island States (SIDS) as well as other small developing

economies, including meaningful insight for civil aviation planners and relevant ministries

(tourism, finance, transport) on the returns on investments generated by the civil aviation

sector.

Finally, this case study is a specific side-by-side comparison of the aviation sector before

and after the (2006) reforms were implemented. The studies also illustrate the difference

between a State that does not have political will and commitment in establishing aviation as a

national priority versus those that do.

6

2. Executive Summary

Dominican Republic statistics

 The air transport market in the Dominican Republic has consistently grown by an

average of 5.52% annually over the last 20 years, making it one of the largest air

transport markets among the Caribbean countries. The number of foreign passengers

has increased at a faster pace compared to Dominican nationals, reaching 78% of

total passengers in 2018, up from 70% in 1996.

 Regionally, in 2018, 63% of all passengers came from North America, while 19%

came from Europe and 6% from South America. The Caribbean accounts for 4.96%

of passengers in the air transport market in the Dominican Republic, third behind the

United States and Canada.

 Only four countries make up more than 67% of passenger flows to the Dominican

Republic: the United States, Canada, Spain and Germany. The Dominican air

transport sector relies heavily on its ties to the United States. The U.S. accounted for

50% of the total flow of passengers to the island in 2018. Canada accounts for 12%,

Spain 4% and Germany 3%.

 In 2018, 60 airline carriers provided regular flights to the Dominican Republic, with ten

of them making up 64% of the market share. JetBlue alone transported an estimated

21% of the total passengers to the Dominican Republic in 2018. Low-cost airlines

stood out in 2017, accounting for an estimated 45% of all passengers.

 The number of passengers transported by the Dominican Republic airlines has

significantly grown between 2015 and 2018, contributing to a better connectivity

between DR and Curazao, Cuba, Haiti, Puerto Rico, Saint Martin, British Virgin

Islands, Aruba, Antigua and Barbuda and Jamaica. They also performed charter

flights to Central and North America. The flight movements (entries and exits)

reached 5,987 operations in 2016, representing a growth of 58.9%. In 2017, the

number of flights was 9,865, a growth of 64.8%.

 The 2045 forecast shows an average growth of CAGR 4% in routes from Central

America/Caribbean.

 In the year 2018, there was around 126.6 million Kg. of freight traffic by air, of which,

83.3 million was exports and 43.3 million imports. This cargo translated to a total FOB

value of US$5.09 billion, which makes up 20% of the total imports and exports of the

Dominican Republic. Las Americas airport represented almost 60% of the total

imports and exports by air.

7

 Since 2015, there has been steady, yearly growth in exports, around about 8%

annually, highlighted by 2016's 8.8% growth. The most exported product from the

Dominican Republic, by weight, are vegetables (70% of the total); by value, stones

and precious metals (70% of the total value). In 2018, 75% of exports from the

Dominican Republic went to North America (EUA: 64% and Canada, 11%).

 There was a significant recovery on imports in 2018 after decreases in 2017. About

65% of the total imports came from United States (43%) and China (22%). Machinery

and appliances are the most imported products, by air, to the Dominican Republic,

both FOB-wise (US$806 million) and weight-wise (13.4 million kg.).

 The island, which accounts for 0.43% of the total passengers in the world, ranked

47th based on 2016 results at the Global Air Connectivity Index, a World Bank

indicator that focuses on understanding the role of connectivity in economic growth

and development. About 62% of total passengers used a direct flight to travel to DR,

36% made one stop and 2%, two stops, in 2016.

 DR has 36 airports, aerodromes and runways, both public (direct administration and

concessions) and private. The international airports are administered by the private

sector, either through concessions (five) or are privately-owned (three). By 2018,

passengers flew via 242 direct routes from/into 38 countries/territories provided by 43

airlines through its 7 operational international airports.

 The traffic is concentrated in two main airports: Punta Cana (PUJ) and Santo

Domingo (SDQ). Around 80% of passengers originating in the Dominican Republic

departed from these two airports in 2017, through 50% of the total routes.

Policy Reforms

 DR enacted Law No. 491-06 in December 2006, modernizing legislation to cope with

the new aviation landscape, followed by two amendments: Law 67-13 and Law 29-18.

 The relevant reforms in the aviation sector are: (i) a set of strong institutions to define

the air transport policies and to establish the technical and economic regulations of

civil aviation, air traffic control, investigation of accidents and sector oversight. The

objective is to separate functions among autonomous institutions to avoid conflict of

interests; (ii) institutions to define the air transport policies and to establish the

technical and economic regulations of civil aviation, air traffic control, investigation of

accidents and sector oversight; (iii) More flexibility for foreign operators and relaxation

of ownership requirements for national operators.

8

 Until 2007, the Dominican Republic had signed bilateral agreements with 19

countries, most of them traditional (limited frequencies and routes). However, Law

491-06 established the liberalization of air services in the State. By giving the Civil

Aviation Board (JAC, in the Spanish abbreviation) the mandate to sign Air Services

Agreements (ASAs) on behalf of the State and a technical staff to carry out the

activities, the new law boosted the number of agreements and moved towards more

liberal agreements signed between the Dominican Republic and other countries,

reaching agreements with a total of 66 countries.

 JAC also accepted more code share agreements after the reforms, as a way to bring

about more routes to the State. Currently, there are 15 active code share

agreements, which provide 25 routes from Panamá, Spain, the United States,

Guadeloupe, Guyana, and the United Kingdom, involving 15 airlines.

 The Dominican Republic joined the ICAO-UE capacity building program for CO

2

mitigation from international aviation. The State defined an Action Plan with goals and

mitigation measures. Between 2012-2018, the Dominican stakeholders invested

around USD 13 million in measures to mitigate CO

2

emissions, including solar power

plants, equipment to improve energy efficiency in the airports, LED lights, more

efficient refrigeration systems, implementation of Preconditioned Air (PCA) units and

electronic Ground Power Units (GPU) to reduce the use of auxiliary power units

(APU) and the partial implementation of the Air Traffic Flow Management (ATFM)

concept in the main building of Air Navigation Services Norge Botello. ICAO-UE

measured 16.800 CO

2

fewer tons of emissions from international flights and airports

compared to the 2018 baseline (without project scenario).

Security and Safety Oversight: Policies and Capacity Building

 Similarly, Law 188-11 changed the civil aviation safety and security oversight in the

Dominican Republic. These changes included the development of a modern system

of sanctions for violations and acts of disobedience.

 The Airport and Civil Aviation Safety and Security (CESAC) board has released the

National Plan for Security and Safety in the Civil Aviation, which led to a group of

reforms, such as the implementation of a data center, new technologies for

inspections, and a video system for airport oversight and simulation.

 In 2014, the Dominican Republic established its primary law and regulations to certify

airplanes ground handling services companies. By now, 28 companies have been

identified, and five were certified. 18 more are currently going through the certification

9

process under RAD 24 (Dominican Aviation Regulation, in the Spanish abbreviation)

and 10 have expressed interest but have not started the process.

 Along the same lines, through the Superior Academy of Aeronautic Sciences (ASCA),

the Dominican Republic has trained 9,265 students under more than 100 academic

courses from 2008-2018. The academy also trained 291 students on Air Traffic in

Aerodromes and Aeronautic Administration, since 2013. Furthermore, ASCA provided

courses for students in many other countries in Latin America and the Caribbean.

 Through the School of Security and Safety in the Civil Aviation (ESAC), the

Dominican Republic trained 6,500 professionals on security and safety in civil

aviation, and 4525 professionals through 252 courses, from 2009-2018. Among these

students, 196 are foreigners from 17 different countries.

 Under this new reform framework, and due to the commitment of the Dominican

Republic toward security issues, major progress was made in the Universal Civil

Aviation Security Program (USAP) from 76.46% to 96.98% in 2017, an increase of

20.52 percentage points, reaching high marks in terms of airport security and civil

aviation.

Air Navigation Systems

 The FIR Santo Domingo (MDCS) has a dimension of 172,578 km

2

, surrounded by the

FIRs of Miami (KZMA), San Juan (TJZS), Curazao (TNCF) and Port-au-Prince

(MTEG).

 The Air Traffic Flow Management Unit was created under the Santo Domingo Area

Control Center, with a staff of 13 specialists, to monitor and evaluate the traffic

situation in the airports and the Santo Domingo Flight Information Region (FIR),

generating deliverables designed for the optimal execution of air flows.

 The Air Navigation System is staffed by more than 600 air navigation service provider

personnel, 266 aviation technical operators and 334 air traffic controllers. The ANS

personnel, spread throughout the different air navigation facilities, supported air

navigation services for 215,770 air operations during 2018.

 The Dominican Republic created the Department of Safety Management, which is a

specialized technical body responsible for the implementation of an SMS for air

navigation services as well as the subsequent continuous operation of said system.

 The Dominican Republic is upgrading its Aviation System Block, starting from Block

0, which has the capacities ready to be implemented with supporting documents such

as standards, procedures, specifications and training materials. The State expects to

10

start upgrading Block 1 in 2019, Block 2 in 2025 and Block 3 in 2031, with ICAO's

support.

Safety Audit Results and Lack of Effective Implementation

 In 1993, the United States Federal Aviation Administration (FAA) downgraded the

Dominican Republic to Category II. Under the new aviation law approved in the

Dominican Republic (2006), and the different improvements obtained from the new

reform framework, the FAA upgraded the Dominican Republic aviation safety rating to

Category I in 2007.

 The first audit under the Universal Safety Oversight Audit Program (USOAP) in the

Dominican Republic was carried out in January 2009, with missions to validate the

corrective measures in 2016 and 2017. The State has achieved great results in the

ICAO's USOAP, improving the Effective Implementation (EI) from 85.98% (2009) to

90.52% (world average is 66.32%). With these results, the Dominican Republic ranks

in the top 5 States in the North America, Central America and Caribbean Region

(NACC) in the safety oversight arena (top 4 of 22 in NACC region).

The Impact of Air Transport Reforms in the Dominican Republic Economy

 Our macroeconomic model estimated a 15.5% increase in GDP per capita between

2006-2012, which can be translated in USD 607 per capita of income increase.

 The microeconomic model estimated an increase between 23% and 27% in the

participation of passengers going to Dominican Republic from the U.S. over

passengers going to other destinations. Moreover, due to the policy improvements,

the increase of U.S. tourists to the DR increased tourism spending by USD 836

million to 1.016 billion between 2006-2012. The results show a causal relationship

between the reforms and the increase of passengers, thus impacting positively the

economy.

 Using a conservative estimate, the total net benefit to Dominican Republic in the

period of 2006-2012 attributable to the policy is USD 837 million through American

tourist spending, and USD 78 million in taxes charged by the State to non-residents,

reaching a total of USD 915 million. The contribution of taxation to the economy

(GDP) of Dominican Republic is significant. Estimates indicate that for the year 2017,

taxation contributed around USD [non-residents 80 unit tax] 490 million to the DR

economy.

11

3. State Profile

DOMINICAN REPUBLIC

Socioeconomic Indicators

Aviation Indicators

Population: 10.88 million

Surface area: 48,671 square kilometers

Population Density: 224 people per sq km

Category: Small Island Developing State

GDP: 75.93 billion USD (2017)

GDP per capita: US$ 7,052.26 USD (2017)

Upper middle-income developing State (Word

Bank)

Average growth (2000-2016): 4.9%

Doing Business Ranking (2018): 99

th

(World Bank)

Global Competitiveness Index (2017-

2018): 3.9 out of 7 (104

th

out of 137) (World

Economic Forum)

Travel & Tourism Competitiveness Index

(2017): 76

th

(World Economic Forum)

Logistics Performance Index (2018): 2.66

(87th).

Number of passengers: 13,751,481 (2017)

Average growth total pax (1996-2017):

5.28%

Global Air Connectivity Index (2106): 0.41

(rank 47

th

- World Bank).

Air Liberalization Index (2011): 23 out of

50 (WTO).

Global Competitiveness Index - Quality of

Airport Infrastructure (2017-2018): 4.8 out

of 7 (50

th

) (World Economic Forum)

Airport Infrastructure:

36 airports, aerodromes and runways;

8 international airports (7 operative)

4 public airports (managed by private

firms through concessions)

3 private airports (Punta Cana, La

Romana y El Cibao)

1 national domestic airports;

1 military airport;

7 domestic aerodromes;

20 aerodromes for aerial work

(agriculture aerial spraying)

Effective Implementation (EI) of ICAO

USOAP: 90.52% (4

th

in the region, 2018).

Chart 1: Tourist Arrivals by Air (%) ....................................................................................... 12

Chart 2: The evolution of the air transport market in the Dominican Republic, 1996-2018 ... 13

Chart 3: Air Transport Market by Region in Dominican Republic, 2018 (total pax) ............... 14

12

Chart 4: Number of scheduled flights in the Dominican Republic, 2005-2017 ...................... 14

4. State of Air Transport and Connectivity

4.1. State of Air Transportation: general statistics, main destinations and

airlines

The air transport market in the Dominican Republic has consistently grown by an

average of 5.52% annually over the last 20 years, making it one of the largest air transport

markets among the Caribbean countries. The number of foreign passengers has increased

at a faster pace compared to Dominican nationals, reaching 78% of total passengers in 2018

up from 70% in 1996. Moreover, 90% of tourists arrive by air, indicating the importance of

aviation for tourism on the island, as shown in the chart 1.

Chart 1: Tourist Arrivals by Air (%)

The chart 2 shows the evolution of the air transport market in the State. There are

only two points where the market showed slight drops in the rate of growth, both related to

major global events: 2001-2002, due to the terrorist attacks on 09/11, and 2008-2009, due to

the global economic crisis. However, the Dominican Republic quickly adapted to these short-

term setbacks by redirecting destination-marketing efforts to alternative source markets with

13

similar spending and travel habits, such as Canada, mitigating the effects of the crisis (WEF,

2011).

Chart 2: The evolution of the air transport market in the Dominican Republic, 1996-2018

Source: JAC

Regionally, in 2018, 63% of all passengers came from North America, while 19%

came from Europe and 6% from South America, as described in the chart 3. While the

numbers are skewed towards the United States — which captures most of the passengers of

North America — in South America, the passengers are divided nearly equally between

Brazil, Argentina, Chile and Colombia. In Europe, the largest number of passengers come

from Germany, Spain, Italy and France. The Caribbean accounts for 4.96% of passengers in

the air transport market in the Dominican Republic.

Average growth

(foreigners): 5.52%

Application of new aviation

reforms

14

Chart 3: Air Transport Market by Region in Dominican Republic, 2018 (total pax)

Source: JAC, OAG

The number of scheduled flights (movements) has also grown from 2005 to 2017,

especially from North America, as shown in chart 4:

Chart 4: Number of scheduled flights in the Dominican Republic, 2005-2017

Source: JAC, OAG

15

Only four countries make up more than 67% of passenger flows to the Dominican

Republic: the United States, Canada, Spain and Germany. The Dominican air transport

sector relies heavily on its ties to the United States. The U.S. accounted for 50% of the total

flow of passengers to the island in 2018. The average growth between 2005-2017 was

5.96% annually. The only drop occurred between 2007 and 2008, due to the 2008 financial

crisis in the U.S. Chart 5 shows the growth trend between the two countries.

The main inbound flights left and returned to the cities of New York (about 39% of

total U.S. passengers), Miami (11%), Fort Lauderdale (7%) and Atlanta (6%), arriving at the

airports of Las Americas (Santo Domingo), Punta Cana and Del Cibao. It is important to note

that eight of top 10 outbound routes from Dominican Republic are to United States in 2018.

Chart 5: Evolution of the air transport market in Dominican Republic (2005-2018), United States

(pax)

Source: JAC

Canada ranks second in terms of air transport flows to the Dominican Republic. The

State accounted for 12% of the total flow of passengers to the island in 2018. The average

growth rate between 2005-2018 was 6.36% annually. The main flights left and returned to

the cities of Toronto (45% of all Canadian passengers) and Montreal (30%) to Punta Cana

and Puerto Plata.

1

KJFK (John F. Kennedy International Airport); KMIA (Miami International Airport); KATL (Atlanta

International Airport); KEWR (Newark International Airport); LFLL (Fort-Lauderdale International

Airport); MDSD (Santo Domingo International Airport); MDST (Cibao International Airport); MDPC

(Punta Cana International Airport).

Route

1

Total pax, 2018

% of total U.S. pax

(Departures+Arrivals)

KJFK - MDSD

952,038

12,99%

KJFK - MDST

950,773

12,98%

KJFK - MDPC

490,600

6,70%

KMIA - MDSD

437,769

5,98%

KATL - MDPC

436,058

5,95%

KMIA - MDPC

380,963

5,20%

KEWR - MDPC

268,416

3,66%

KFLL - MDSD

261,433

3,57%

KFLL - MDPC

227,941

3,11%

KEWR -MDST

213,337

2,91%

TOTAL

4,619,328

63,05%

US TOTAL

7,326,465

Average growth: 5.96%

16

Chart 6: The evolution of the air transport market in the Dominican Republic (2005-2018),

Canada

Source: JAC

Spain is the third State in passengers flows to the Dominican Republic, accounting for

approximately 4% of all passengers in 2018. Between 2007 and 2013, the number of

passengers from Spain dropped consistently, but recovered from 2014 onwards. The main

flights departed from two cities, which account for 97% of all passengers: Madrid-Santo

Domingo and Madrid-Punta Cana.

2

CYYZ (Toronto Pearson International Airport); CYUL (Montreal International Airport).

Route

2

Total pax,

2017

(Departures+Arrivals)

% of total

CAN pax

CYYZ - MDPC

629,363

35%

CYUL - MDPC

402,057

23%

CYYZ – MDPP

185,500

10%

CYUL - MDPP

113,234

7%

TOTAL

1,326,819

74%

CAN TOTAL

1,326,819

Average growth: 6.36%

17

Chart 7: The evolution of the air transport market in the Dominican Republic (2005-2018), Spain

Finally, Germany was the 4

th

State in terms of passengers flows to the Dominican

Republic, accounting for approximately 3% of all passengers in 2018, a drop from 2017.

Between 2005 and 2009, Germany registered a drop on the number of passengers to the

Dominican Republic, but has recovered between 2012 to 2016. Germany registered an

average growth of 0.04% between 2005-2018. The main flights to the Dominican Republic

left and returned to the cities of Frankfurt (EDDF) (24%), Dusseldorf (EDDL) (22%) and

Cologne (EDDK) (15%) to Punta Cana, in 2018.

Chart 8: The evolution of the air transport market in the Dominican Republic (2005-2017),

Germany (pax)

Source: JAC

Route

Total pax,

2018

% of total SPA pax

(Departures+Arrivals)

LEMD-MDSD

377,091

61%

LEMD-MDPC

225,221

36%

TOTAL

602,312

97%

TOTAL SPA

622.681

Route

Total pax, 2017

(Departures+Arrivals)

% of total

GER pax

EDDF - MDPC

109,757

24%

EDDL – MDPC

101,363

22%

EDDK - MDPC

83,793

15%

TOTAL

279,033

59%

Average growth: 0.04%

Average growth: -0.26%

18

In 2018, 60 airline carriers provided regular flights to the Dominican Republic, with ten

of them making up 64% of the market share. JetBlue alone transported an estimated 21% of

the total passengers to the Dominican Republic in 2018. The low-cost airlines

3

stood out in

2018, accounting for an estimated 45% of all passengers.

Chart 9: Market share of air transport by airlines, Dominican Republic, 2018

Source: JAC, OAG

3

ICAO defines low cost carrier as an air carrier that has a relatively low-cost structure in comparison

with other comparable carriers and offers low fares and rates.

19

Forecast for Central America/Caribbean

4

The forecast shows an average growth of CAGR 4% in the routes from Central

America/Caribbean. CAGR 3.6% in the RPK from Central America/Caribbean – North

America for 2015-2045, still ranking first in terms of RPK (billion). The largest growth will take

place in Latin America/Caribbean – Central Southwest Asia (CAGR 5.3%).

Chart 11: ICAO Long-Term Traffic Forecast (2015-2045)

Source: ICAO

4

The Dominican Republic is part of this region.

20

4.2. Dominican Republic Airlines

The number of passengers transported by Dominican airlines has significantly grown

between 2015 and 2018, contributing to better connectivity between the DR and Curazao,

Cuba, Haiti, Puerto Rico, Saint Martin, British Virgin Islands, Aruba, Antigua and Barbuda

and Jamaica. They also performed charter flights to Central and North America.

In 2016, PAWA Dominicana started operating in the State, bringing some dynamism

to the airline market. PAWA Dominicana contributed to a 337% growth in the number of

passengers transported by national airlines compared with 2015, and 147% compared with

2017. The flight movements (entries and exits) reached 5,987 operations in 2016,

representing a growth of 58.9%. In 2017, the number of flights was 9,865, a growth of 64.8%.

However, PAWA ceased operations in the beginning of 2018, negatively impacting the

market but also creating space for new national operators.

The market of national airlines is dominated by Air Century S.A., a Dominican private

firm, which operates 16 regular routes and charter flights in the region. In 2016, Air Century

grew 151% in number of flights made, followed by 85.3% growth in 2017 and 82.4% growth

in 2018. Sky High Aviation, another Dominican airline company, has expanded its operations

since 2016, servicing the British and Dutch Caribbean. The company is planning to operate

larger airplanes in the future. The State has granted authorization for a new operator,

Servicios Aéreos GECA, S.A., to operate from the airport Jose Francisco Peña Gómez to

Puerto Príncipe and Haitian Cape in Haití, Habana, Santiago and Camaguey in Cuba,

Agudilla in Puerto Rico, Curazao, Aruba and Sant Martín, Tórtola, Kingston and

Providenciales. Annex 2 shows detailed information about routes and companies.

Dominican Republic Airlines

Flight movements, 2015-2018

Airlines

2015

2016

2017

2018

Helicópteros Dominicanos S.A./Helidos

1,017

1,594

2,211

2,390

Air Century, S.A./ACSA

651

1,452

2,098

3,004

Pawa Dominicana

470

2,040

3,685

224

Servicios Aéreos Profesionals, S.A.

471

400

1,0515

1,947

Sky High Aviation Services, S.R.L

307

343

698

2,123

Aerolíneas Mas S.A.

719

4

-

Aerolíneas Santo Domingo S.A.

109

42

39

34

Dominican Wings, S.A (Dw)

-

58

88

-

Tropical Aero Servicios S.R.L (Tas)

15

49

1

-

Republic Flight Lines, S.R.L

-

3

34

1

Aeronaves Dominicana//Aerodomca

6

-

3

-

21

Aerojet Services, S.A.

-

2

-

Transporte Aéreo S.A.

2

0

TOTAL

3,767

5,987

9,865

9,723

Source: JAC/IDAC

Dominican Republic Airlines

Number of passengers, 2015-2018

Airlines

2015

2016

2017

2018

Pawa Dominicana

11,477

114,998

288,530

19,330

Air Century, S.A./ACSA

4,001

10,075

18,673

34,061

Sky High Aviation Services, S.R.L

2,871

3,243

7,940

30,753

Servicios Aéreos Profesionals, S.A.

2,490

2,406

9,875

18,970

Dominican Wings, S.A (Dw)

-

2,204

6,657

-

Helicópteros Dominicanos S.A./Helidos

1,082

1,688

2,338

3,456

Aerolíneas Mas S.A.

8,109

39

-

Aerolíneas Santo Domingo S.A.

784

257

197

132

Republic Flight Lines, S.R.L

-

10

126

2

Tropical Aero Servicios S.R.L (Tas)

30

78

2

-

Aerojet Services, S.A.

-

5

3

-

Aeronaves Dominicana//Aerodomca

1

-

1

-

Transporte Aéreo S.A.

1

-

TOTAL

30,846

135,003

334,342

106,704

Source: JAC/IDAC

4.3. Cargo Statistics

Cargo Flights

5

In the Dominican Republic, as is standard global practice, most of the freight traffic by

air is on combined flights (passengers, freight and mail). Nevertheless, in 2018, there were

4,538 cargo-only flights, about 6 per day on average. More than 60% (2,789) were charter

flights and the rest scheduled (1,749).

5

This section was copied from the Air Transport Statistics Report: Dominican Republic 2018,

produced by JAC.

22

Chart 12: Dom. Rep. Cargo-only flights stages on scheduled and non-scheduled flights 2018

Freight traffic

In 2018, 126,647,638 Kg. of cargo was moved by air, of which, 83,313,952 were

exports and 43,333,686 were imports. This translates to a total FOB value of USD

5,092,549,832, which makes up about 20% of total value of imports and exports of the

Dominican Republic. In regards to FOB, imports were much more valuable than exports, with

the former averaging FOB USD 55/KG, while the latter averaged USD 32.68/KG.

Exports – 2014-2018

83,313,952 kg of goods were exported in 2018, representing 8.5% growth from 2017.

As illustrated chart 13, there was steady yearly growth in exports since 2015, approximately

8% annually with a high-point of 8.8% growth in 2016.

23

Chart 13: Dominican Republic Exports 2015-2018

95% of the exports from the Dominican Republic departed from the Las Americas

JFPG, Punta Cana and Santiago airports, led by Las Americas JFPG with 47,601,023 Kg.

(57% of the total).

Chart 14: Dominican Republic Exports - Airports 2018

In 2018, 75% of exports from the Dominican Republic went to North America;

53,289,692 kg to the USA and 8,684,170 kg to Canada. Exports towards Europe also played

24

an important role, especially to France, the UK and Germany; these three destinations

accounted for 11% of total exports.

Chart 15: Dominican Republic Exports by State of destination 2018

The most exported product from the Dominican Republic, by weight, are produce

items, accounting for 56,464,527 kg.; this number represents almost 70% of the total weight

exported. By FOB standards, the most exported product from the State were fine pearls,

stones and precious metals, valued at USD 1,934,796,379, more than 70% of the total export

value.

Imports (2015-2018)

There was a significant recovery on imports in 2018 after a downturn in 2017. The

recovery represented a (5.8%) rate of growth in imports, +7.1 more than 2017 (-1.3%).

25

Chart 16: Dominican Republic Imports 2015-2018

99% of the imports to the Dominican Republic in 2018 came through the Las

Americas, Del Cibao and Punta Cana airports; Las Americas led the way receiving over 25

million Kg. in imports, accounting for more than half of the total amount.

Chart 17: Dominican Republic Imports - Airports 2018

26

The majority of imported goods to the Dominican Republic in 2018 came from North

America or Asia, specifically the USA, 18,681,645 Kg, and China, 9,546,839 Kg. These two

countries account for 65% of total imports.

Chart 18: Dominican Republic Imports by State of destination 2018

Machinery and appliances are the most imported products, by air, to the Dominican

Republic, both FOB-wise (USD 806,290,488) and weight-wise (13,435,975 kg.). Chemical

Industry products are the 3rd most imported product to the Dominican Republic in regards of

weight, but its's the most expensive imported product among the top 5 listed below with an

average value of USD 105/KG.

27

4.4. Air Connectivity: Direct Routes, Destinations and Airlines

As a Small Island Developing State (SIDS), air and maritime connectivity is crucial to

the development of tourism and international trade in the Dominican Republic, as they are

the main drivers of the State's GDP growth. Air connectivity is defined as the movement of

passengers, mail and cargo using the minimum number of transit points, i.e. making trips as

short as possible and at the lowest price. The figure below outlines the major variables

impacting air connectivity.

Figure 1: Variables of Air Connectivity

The DR, which accounts for 0.43% of the total passengers in the world, ranked 47th

based on 2016 results at the Global Air Connectivity Index, a World Bank indicator that focus

on understanding the role of connectivity in economic growth and development. About 62%

of total passengers arrived via direct flight to the State, while 36% made one stop and 2%,

two stops. States like France, the United Kingdom and the United Arab Emirates are well-

connected, for example, with about 85% of their passengers arriving via direct flights. The

figure below describes the passenger traffic composition of the State in 2017.

Figure 2: Passenger Traffic Composition of Dominican Republic, 2017

Source: ICAO-ICM Global Air Transport Diagnosis using Marketing Information Data Transfer (MITD) Data

28

By 2018, passengers flew via 242 direct routes from/into 38 countries/territories

provided by 43 airlines, through the DR’s 7 operational international airports. Most of the

direct routes connect the Dominican Republic to United States (29%), Canada (22%),

Germany (8%) and France (5%), accounting for 64% of the total. The map below shows the

main direct routes with connections beyond non-stop cities.

Figure 3: Air Connectivity of Dominican Republic, 2017

Source: ICAO-ICM

As mentioned before, the optimal use of the airport system is one of the important

elements of the DR’s advantageous air-connectivity. The State has 36 airports, aerodromes

and runways, categorized by public (direct administration and concessions) and private.

29

Figure 4: Main Airports and Heliports

Source: IDAC

The table below lists the main international airports. These are administered by the private

sector, either through concessions (five) or are privately-owned (three). It is important to note

that concessions were granted for the same firm, Aeropuertos Dominicanos Siglo XXI

(Aerodom), which has been part of the VINCI Airports group since 2016. Though the airports

are managed by private firms, they need to comply with international security norms

established by Law 491-06 by applying for an air-operating certificate, granted by the

General Department of Civil Aviation.

Table 1: International Airports in Dominican Republic, 2017

Name

Since

Pax flow and Connectivity

(2018)

Management

Technical

Information

Punta Cana International

Airport (PUJ/MDPC)

1983

Passengers: 7,852,417

(2nd in the Caribbean; 24th

in Latin America).

- 109 direct routes from/to

33 countries/territories

provided by 40 airlines.

- Charters from 46

countries/territories.

Private

(Grupo Punta Cana)

- Two runways

(3,100 x 45)

ICAO RC: 4E

- two terminals

Las Americas JFPG

(Santo Domingo –

SDQ/MDSD)

1959

Passengers: 3,781.,25

(5th in the Caribbean)

- 54 direct routes from/to 26

countries/territories

provided by 30 airlines

Public (concession in

2000 for 30 years to

Aerodom/VINCI

Airports)

- one runway (3,354

x 60)

ICAO RC: 4E.

- two terminals

30

- Charters from 34

countries/territories.

Cibao International Airport

(STI/MDST)

2002

Passengers: 1,598,569

- 15 direct routes from/to 6

countries/territories

provided by 10 airlines.

- Charters from 8

countries/territories.

Private (Aeropuerto

Internacional de

Cibao S.A.)

- one runway (2,620

x 45)

ICAO RC:4D

- two terminals

Gregorio Luperón

International Airport

(Puerto Plata,

POP/MDPP)

1979

Passengers: 873,481

- 36 direct routes from/to 9

countries/territories

provided by 12 airlines.

- Charters from 23

countries/territories.

Public (concession in

2000 for 30 years to

Aerodom/VINCI

Airports)

- one runway (3,081

x 46)

ICAO RC:4E

- one terminal

La Romana International

Airport (LRM/MDLR)

2000

Passengers: 197,547

- 14 direct routes from/into

9 countries/territories

provided by 18 airlines.

- Charters from 38

countries/territories.

Private

(Central Romana

Corportation, LTD)

- one runway (2,950

X 45)

ICAO RC:4D

- one terminal

Samaná El Catey/Juan

Bosch International

Airport (AZS/MDCY)

2006

Passengers: 165,419

- 12 direct routes from/into

5 countries/territories

provided by 8 airlines.

- Charters from 10

countries/territories.

Public (concession

for 30 years to

Aerodom/VINCI

Airports)

- one runway (3000

x 45)

ICAO RC:4E

- one terminal

La Isabela Dr. Joaquín

Balaguer International

Airport/ El Higuero

(JBQ/MDJB)

2006

Passengers: 47,779

- 7 direct routes from/into 4

countries provided by 4

airlines.

- Charters from 36

countries/territories.

Public (concession

for 30 years to

Aerodom/VINCI

Airports)

- one runway (1659

X 30)

ICAO RC:3C

- one terminal

María Montez

International Airport

(Barahona, BRZ/MDBH)

1996

- Did not perform any

international flights in 2018.

Public (concession in

2000 for 30 years to

Aerodom/VINCI

Airports)

- one runway (3000

X 45)

One terminal

Not operating

Source: IDAC

The government of the Dominican Republic manages most of the domestic airports,

with the exception of the Arroyo Barril Airport, which is operated by Aerodom. As illustrated in

table 1, traffic is concentrated in two main airports: Punta Cana (PUJ) and Santo Domingo

(SDQ). Around 80% of passengers originating in the Dominican Republic departed from

these two airports in 2017, via 50% of the total routes.

The international airports are distributed across different tourist destinations in the

State in order to decentralize services provided by the Santo Domingo Airport, which still is

the most important access point for international tourists to the Dominican Republic. The

Puerto Plata Airport was built in 1979, to allow tourist access to the beaches in the North

region, and of the Punta Cana International Airport was built in 1983, to improve access to

the Eastern region. In the capital area, the La Isabela Airport, formerly la Herrera,

complements the Santo Domingo Airport as a more affordable airport for Caribbean airlines

31

to fly to Haiti, Puerto Rico and Jamaica. The airport is also used for charter flights and even

for some international and domestic flights.

During the 2000s, due to the improvement of road transportation and investments in

the tourism sector, the airport system incorporated two new airports: La Romana

International Airport (2000), which serves the southeastern coast of the Dominican Republic;

the Cibao International Airport (2002), which connects the second biggest city of Dominican

Republic to the world and serves Dominicans who reside in the U.S., Cuba, Panama, Haiti,

Puerto Rico, Turks and Caicos Islands and the Dutch Antilles; and finally the Juan Bosch

International Airport (2006), that serves the Las Terrenas and Las Galeras beaches. The

María Montez International Airport, which provides access to the southwest region, one of

the most beautiful tourist destinations in the State, does not yet receive international flights.

This airport is two hours from the Haitian border. Since 2017, the private sector has invested

in developing the La Ciniega area, building hotels and summerhouses and providing asphalt

road access from the airport to the beaches. This investment will likely increase the number

of international tourists to the area starting in 2019-2020.

Over the next few years, the Dominican Republic will move to an organic airport

system in which each airport transitions from a regional monopoly to a more competitive

environment where tourists and other customers have multiple options for travel. For many

years, a given airport was the only safe and fast mode to access some beaches, but this is

no longer the case. The intermodality strategies between port (cargo and passengers), roads

and airports will be key to creating a more efficient use of the airports.

4.5. The Caribbean: Regional Benchmarking

The Caribbean is the region with the largest travel and tourism (T&T) contribution to

the GDP in the Americas, registering around 14% (the average for Latin America is 8.9%),

according to ALG (2014). The region receives around 21.2 million tourists annually, which

makes up a 2% share of world tourism. The forecast predicts that the T&T contribution will

grow 3.7% annually over the next decade, accounting for 52 million jobs.

Air transport is key for the tourism industry and for national and regional integration,

because remote and or island nations rely on this mode of travel almost exclusively. Most

islands in the Caribbean are above the world average in terms of air transport seats per

capita compared to income per capita. In the Americas, the Caribbean ranks third in seat

capacity and first in terms of international airlift capacity (2013). Most of the traffic for

Caribbean territories is inbound (tourists visiting the countries), and the outbound traffic is

32

weak from most of territories. The chart below shows the distribution amongst Latin

American countries and the Caribbean.

Chart 19: Schedule seats capacity - million seats, 2013

Source: ALG, 2014.

While the world average of international tourist arrivals has grown 3.8% (CAGR 2005-

13), the Caribbean air transport market has experienced one of the slowest capacity growth

rates in recent years (1.5%, CAGR 2005-2013). Moreover, there is uneven growth across

the territories of the region. Islands with more tourists have, in general, more positive

evolution (ALG, 2014). As we can see at the chart below, the Dominican Republic is the first

in the region, accounting for 22% of total tourist arrivals in the Caribbean in 2013.

33

Chart 20: Tourist arrivals by State in the Caribbean region, 2013

Source: ALG, 2014 (with data from UNWTO)

In terms of origin markets, North America accounts for two thirds of the incoming

tourists in the region, showing an increase of CAGR 1.5% between 2008 and 2012, while

European tourist arrivals have decreased by CAGR 1.9% during the same period. The routes

from North America to the Caribbean are very concentrated: the five top North American

airports with flights to the Caribbean account for 75% of the routes offered to the region,

while the top 10 accounts for 90%. Miami, New York, Toronto, Fort Lauderdale and Atlanta

are the main gateways to the Caribbean.

Surprisingly, the Latin American market weight increased by CAGR 8% between

2008 and 2012, accounting for 6.6% of the total market. Domestic & Intra-Caribbean markets

have experienced continuous capacity reduction, with an average decrease of 3.1% (CAGR

2005-2013) (ALG, 2014), and a 2.3% CAGR reduction in the number of routes. The region

has a large airport network (67 with more than one weekly international flight), but limited

traffic volumes. The top ten airports account for 57% of the region's capacity and the top 20

account for nearly 80%.

34

Chart 21: O&D Caribbean air traffic flows, 2013

Source: ALG, 2014.

Finally, Airbus predicted significant growth for international Caribbean traffic in the

next 20 years (CAGR 2013-2032), but it is pessimistic about Intra-Caribbean traffic. Airbus

expects a growth rate of around 3% per annum for the countries that have already reached

maturity (like Europe, Canada and the United States); and around 5% for emerging markets,

such as Latin America and Asia; and lowest expected growth is in intra-Caribbean countries,

at around 1.3%. The map below shows the forecast for different regions.

Figure 5: Airbus traffic forecast - Average annual growth rates 2013-2032 between Caribbean

(CAGR %)

Source: ALG, Airbus, 2013.

35

5. Policy and Regulation

There are further policies that could impact the air transport sector and therefore the

economy as a whole. These policies are, mainly, a civil aviation law that defines the

institutions, norms and regulations for the sector and the level of liberalization achieved, the

air services agreements with foreign nations, airport investments, pilot and technical training,

policies to promote activities that could benefit aviation, such as international trade and

tourism and measures to mitigate the impact of aviation on the environment. This section will

describe the effective policies the Dominican Republic has implemented that fostered

improvements in air transport.

5.1. National Framework for the Air Transport Sector

The Dominican Republic chose to make aviation a priority sector in their national

development, planning and policies. The State promulgated Law No. 491-06 in December

2006, modernizing the legislation to cope with the new standards in the sector. This initial law

was followed by two amendments, Law 67-13 and Law 29-18. JAC also released Resolution

180 (2010) and updated the requirement manual (Version 6.0, first version from 2010),

signaling further liberalization of the air transport market. The major changes reflected in

these measures are summarized below.

1. A set of strong institutions to define the air transport policies and to carry the

technical and economic regulations of the civil aviation, air traffic control,

investigation of accidents and sector's oversight:

According to Law 505-69, two institutions share the responsibilities for civil aviation in

the Dominican Republic: the Civil Aviation Board (Junta Aeronautica Civil - JAC, in Spanish)

and the General Department of Civil Aviation (Dirección General de Aviación Civil - DGAC,

in Spanish). While the Civil Aviation Board

6

was in charge of defining aviation policies and

authorizing the air transport services (frequencies, routes through permits), the Department

6

The Civil Aviation Board was a committee formed by members of the General Department of Civil Aviation, the

Dominican Armed Forces, General Director of Tourism, two aviation specialists and an attorney. The main

activities of this committee were to: (i) define the civil aviation policies; (ii) define the general plan for airports and

aerodromes and air navigation; (iii) submit the budget for construction, maintenance and rehabilitation of airports,

aerodromes and air navigation; (iv) advise the State about taxes and duties for airports, aerodromes and air

navigation; (v) define the aviation services; (vi) study the treaties and international agreements; (vii) approve or

deny agreements and contracts signed between national firms, or between national firms and foreign firms; (viii)

propose norms, regulations and procedures to the Executive; (ix) promote the aviation for tourism, trade,

agriculture.

36

of Civil Aviation was in charge of the technical and economic regulation, of air traffic control,

of airplanes registry, of investigating accidents and of airport construction, management and

oversight.

7

They also shared some responsibilities regarding the construction, maintenance

and rehabilitation of airports and in defining technical regulations.

The new laws aimed to address gaps in the institutional framework. First, the new

laws were more explicit about the responsibilities of JAC and the Dominican Institute of Civil

Aviation (the former DGAC), to avoid any overlap or conflict of interests between the two

entities. The new JAC has the responsibility of defining the general policy for civil aviation

and regulating the economic aspects for the air transport.

Second, it strengthens JAC by providing the commission with technical staff and an

annual budget to carry out their responsibilities. JAC also expanded its activities, for

example, negotiating and signing air service agreements with other countries, defining and

modifying the rules of the Committee for Investigation of Aviation Accidents and

representing the Dominican Republic in international conferences and meetings about

aviation. The organization is under the authority of the President.

Third, Law No. 491-06 grants autonomy to the Dominican Institute of Civil Aviation

(Instituto Dominicano de Aviação Civil - IDAC, in Spanish), which was previously under the

control of the President. This status means that the Institute has its own budget, technical

staff and the power to organize their own approach to oversee and control the national civil

aviation. This means the Institute and issue regulations and take decisions according to the

functions defined by the law.

Fourth, legislators created the National Air Transport Facilitation Committee (Comité

Nacional de Facilitación - CNF, in Spanish)

8

, which is in charge of procedures and

coordination for the clearance of aircrafts, people and goods through the security processes

required at international airports, and the Facilitation Committee for each international

airport. The CNF is under the authority of JAC, which is in charge of defining the

composition, functions and activities. These committees are a forum for air transport

facilitation issues to be raised and to explore new means of addressing or resolving them.

Furthermore, this structure promotes sharing of information and best practices in relation to

air transport facilitation issues and provides a platform for informing stakeholders of relevant

developments in recommended international regulations from different international

organizations, such as the ICAO.

7

The General Department of Civil Aviation was created under the Executive branch as a technical organization

with the following activities: (i) implement the decisions and resolutions by the Executive and Junta; (ii)

enforcement of aviation laws and norms of air navigation; (iii) promote the civil aviation activities; (iv) control of the

air traffic and security of air navigation; (v) propose, with the Civil Aviation Committee, the regulation needed for

the implementation of OACI recommendations; (vi) National Licensing of airplanes; (vii) requirements for titles and

licenses; (viii) administrative sanctions; (ix) investigating aviation accidents; (x) oversees the construction and

management of airports; (xi) organize and manage the air traffic in the State; (xii) meteorological services.

8

The Decree 746-08 established the organigram, functions and regular meetings.

37

In 2009, Decree 500-09 created the Facilitation Division, with the primary function of

inspecting airports. The division schedules five inspections for each airport that handles

more than 500,000 passengers and 3 for those who process less than 500,000. The main

results of the decree are: (i) the development of the National Facilitation Program (PNFTA in

Spanish), in lines with SARPs; (ii) the implementation of Norms for Air Transport Facilitation

(RFTA, in Spanish), to be approved by the CNF; (iii) and the development of a program on

accessibility for disabled people accessing airports. Regarding the last initiative, the

Division delivered an assessment report about the conditions of three international airports

for disabled people’s mobility and organized seminars about the topic in 2018. As a result,

the three international airports adapted their terminals to ease the accessibility of disabled

people. Currently, the Institute for Technical Training (INFOTEP, in Spanish) is giving a

course about sign language to JAC professionals and CNF representatives.

Fifth, the state created the Commission on Aviation Accidents Investigation, an

autonomous committee to investigate aircraft incidents and accidents on Dominican soil or

Dominican aircraft accidents on foreign soil. According to the previous law, the DGAC was

in charge of investigating aircraft accidents, which can bring about potential conflicts of

interest. For example, if accidents causes were related to the air navigation system, the

DGAC would investigate problems in the system they managed, which is a conflict of

interest. An external and neutral body is preferable and will make more accurate non-

blaming assessments and recommendations.

In short, Law 491-06 provides autonomy, independent technical staff and financial

resources to the aviation agencies in the Dominican Republic to carry out the activities of

the aviation sector with greater efficiency. Moreover, the new law created a mechanism of

division of labor along with checks and balances between the different aviation agencies in

order to avoid redundancies or conflicts of interest.

2. The incorporation of the Chicago Convention agreement and its annexes under the

national framework:

Dominican legislators incorporated the rules and procedures on International Civil

Aviation and its annexes under the national law. Law 491-06, and the amendments, granted

primacy to the best practices stated at the Chicago Convention as follows:

(a) Air traffic control: IDAC must offer and oversee the services of air traffic control

according to ICAO standards (Art. 6, g);

38

(b) Operational security: IDAC must adopt any measures to guarantee the

operational security for civil aviation, following the norms, methods and recommended

practices in the annexes of the Chicago Convention (Art. 26, d; Art. 112, a);

(c) Air Transport of cargo, luggage and dangerous goods: Any individual has to

accept or offer transport for any cargo or luggage according to the dispositions in the

annexes of the Chicago Convention and to the technical instructions for safe air

transport of dangerous goods issued by ICAO (Art.140);

(d) Airports: IDAC must adopt the necessary measures to keep the airports in an

optimum level of service, according to ICAO standards and IDAC regulations (Art. 157

and 158). The law requires mandatory airport certification to operate an airport, which

includes security and quality requirements for efficient airport service.

(e) Pilots and cabin crew: Law 29-18 grants the IDAC Director General the

responsibility to limit, through decree, the flight of pilots and cabin crew, following

domestic and international best practices.

3. More flexibility for foreign operators and relaxation of ownership requirements for

national operators.

The laws reforms also increased the participation of foreign operators in the

Dominican air sector. First, Law 491-06 allows a faster process for signing air service

agreements with other countries by granting autonomy to JAC in negotiating ASAs. The

majority of air services agreements/memorandum of understanding between the Dominican

Republic and other countries were signed after 2006, and many have been updated since

then.

Second, the new laws allow aviation authorities to grant air service permits to foreign

air carriers, even if there is no air service agreement signed by the State where the air carrier

is based. For this privilege, the Dominican Republic should ask the foreign State for

reciprocity for Dominican airlines. Third, the law extends the period that an authorization is

required for the operation of private foreign airplanes while on Dominican soil from 30 days to

90 days.

Four, JAC Resolution 108-10, currently under review, has established an open sky

policy that aims to lower restrictions on frequency, type of airplane, number of seats and

cargo volume, letting the market determine these factors. JAC also grants 6th freedom rights

for passengers, cargo and combined, and 7th freedom rights for all-cargo. Moreover, JAC

intends to let the demand and supply determine the airfare, to expand the traffic rights, to

allow multiple operators for the same route and flights through shared code agreements, and

to foster more charter and non-regular flights as a way to contribute to the growth of tourism

39

and the national economy.

Five, Law 67-13, an amendment of Law 491-06, relaxed ownership requirements for

national operators, by considering allowing companies with primarily foreign capital (up to

100%) to qualify as national carriers provided that the investment is from an internationally

known airline. Last, the JAC Requirement Manual, the regulatory framework for the Civil

Aviation Board, introduces and simplifies the requirements for the issuance of operating

permits for foreign operators and includes a regulatory framework for charters, approval of

shared code agreements between air operators and special permits.

9

Six, the Dec. 375-10

exempted the airport tax for transit passengers who are boarding cruises.

5.2. Air Services Agreement (ASAs) and Share Code Agreements

Until 2007, the Dominican Republic had signed bilateral agreements

10

with 19

countries, most of them traditional in nature (limited frequencies and routes). However, Law

491-06 has impacted the liberalization of the air services in the State. By giving JAC the

mandate to sign ASAs on behalf of the State and a technical staff to carry out the activities,

the new law boosted the number of agreements towards more liberal agreements signed

between the Dominican Republic and other countries, reaching agreements with a total of 66

countries.

9

The process for special permits takes only 10 days to conclude.

10

This includes Memorandum of Understanding, Understanding Agreement, Consultation Agreement

and the Air Services Agreements.

40

Chart 22: Number of Bilateral Agreements that the Dominican Republic has with other

countries in a specific year, 2004-2018

Source: JAC, 2018

The chart above shows that the Dominican Republic has liberalized its market to

foreign carriers by prioritizing open skies and more flexible agreements. It is worth noting that

the open sky agreements went from two (2) in 2007 to 29 in 2018, while agreements under a

flexible modality went from 7 to 25 during the same time span. Agreements under a

traditional modality became stable over the years. From the total of 66 agreements: the

majority includes 5th freedom for passenger, 19 includes 6

th

freedom for passengers and

cargo flights combined and 23 includes 7

th

freedom for cargo.

Table 2: Bilateral Agreements between Dominican Republic and foreign countries, 2018

Approach for the Agreement

Countries

Traditional (limited routes and

frequencies)

Argentina (2006); Belgium (1998); Cuba (1987/2005

1

); El

Salvador (1998); Israel (2017); México (1994); Portugal (2018);

Switzerland (2000); South Africa (2017); Trinidad and Tobago

(1992); Germany (1992/2018)

6

;

Flexible (some flexibilities, such as

tariff defined by the market,

capacity or frequencies)

Austria (1999/2007); Bahamas (2018); Canada (2008);

Colombia (2008/2011); Spain (2010/2012)

2

; Qatar (2012/2017);

Russia (2009); France (1969)

4

; Guatemala (1998); Haiti (2017);

Hungary (2003); India (2011); Italy (1971); Jamaica (2018);

Norway (2016); Denmark (2016); United Kingdom (1951/2006)

5

;

41

Czech Republic (2016); Singapore (2016); Venezuela (1970);

Bolivia (2018); Morocco (2018); Bahamas (2018), Jamaica

(2018); Kenya (2018); Poland (2018); Rwanda (2018).

Open Skies

Antigua and Barbuda (2014); Aruba (2014); Brazil (2018); Chile

(2011); Costa Rica (1998); Dubai (2007); Ecuador (2014);

United Arab Emirates (2014); United States (1949)

3

; Finland

(2016); Luxembourg (2015); Guyana (2016); Iceland (2009);

Jordan (2009/2017); Kuwait (2016); Nicaragua (2016); New

Zealand (2016); Panamá (2008); Paraguay (2010); Sweden

(2106); Curacao (2015); Saint Marteen (2013); Netherlands

(2010); Serbia (2015); Peru (2009); Sri Lanka (2017); Turkey

(2014); Uruguay (2018); China (2018).

1

The year on the left is when the State signed the MoU and, on the right, it is the year the ASA was signed.

2

Spain and the Dominican Republic signed an ASA in 1968 under the traditional approach.

3

The United States and the Dominican Republics signed an ASA in 1986 and 1999, but the Congress did not ratify these. Since

2010, they have been negotiating an open skies agreement.

4

France and the Dominican Republic signed an ASA in 1969, under the traditional approach. In 2011 and 2013, they updated

the ASA through an MoU, under a more flexible framework.

5

The United Kingdom and the Dominican Republic signed an ASA in 1951, under the traditional approach. In 2006, they

updated the ASA through an MoU, under a more flexible framework.

6

The ASA is traditional for tariffs but flexible regarding capacity.

The Dominican Republic is also a signatory state of the Air Transport Agreement of

the Association of Caribbean States, which grants rights of 5th freedom for passenger and

cargo flights combined to all member states; and of the Multilateral Agreement for Open

Skies between Member States of the Latin American Civil Association, which grants 6

th

freedom for passenger and cargo flights combined and 7

th

for cargo.

JAC has also accepted more code share agreements following the reforms, as a way

to bring more routes to the State. Currently, there are 15 active code share agreements,

which provide 25 routes from Panamá, Spain, the United States, Guadeloupe, Guyana, and

the United Kingdom, involving 15 airlines. In fact, Law No 491-06 not only defined this role

for JAC, but also dedicated articles 256-259 to this matter.

5.3. Aviation and Environment

Environmental protection is one of the priorities of IDAC. Since 2012, the organization

has participated in the National Council for Climate Change and the Clean Development

Mechanism. In 2013, IDAC prepared the first action plan to reduce CO

2

emissions from

national aviation and participated to the World Conference on Climate Change in Poland.

The International Civil Aviation Organization (ICAO) and the European Union (UE)

signed an agreement in 2013 to implement a capacity building program for CO

2

mitigation in

42

international aviation. The Dominican Republic was one of 14 states who were selected to

participative on this initiative, serving as the ICAO office for the Caribbean States. The

project is the first phase of the Carbon Offsetting Scheme for International Aviation

(CORSIA), an ICAO program joined by the Dominican Republic.

The project has the following objectives: (i) to improve the capacity of the National

Civil Aviation authorities to develop an Action Plan on CO

2

emissions reduction in

accordance with ICAO recommendations; (ii) to design an efficient CO

2

emissions monitoring

system for international aviation developed in each selected Member State; (iii) to identify,

evaluate and partiality implement priority mitigation measures. In 2014, ICAO, UE and IDAC

organized the Kick-Off Seminar to create a plan to achieve the objectives of the project. The

2015 Action Plan defined the expectations in terms of CO

2

emissions in the DR aviation

sector for 2035 compared to a non-action scenario.

Chart 23: Baseline and Forecast for CO

2

emissions derived from aviation in the Dominican

Republic

Source: IDAC, 2018.

Between 2012-2018, Dominican stakeholders invested around USD 13 million in

measures to mitigate CO

2

emissions, including solar power plants, equipment to improve

energy efficiency in the airports, LED lights, more efficient refrigeration systems and engine

wash procedures, implementation of Preconditioned Air (PCA) units and electronic Ground

Power Units (GPU) to reduce the use of auxiliary power units (APU) in seven positions at the

Punta Cana Airport, new Performance Based Navigation (PBN) flight paths and continuous

descent and continuous climb operations, and the partial implementation of the Air Traffic

Flow Management (ATFM) concept in the main building of Air Navigation Services Norge

43

Botello. ICAO-UE measured 16.800 CO

2

fewer tons of emissions from international flights

and airports compared to the 2018 baseline (without project scenario).

The table below summarizes the main activities undertaken as a part of the

environment program between 2015-2018.

Table 3. Evolution of environmental activities for the aviation sector in the Dominican Republic

Year

Activity

2015

 IDAC installed the Aviation Environmental System (AES): the Monitoring,

Reporting and Verification (MRV) tool. The AES is composed of a core database

and an internal engine for data validation and verification (to treat imported data),

as well as a component for data aggregation and analysis (to generate exported

data).

 Release of the Action Plan to Reduce Emissions from the aviation sector

1

.

2016

 The Dominican Republic released the first official report of CO

2

emissions in

Aviation generated by the AES.

 Agreement between IDAC and the National Committee of Energy to facilitate the

implementation of renewable energy. The partnership will include a feasibility

study for the production of biofuel for the industry.

 Agreement between IDAC and the Ministry of Environment to foster capacity

building in both organizations and align activities and goals.

 Punta Cana Declaration, in which the National Council for Climate Change and

Clean Development Mechanism, the National Committee of Energy, the IDAC,

the JAC, the Airport Department and the Ministry of Environment agreed on a

road map to foster the use and local production of biofuel for aviation.

2017

 Inauguration of an 1MW solar power plant “Norge Botello” to provide clean

energy to the “las Americas airport complex.

 Creation of the Sustainable Development Unit and a Monitoring Division in the

IDAC.

 The establishment of the Sustainable Development Units (UDS) under IDAC.

 Creation of the Environment Protection Committee (EPC), for all decision making

on environmental issues, integrated for all area directors and the IDAC Director

General.

2018

 The release of the feasibility studies for biofuel for the aviation sector.

 0.8MW power plant installed at La Isabela International Airport (43% of the

energy consumption).

 0.5 MW power plant installed at Puerto Plata International Airport (22% of the

energy consumption).

 0.2 MW power plant installed at Barahona International Airport (78% of the

energy consumption).

 Aerodom obtained level 1 “Mapping” for all of its airports under the Airport

Carbon Accreditation (ACA) program.

 Cibao Int. Airport obtained level 2 “Reduction” for its facility under the Airport

Carbon Accreditation (ACA) program.

2019

 Cibao airport added 1.5 MW to its power plant, reaching a total of 3 MW (80% of

the total airport consumption).

Source: CORSIA/IDAC

In 2018, the Dominican Republic updated its Action Plan by defining goals and

mitigation measures for the coming years. These goals included: (i) to adopt the best

44

practices defined by ICAO to reduce the consumption of biofuel and CO

2

emissions by 2019;

(ii) to reduce 25% of the use of APUs in the international airports by 2020; (iii) to reduce at

least 15% of emissions generated by airport activities by 2030; (iv) to evaluate the CO

2

reductions for the PBN/ATFM activities; (v) to implement a pilot project for local biofuel

production for the aviation sector; (vi) to adopt a mechanism of voluntary compensations for

2020.

5.4. Other Policies that have benefited the Aviation Sector

The Dominican Republic has developed a group of policies to promote tourism

directly or indirectly over the past twenty years, many of which benefit the aviation sector.

The main policies/regulations are:

 Reduction of barriers to open business;

 Liberalization of immigration policies for foreign workers;

 No-discrimination between foreign and national suppliers in government

procurement;

 100% of repatriation of profits;

 Double taxation agreements with many countries;

 Through Law 16-95, equal treatment between national and foreign investors;

 Through Law 185-02, tax exoneration of 100% for the firms based in the State,

and tax deductions of up to 20% for individuals who decided to invest in the

tourism sector each year for five years;

 Import tariff and tax exonerations for machines and equipment needed for building

or renovation (for tourism investments of at least 5 years) tourist facilities and

installations.

 Promotion of the State throughout 23 international offices;

 The creation of the Official Fund for Tourism Promotion and the Promotion of the

Tourism Development in undeveloped regions, though Law 158-01;

These policies have boosted investments in the tourism sector mainly in less

explored areas, such as the beaches in the provinces of Barahona and Pedernales, in the

south of the State, and expansions in well-established areas, such as Samaná and Puerto

Plata. The FDI for the tourist sector accounts for 23% of the total. Furthermore, the

45

government has been promoting tourism in the city of Santo Domingo by revitalizing the

historical downtown. The number of foreign tourists who visited the capital increased by 64%,

and the hotel load factor increased from 55% in 2014 to 74% in 2016.

The Dominican Republic invested massively in its road network starting in 2012,

which had major positive impacts on tourism and productivity. Between 2012-2018, the

government rehabilitated, maintained and built 4,173 km of roads, 3,350 km of rural roads

and 8,708 mt of bridges. The development of the roads in the southern region will be crucial

to foster tourism there.

46

6. Civil Aviation Safety and Security Oversight: Regulatory

Framework, Operations and Capacity Building

6.1. Regulatory Framework and Operations

Since the enactment of Law No. 491-06, the Dominican Republic has implemented

measures to improve civil aviation safety and security oversight, by adjusting the legal

framework, improving operations and implementing training programs. Law 188-11 regarding

Airport and Civil Aviation brought about the changes summarized in the table below.

Table 4. Changes though the Law 491-06.

Topic

Law 491-06

Law 188-11

Acts of unlawful

interference

The sentences vary between 2 to

30 years, while the previous law

defined sentences between 2 to 5

years.

The formalization of the acts of

unlawful interference with different

sentences according to the crime’s

severity, following ICAO standards.

Violations to the

National Plan of Civil

Aviation Safety and

Security (PNSAC) and

related programs

No formal punishment for

violations.

A mechanism of sanctions defined

and detailed through the Law and

the Decree 376-16.

Jurisdiction of acts

Acts committed by Dominicans, at

Dominican airplanes in Dominican

land and by foreigners at foreign

airplanes in Dominican land.

Extension of acts committed by

foreigners at foreign airplanes in

foreign land in which the next

destination is the Dominican

Republic.

Other acts

No sanctions

Sentences/punishment for acts that

are not acts of unlawful interference

but can interfere with the

development of airport activities,

such as acts of disobedience.

Institutions

CESAC was the authority in charge

of safety and security matters in

civil aviation.

The specialized body of Airport and

Civil Aviation Safety and Security

(CESAC) is the authority in charge

of safety and security matters in

civil aviation. CESAC is also the

public enforcement institution for

this law, supporting the Public

Prosecutor’s Office during

investigations.

6.1.1. Aviation Security

The Safety and Security in Civil Aviation, the Body of Airport and Civil Aviation Safety

and Security (CESAC) has been the organization in charge of aviation security at

international airports since 1997. However, only during the 2000’s, with the creation of the

47

National Plan for Aviation Security and Safety in the Civil Aviation (PNSAC), did CESAC

expand their activities in these matters in a systematic way. The timeline below shows the

evolution of CESAC’s work.

1997 – the specialized body of Airport and Civil Aviation Safety and Security (CESAC) was created.

2000 – the first National Plan for Security and Safety in the Civil Aviation (PNSAC) and the programs

for Airport Safety and Security were developed.

2002 – CESAC created the passenger canine screening team as a mechanism to detect threats due

to TSA-USA recommendations. The Dominican Republic and the United States signed a

memorandum of understanding.

2003 – The USA helped the Dominican Republic to create anti-explosive k-9 unit. The unit has, to

date, 45 dogs and 59 security guards.

2007 – CESAC implemented the first Data Center.

2008 – The new headquarters of CESAC was built.

2009 – CESAC implemented the Integrated and Automated System of Aeronautical Management

(SIAGA-Security)

2010 – Review and approval processes were conducted for the security programs for airplane

operators. In 2011, the process was expanded to all other categories.

2012 – Inspections of passengers and carry-ons with Multi-Mode Threat Detectors.

2014 – CESAC implemented the Integrated Video Systems for Airport Oversight that connected the

control centers in the main airports to the CESAC control center.

2016-2017 – The second phase of the Video System for Airport Oversight was pursued, with

technological improvements.

2018 – Real scale simulation was established at the Punta Cana International Airport, which

generated recommendations to avoid and tackle threats.

The commitment of the Dominican Republic to security issues resulted in an

improvement from 76.46% in the Universal Civil Aviation Security Program (USAP) to

96.98% in 2017, an increase of 20.52 percentage points, reaching the highest levels in terms

of airport security and civil aviation.

6.1.2. Safety Matters

As part of the procedures, The Chicago Convention expects that countries implement

processes and procedures to tackle any deficiencies detected in the operational security

system. The Dominican Republic has taken the following measures regarding this critical

element:

 IDAC 4000, the Inspector Manual for the Administrative Sanctions Application and

Regulation RAD 20 - Administrative Sanctions, which guide the inspectors on the

procedures to enforce the laws and regulations;

 The use of the Information System for the Regulations Administration (SIAR, in the

Spanish acronym), a system developed by the Central American Corporation of Air

48

Navigation Services (COCESNA, in the Spanish acronym), to identify deficiencies

and address them;

 An efficient reporting system, in which the IDAC's Department of Safety identifies any

deficiencies in the air navigation system followed by a corrective measure plan to be

followed by the Department;

 Strict requirements for the air navigation controllers in regards to the use of English.

These efforts complement the CESAC's works on airport security. Since 1997, the

organization guarantees the presence of security services at national and international

airports, by applying the rules, methods and procedures established by ICAO. Furthermore,

CESAC is the first line of defense in airport terminals to combat transnational criminal

activities. CESAC implemented a Data Center in 2007, an Integrated and Automated System

of Aeronautical Management (SIAGA-Security) and an integrated airport video surveillance

system in 2013.

6.2. Certification of Airplane Ground Handling Services Companies

Until 2014, the ground handling services existed outside of any regulatory framework.

Decree 232-14, License for Air Operators and Airplanes Ground Handling Operators,

established that the airport ground handling companies should request a license from IDAC,

which is in charge of creating the guidelines and requirements for the certification process. At

the end of 2014, IDAC established Resolution 030/2014, which approved the RAD 24

regarding Ground Handling Services. This RAD defined the requirements and phases for the

certification process, allowing a period of adaptation for companies. Companies began

requesting the certification in 2016. Currently, 28 companies have been identified, five have

been certified, and 18 are going through the certification process under RAD 24. An

additional 10 companies have expressed interest in certification but not begun the process.

The IDAC Safety Oversight Department carries out document analysis and

inspections, and releases a final report. Some companies have to outline a corrective action

plan validated by the inspector. Certified companies are subject to yearly inspections through

the Annual Programme of Safety Oversight Inspections.

6.3. Capacity-Building

The Dominican Republic has implemented a comprehensive and continuous training

49

program to improve oversight activities, transitioning from a government to a State policy

11

.

The State counts on two important training institutions in this matter: The Superior Academy

of Aeronautic Sciences

12

(ASCA, in the Spanish abbreviation) and the specialized body of

Airport and Civil Aviation Safety and Security (CESAC, in Spanish abbreviation) schools.

6.3.1. Superior Academy of Aeronautic Sciences

The ASCA was founded in 2008, with the goal of becoming a specialized institution

for aviation training programs that meet the high standards of quality and safety required by

the sector. The timeline below shows the evolution of ASCA as a regional center of

excellence.

2009 – ASCA is upgraded as a superior academy, under IDAC. Resolution No 13-2009 created the

Career of Associate Degree in Aerodrome Air Traffic Control. ASCA is certified with ICAO TRAINAIR

PLUS Programme Membership Certification.

2010 – Refresher courses on Radar and Aerodrome Control were launched.

2011 - ASCA received certification as ICAO TRAINIAR PLUS Associate Member, being the first of

this kind in America and the ISO 9001:2008 Quality Management Standard system.

2012 – ASCA received certification as ICAO TRAINIAR PLUS Full Member.

2013 – First online courses. First class to graduate. Memorandum of Understanding between FAA

and IDAC. ASCA created the Technical Superior Career on Aeronautic Administration.

2014 – ASCA became a regional partner of IATA for aviation courses. Agreement between APEC

University and ASCA for research on the aviation sector.

2015 – ASCA received ICAO certification as a Regional Center of Excellence (RTCE) in air

navigation, flight safety and safety management training, the first in the region. Agreement between

the Spanish company Air Navigation Services and Studies (SENASA) and ASCA.

2016 – Agreement between the Pedro Henríquez Ureña University (UNPHU) and ASCA for courses

and research.

2017 – ASCA certifies under the Norms ISO 9001:2015 regarding Quality Management System, ISO

14001:2015 about Environment Management and OSHAS 18001:2007 about Health and Labor

Safety Management. The modernization and expansion of ASCA were concluded.

The offices and facilities of ASCA are:

 A vast aeronautical library;

 An advanced flight training device, REDBIRD, approved by the United States Federal

Aviation Administration (FAA)

 Three familiarization flight simulators,

 Two last generation radar control simulators, with capacity for 12 radar control

positions and 12 pseudo pilot positions;

 Two last generation Aerodrome Control simulators, with capacity for 02 control

positions, 02 planning positions and 01 ground control position, as well as 06

11

Since the 90’s, the Dominican Republic has invested in training. The DGAC has created the

Training Sector and launched the first training on air navigation, in 2001. In 2005, JAC approved an

extensive budget for training on air navigation.

12

Academia Superior de Ciencias Aeronáuticas, in the original name in Spanish.

50

positions of pseudo pilots and 02 manager positions;

 Seven classrooms suitable for teaching, equipped with projectors, LED TVs and

Internet access.

 Two technology laboratories for network training modules or with computer use

requirements, having capacity for 25 students with personalized access to

computers.

 Two exhibition airplanes (DC-9 and L410).

 Healthcare facilities;

 Sports field.

 Photo Gallery Museum of aviation and airport history.

 Lecture Hall for commencement events, training, meetings, lectures and workshops.

In the past 10 years, ASCA, as a TRAINAIR PLUS Regional Centre of Excellence,

has designed more than 100 academic programs related to the aviation specialties certified

by the TRAINAIR program, which include Air Navigation, Flight Safety and Safety

Management. These programs are presented in the modalities of CMDN, basic courses,

advanced courses, seminars and workshops. These programs are offered to providers of air

navigation services, aircraft operators and airports, Civil Aviation Authorities and other

aviation sector companies. Between 2008-2018, 291 students graduated from Aerodrome Air

Traffic Control and Aeronautic Administration Associate Degree (since 2013) and 9,265

students graduated from the Continuous Education Progamme (since 2008).

Furthermore, the institution signed cooperation agreements with:

 The Panama Civil Aviation Authority to deliver two courses on Basic Surveillance

Radar and Area and Approach ATS Surveillance Radar for 38 people;

 The International Air Transportation Association (IATA), which led to 22 courses

between 2014 and 2018, with 545 participants;

 The Haiti Civil Aviation National Office to impart courses on Area and Approach

Procedural Control and Aerodrome Air Traffic Control, with 10 participants each;

 FAA to impart courses on Aircraft Alterations and Repairs, Extended Diversion Time

Operation, Government Aviation Inspector Operations and Air Traffic Flow

Management (ATFM) Basic Instruction between 2015 and 2018, with 101

participants;

 Jamaica Civil Aviation Authority to impart courses on Area and Approach Procedural

Control, Surveillance Radar Control and Air Traffic Control Refresher with 24

participants;

 Turks and Caicos Airport Authority to impart courses on Aerodrome and Procedural

51

Approach for two participants;

 Services and Studies for Air Navigation and Aeronautical Safety Department

(SENASA, in Spanish abbreviation) to impart courses on European Coordination

Centre for Accident and Incident Reporting Systems (ECCAIRS), Version 5, with 20

participants and;

 10 universities, institutions and companies, such as UNAPEC, UNPHU, UNICARIBE,

MICROSOFT, FAD, ZOHERGA, HELICLUB, MESCYT, CESAC, DEPARTAMENTO

AEROPORTUARIO, JUNTA DE AVIACION CIVIL, ARMADA DOMINICANA.

 ICAO for two courses: ICAO Endorsed Government Aviation Inspector Operations

Course and ATFM Course, for 51 participants.

Currently, ASCA is implementing four important projects regarding capacity building.

The Dominican Republic joined the ICAO Next Generation of Aviation Professionals (NGAP)

Programme Task Force in 2018, the main goal of which is to develop strategies, best

practices, tools, standards and guidelines as applicable to facilitate information sharing

activities that assist the global aviation community in attracting, educating and retaining the

next generation of aviation professionals.

ASCA is also in charge of carrying out the capacity building activities under the

Political, Economic and Juridical Matters of the Air Transport Group (GEPEJTA, in the

Spanish acronym) of the Latin American Civil Aviation Commission (LACAC). The planned

activities for 2019-2020 of the Training Macrotask are: (i) to create a regional library for

aviation (CLACpedia); (ii) take a regional inventory of civil aviation training centers; (iii)

update the training needs of the member states; (iv) provide training on air transport matters

to the judicial power.

Third, ASCA is part of the Civil Aviation Training Centers of the North America and

Caribbean Regions Working Group with the mission of fostering cooperation amongst

members on harmonization of process, academic careers, technical assistance, joint

database and research and innovative projects.

Finally, ASCA is championing the ICAO No Country Left Behind Initiative for Air

Traffic Controllers Allocation, which aims to place Dominican air traffic controllers into the air

navigation system of other countries. ASCA is also providing technical assistance and

training to the participating countries.

6.3.2. Security and Safety in the Civil Aviation School

CESAC (in Spanish abbreviation) was created in 1997, with the objective of

52

managing, coordinating and supervising training activities. The clearance granted by ICAO to

the CESAC schools makes the Dominican Republic the first State in the Caribbean Region

with an instruction center of this nature, and the fourth in Latin America. In 2013, ICAO

certified the ESAC as a regional aviation security training center.

ESAC has provided different courses, both locally and internationally. Some of them

directed to the personnel from the private sector of the airport system, as well as with

international guests. Between 2009-2015, ESAC installed 31 training units for online courses

in the airports of Samaná, Cibao, María Montes, La Isabela and Arroyo Barril. In total, 6,500

members of the security and safety of the civil aviation graduated from ESAC schools. Also,

between 2009 and 2018, these schools certified 4525 people, through 252 courses:

 3981 people certified on aviation security promotion;

 2430 people certified on basic instructions about airport security through 126 courses;

 270 people certified on security in Air Cargo and Mail through 14 courses;

 206 people certified on aviation security management through 11 courses;

 29 people certified on local inspections through 6 courses;

 144 instructors certified on aviation security through 9 courses;

 380 people certified on interpretation of X-ray machine images through 19 courses;

 257 people certified on crisis management of aviation security through 13 courses;

 474 supervisors certified on airport security through 19 courses;

 122 people from the airport security personnel certified on basic instructions through

13 courses;

 Periodic training for 116 instructors and 1 supervisor through 13 courses;

 Periodic training on Management instruction for 11 people through 3 courses;

 20 people received a Diploma in Airport Security and Civil Aviation through 1 course.

 26 people certified on explosive detection by dogs through 1 course.

 196 foreigners from 17 countries were certified in 11 courses at the Regional

Instructional Center ASTC-ESAC.

In 2010, the CESAC Management System was certified with the ISO-9001: 2008,

which was renewed in 2012 and for the period of 2013--2016. In 2018, the CESAC

conformed to the ISO 9001:2015, updating its certification.

CESAC also implemented a Certification Procedures for Private Security Services for

the Civil Aviation sector (RAPSPSAC), due to the lack of any regulations and control

regarding security provided by private firms in private airports. In 2011, CESAC certified six

security firms for civil aviation. These companies received authorization to provide security

services to DR airports. In 2012, CESAC established the category of Private Security

53

Inspector of the Civil Aviation, with procedures for certification, and in 2016 developed a

license to facilitate the identification, control and supervision of certified officers.

6.3.3. Universidad Nacional Pedro Henríquez Ureña

In the private sector, through an interinstitutional agreement with ASCA and the

IDAC, the Universidad Nacional Pedro Henriquez Ureña (UNPHU, in Spanish abbreviation)

has developed a Training Program on Aviation Matters, since 2017. To date, the university

has already organized eight master lectures, one superior specialization in Aeronautic

Management and one bachelor program on Aeronautic Management. UNPHU is also

planning to release specializations in Civil Aviation Security, Airport Management and

Aeronautic English, as well as a bachelor program on Aircraft System Management, as a

dual degree with Universidad Interamericana de Puerto Rico.

54

7. National Air Navigation Services

The Dominican Institute of Civil Aviation, through the Air Navigation Directorate

(DINA, in the Spanish abbreviation), is the provider of air navigation services and manages

the Santo Domingo Flight Information Region (FIR).

DINA Organigram

The MDCS Santo Domingo FIR has a dimension of 172,578 km

2

, surrounded by the FIRs of

Miami (KZMA), San Juan (TJZS), Curacao (TNCF) and Port-au-Prince (MTEG).

55

Figure 6: MDCS Santo Domingo FIR and the Dominican Republic Territory

Source: IDAC, 2018.

7.1. Infrastructure and Personnel

The air navigation infrastructure is formed by:

(1) Facilities:

 1 Area Control Center (ACC) combined with APPs and FIC facilities.

 1 Terminal Control Area (TCA) in MDPC.

 9 Control Towers (TWR).

56

 1 Traffic Management Unit (TMU) for the Air Traffic Flow Management (ATFM).

(2) FIR Sector distributions

 2 Lower/Upper ACC Sectors.

 3 Terminal Areas (TMA).

 9 Airdrome Control Zones (CTR).

(3) Navigation Aids

 8 Very High Frequency (VHF) Omni-Directional Range (VOR).

 2 Instrument Landing Systems (ILS).

(4) Surveillance systems

 3 Radar Antennas with 10 Channels.

 2 Radar data processors with duplicated channels.

(5) Communications

 3 VHF Ground to Air Long and Medium Range Transmitter/Receivers Sites

 National Inter Facilities ATN for Voice and Data

 VISAT Station, MEVA-III, for Voice and Data International Communications.

 AMHS Gateway connected to worldwide ATN.

57

 Many direct commuted and uncommuted phones lines.

(6) 100% PBN Implementation:

 Lower and Upper Airspace RNAV Routes interconnecting all International airports

and the neighboring FIRs.

 All the Runways Thresholds from the 8 internationals airports, are served with

harmonized RNAV/GNSS SIDs, STARs and Arrivals Procedures.

(7) A Search and Rescue Coordination Center (RCC)

 The Santo Domingo RCC is responsible for alerting the Search and Rescue units to

support in case of an aircraft be declared in distress. The RCC is also the hotspot for

the Cospass-Sarsat alert messages. The International Cospas Sarsat Programme is a

satellite-aided search and rescue initiative dedicated to detecting and locating radio

beacons activated by persons, aircraft or vessels in distress, and forwarding this alert

information to authorities that can take an action for rescue. The system utilizes a

network of satellites that provide coverage of the entire surface of the Earth.

(8) Air Traffic Flow Management Unit

 The Unit, under the Santo Domingo Area Control Center (ACC), has a staff of 13

specialists who monitor and evaluate the traffic situation in the airports and the Santo

Domingo Flight Information Region (FIR), generating deliverables designed for optimal

execution of air flows. The unit analyzes Capacity vs. Demand in the subsequent hours

of each shift and identifies where imbalances exist, informing the Control Center

supervisor, who defines what type of internal or external traffic management initiative

(TMI / TMM's) should be pursued if necessary. This unit plans and reports any situation

that could affect and support the Control Center. Since December 2016, as part of ATFM

Data Exchange Network of the Americas (CADENA), an initiative of Civil Air Navigation

Services Organization (CANSO), there are weekly operational teleconferences between

Units of different ANSPs of the region and Stakeholders, coordinated and managed by

Santo Domingo ATFM Unit as Regional Leadership.

58

The Air Navigation System has the following personnel:

Sector

Number of personnel

Total Air Navigation Service

Provider personnel

+600

Aviation Technical Operation

266

Air Traffic Controllers

334

The above-summarized personnel, spread throughout the different Air Navigation

facilities, supported air navigation services for 215,770 air operations during 2018.

7.2. Safety Management System (SMS)

The DINA has a certified Safety Management System (SMS), as a requirement of the

International Civil Aviation Organization (ICAO), established in different annexes and

manuals. This SMS prescribes the need for the providers of Air Navigation Services to

implement a Safety Management process according to the size of their organizational

structure. The DINA SMS is certified from the Planning and Development Directorate (DPD),

responsible to carry the State Safety Program (SSP) and by the Civil Air Navigation Services

Organization (CANSO).

The IDAC, through the Air Navigation Directorate (DINA) created the Department of

Safety Management, which is responsible, together with the different departments within it, to

manage the safety as one of its most important goals.

The Department of Safety Management is a specialized technical unit responsible for

the SMS in air navigation services as well as the subsequent continuous operation of said

system. As part of its structure, it has the Safety Assurance Division, which developed in

response to international requirements and the system's own needs in terms of the

implementation of a Safety Management System (SMS). Safety Assurance is one of the four

pillars of the SMS and seeks the continuous improvement of the system, a management of

functional and effective operational changes as well as achieving the monitoring and

measurement of performance in terms of safety. The Division of Safety Risk Management

(DGRSO) performs, together with the different departments of the DINA, the Risk

Management process and at the same time, through the ATS Incident Investigation Section

(SII), investigate all ATS Events.

The Department of Safety Management has two divisions, one for Safety Risk

Management and the other for Safety Assurance. These Divisions include the primary

responsibilities of the SMS regarding the identification of hazards, mitigation and risk

59

management, change management, measurement and supervision of operational safety,

promotion and communication of Operational Safety, as well as the continuous improvement

of SMS. The Division of Safety Assurance has control over an operational section called the

IMS Evaluation Section. On the other hand, the Division of Operational Safety Risk

Management is in charge of Incident Investigation Section. It is important to note that the

Department of Safety Management has highly qualified and experienced personnel to carry

out the delicate task of safety management.

The Dominican Republic is upgrading its Aviation System Block, starting with Block 0,

which has the capacity to be implemented with supporting documents such as standards,

procedures, specifications and training materials. The State expects to start upgrading Block

1 in 2019, Block 2 in 2025 and Block 3 in 2031, with ICAO's support.

60

8. Safety Audit Results and Lack Effective Implementation (EI)

Safety is crucial for the aviation sector, and became even more important with the

growth of air transportation between countries. Governments are still the main agency in

charge of ensuring air safety through laws, regulations, means of enforcement and active

policies.

Safety reputation might affect a traveler's choice of destination or airline. Accidents

and incidents might lead to an immediate decline in tourism. Using an econometric model, it

is estimated that a 10 percent improvement in the effective implementation of a State's safety

oversight is positively correlated to, on average, an additional 1.8 percent of aircraft

departures from the State concerned.

Figure 7: Aviation Safety and Economic Development

Source: ICAO, 2018.

In the interest of promoting air safety among State members, ICAO launched the

Universal Safety Oversight Audit Programme (USOAP)

13

in 1999. USOAP audits focus on a

13

The Resolution A32-11, approved in the 32nd Session of the Assembly, resolved that "a universal

safety oversight audit programme be established, comprising regular, mandatory, systematic and

harmonized safety audits, to be carried out by ICAO; that such universal safety oversight audit

programme shall apply to all Contracting States; and that greater transparency and increased

disclosure be implemented in the release of audit results".

61

State's capability to provide safety oversight by assessing whether the State has effectively

and consistently implemented the critical elements (CEs) of a safety oversight system, which

enable the State to ensure the implementation of ICAO's safety-related Standards and

Recommended Practices (SARPs) and associated procedures and guidance material. The

programme was expanded in 2005 to the USOAP Comprehensive Systems Approach (CSA)

to include safety-related provisions contained in all safety-related Annexes of the Chicago

Convention.

` ICAO also launched the No Country Left Behind (NCLB) initiative to assist Sates in

implementing ICAO Standards and Recommended Practices (SARPs). The main goal of this

work is to help ensure that SARPs implementation is better harmonized globally so

that all States have access to the significant socio-economic benefits of safe and reliable air

transport. The NCLB effort also promotes ICAO’s efforts to resolve Significant Safety

Concerns (SSCs) brought to light through ICAO’s safety oversight audits as well as other

safety, security and emissions-related objectives.

8.1. Background

The Federal Aviation Administration (FAA) downgraded the Dominican Republic to

Category II in 1993. As a consequence, Dominican air operators lost the right to fly to U.S.

central destinations. By 2000, FAA/ICAO released a Technical Review, pointing out the main

concerns about the Dominican Republic’s compliance with ICAO safety and security

standards, such as: (i) regulatory changes to give more autonomy and responsibility to the

Director General to guarantee that the DGAC can carry out an effective regulatory regime; (ii)

lack of updated and organized manuals; (iii) lax certification process for the air transport

operators; (iv) no continuous training programs for the inspectors; (v) lack of verification of

pilot and crew training; (vi) lack of an annual inspection program. The State prepared an

action plan to solve these problems.

In 2003 and 2004, ICAO and FAA performed a follow-up audit to ensure that the

Dominican Republic implemented the action plan as promised. Even though both institutions

acknowledged the required changes in the regulations and organization, they still believed

that Dominican Republic had to establish a new, comprehensive law to comply with ICAO

standards and to train personnel to improve their inspections. The FAA offered technical

assistance upon the condition that the State would modify the legislation according to

previous recommendations.

In 2006, the Dominican Republic approved the new aviation law. As a consequence,

the FAA elevated the Dominican Republic aviation safety rating to Category I in 2007. The

upgrade meant that Dominican commercial airliners could operate in U.S. airports as well as

62

enter into code-share agreements with U.S. carriers.

8.2. The Dominican Republic Results in the USOAP

The audit under the new USOAP assessment was carried out in the Dominican Republic

in January 2009, with missions to validate the corrective measures in 2016 and 2017. The

State has achieved great results in the ICAO's Universal Safety Oversight Audit Program

(USOAP), improving the Effective Implementation (EI) from 85.98% (2009) to 90.52% (the

global average is 66.32%).

Figure 8: Overall EI - Dominican Republic

Source: ICAO

These results allowed the State to reach the Global Aviation Safety Plans (GASPS)

Targets, ranking 4 out of 21 in the North American, Central American and Caribbean (NACC)

region.

Chart 18: USOAP Audit Results

63

Source: ICAO

The Dominican Republic achieved higher scores than the global average in all seven

categories, according to the chart below.

Chart 24: Disaggregated Safety Audit Results, Dominican Republic, 2017

Source: ICAO.

8.3. Overall Performance of the Dominican Republic

ICAO and the Dominican Republic agreed to a Corrective Measures Plan and

indicators to monitor the State's performance based on ICAO Audits. The table below shows

the current performance of the Dominican Republic. Among 13 indicators, the Dominican

Republic has reached its target in ten of them.

64

Table 5: Performance Dashboard based on ICAO Safety Audits

Indicator

Target

Value

Achieved

USOAP EI

USOAP overall EI (%)

60%

90.5%

YES

Significant Safety Concerns (SSC)

Number of SSCs

0

YES

Fatal Accidents

Number of fatal accidents in last 5 years

0

Aerodrome Certification

(Validated Status of USOAP Protocol

Questions)

Satisfactory

YES

State Safety Progamme (SSP)

Foundation

Percentage of SSP

Foundation protocol questions validated

by USOAP or submitted as completed

100%

99.6%

NO

State Safety Programme (SSP)

Level of SSP Implementation

Level 2

Level 3

YES

The IATA Operational Safety Audit

(IOSA)

Number of IOSA certified operators

>0

0

NO

FFA International Aviation Safety

Assessment (IASA) Program

IASA categorization

Cat 1

YES

EU Safety List

Number of operational restrictions

Unrestricted

YES

PBN (write the acronym)

Percentage of international instruments

runways with PBN approaches

100%

94.44%

NO

Global Aviation Training Activities

Number of courses delivered by

TRAINAIR PLUS Members in the last

12 months

>0

3

YES

Corrective Action Plan Update

Number of updates in the last 12

months on the Online Framework (OLF)

>0

1

YES

Positive Safety Margins

Number of areas (Operations, Air

Navigation, Support) with a positive

Safety Margin

3/3

3

YES

Source: ICAO

65

9. Benefits of Aviation to the Dominican Republic: An Impact

Evaluation Analysis

The Dominican Republic has enjoyed strong economic growth in recent years and a

significant reduction in poverty.

Chart 25: Real Gross Domestic Product and Population of Dominican Republic (1995-2017)

Part of this growth was pushed by the tourism sector. The chart below shows how

income generated by tourism increased, especially after 2006, when the aviation reforms

were enacted.

Chart 26: Income generated by tourism (1980-2017)

Both tourism and the overall DR economy depend on the aviation sector, and so it is

important to evaluate whether aviation policies bring a positive outcome for the Dominican

66

economy. If this result is positive, what is the total impact of this set of policies?

One of the contributions of this report is to quantify these impacts by using rigorous

econometric models. The purpose of this endeavor is to create a framework to assess the

impact that could be applied in other contexts and show the effectiveness of these reforms

for States that still need to change their policies. Rigorous impact studies are always useful

to the sector in advocating internal policy change.

To answer these questions, there are two relevant models. One model will account

for changes in the flow of passengers between the Dominican Republic and the USA, and

the other will assess the macroeconomic impact of the reforms.

In the macroeconomic model, there was an estimated net effect of 15.5% increase in

GDP per capita between 2006-2012, which can be translated in USD 607. In the model for

passengers, we estimated an increase between 23% and 27% in the participation of

passengers going to the Dominican Republic from the U.S., controlling for passengers going

to other destinations. Moreover, due to the policy changes, the increase in U.S. tourists to

the DR increased tourism spending by between 837 million and 1.016 billion USD between

2006-2012. The results show a causal relationship between the reforms and the increase of

passengers, thus positively impacting the economy. Section 9.1. describes the details of the

model. Furthermore, the increase in the number of passengers due to policy changes in turn

increased the taxes collected by the State, creating new revenue for the DR government.

Both indicators, GDP per capita change and increase of passengers, are linked with

some SDGs, such as reducing poverty, sustainable development, inclusive and sustainable

economic growth, full and productive employment, decent work for all and resilient

infrastructure.

9.1. Policy Evaluation Strategy

There are a wide variety of quantitative methods to evaluate policies in applied

economics. Several of those methods can be classified (or just called) as difference-in-

difference (DID) estimators. These methods are typically used when some groups, like cities

or states, experience a treatment, such as a policy change, while others do not. In this

situation, the selection of which groups experience the treatment is not necessarily random,

and outcomes are not necessarily the same across groups in the absence of the treatment.

The groups are observed before and after the treatment.

The challenge for causal inference is to come up with a credible estimate of what the

outcomes would have been for the treatment group in the absence of treatment. This

requires estimating a (counterfactual) change over time for the treatment group if the

treatment had not occurred. The assumption underlying difference-in-differences strategies is

67

that the change in outcomes over time for the control group is informative about what the

change would have been for the treatment group in the absence of the treatment.

14

One of

the most prominent methods of DID is the synthetic control approach.

15

In the words of Athey

and Imbens (2017, p.9) the synthetic control approach “is arguably the most important

innovation in the policy evaluation literature in the last 15 years. This method builds on

difference-in-differences estimation but uses systematically more attractive comparisons.”

A. Synthetic Control Group

In the DID estimator, the econometrician applies a simple average between units

(cities, states, countries) in the control group. In the synthetic control approach, there is a

weighted average that is applied to each unit. The main idea is that the composite control

group reproduces better the behavior of the treatment unit before and after the policy

treatment.

A formal explanation of the method can be found in Abadie, Diamond, and

Hainmueller (op. cit.). Consider the observation of units in the following time

periods , and the first unit was treated by a new policy. The following units will be

the synthetic control group. Define as the values for the target variable for the unit at the

time for the nontreated unit and for the unit that was exposed to the intervention (the

policy). The synthetic unit should be able to mimic the treated unit before the treatment

period. Be a vector of observed relevant variables for each unit, define the vector

, where is the period before the intervention, as the weights of a linear

combination before the intervention : .

To form the control synthetic group is needed a vector with weights

with and . Each value of W represents a weighted

average of the available control regions and, therefore, a synthetic control.

The optimal vector of weights such that the synthetic unity is the best fit with respect to

and linear combinations for the interest variable before the intervention. Formally

is such that and , then:

14

Susan Athey and Guido W. Imbens. “The State of Applied Econometrics: Causality and Policy

Evaluation.” Journal of Economic Literature, 31 (2), 2017, p. 9.

15

Synthetic control groups was developed by Alberto Abadie and J. Gardeazabal (“The Economic

Costs of Conﬂict: A Case Study of the Basque State,” American Economic Review, 2003) and Alberto

Abadie, Alexis Diamond, and Jens Hainmueller (“Synthetic Control Methods for Comparative Case

Studies: Estimating the Effect of California’s Tobacco Control Program.” Journal of the American

Statistical Association, 105 (490), 2010).

68

Is the estimator of in the periods after the intervention. The vector of weights is estimated

using the follow minimization:

where is a symmetric and positive semidefinite matrix. Abadie e Gardeazabal (op. cit.)

and Abadie et al. (op. Cit.) choose according to:

where is the set of all positive semidefinite diagonal matrixes.

B. The Control Group

The donor’s pool for the potential control group chosen is a mix of Latin American and

Caribbean countries and some tourist destinations around the world, like New Zealand and

Australia. New Zealand, as an open-skies State, controls for this technological trend.

The countries in the control group are Antigua and Barbuda, Chile, Colombia, Fiji,

Guatemala, Honduras, Jamaica, Malaysia, New Zealand, Nicaragua, Panama, Peru,

Philippines, Seychelles, St. Vincent and Grenadines, Thailand, and Trinidad and Tobago.

The choice of the synthetic control group will be discussed below.

In the next subsection, a model for GDP per capita and the estimation for aggregate figures

using the synthetic control model is illustrated. This model estimates the impact for other

variables like income from tourism and total number of passengers, but these factors are not

significant.

9.2. A Model for GPD per Capita

The model estimated for GDP per capita was selected using a panel data estimation with

data in growth rates. This model is simple and was estimated only to selected correlates and

it's not intended to “explain” the GDP per capita. The variables assigned to the model

selection are inflation (CPI), exchange rate, the added value of industry and services, the

share of tourism expenditures in the GDP, tourism expenditures, population, and the inflow of

FDI. In Annex 2, there is a table describing each variable.

69

As the proposed model is a reduced form, there is no theory for data selection. Chosen

variables must correlate with GDP per capita.

To select variables, it is possible to run a model of growth for the countries pre-selected

as the control group. The results for GDP per capita are presented at Table 6.

The models contain 160 to 141 observations for 20 countries. The standard error is

robust to the correlation for each State (clustered on each State). Those regressions relate

the growth rate of GDP per capita with the growth rate of the variables lagged one year

(those variables are in (t-1) to guarantee a minimum level of exogeneity). The variables are:

exchange rate (domestic currency to the USD), inflation rate (local currency), the growth rate

of inflation (inflation (t) – inflation (t -1)) - this variable captures an acceleration or

deceleration of the inflation in each State-, the value of services and manufacture in local

currency and per capita (as measured in GDP), FDI (inflow), total of tourists arriving by air,

the total income generated by tourism, and the share of tourism income in the GDP, and the

total population.

That regression suggests that the services per capita, added value at industry per capita,

FDI (inflow) as correlated with the GDP per capita. These three variables are selected

because the confidence is higher than 99% (this result is tagged with (***) at Table 1), i.e. the

p-value is lower than 1%. Unfortunately, FDI was excluded from the final estimation due to

lack of data for several countries. There were 13 missing values for FDI. The selection

regressions assign a low explanation power from FDI.

16

One explanation is on the regressions that appears on Table 6. The distinction between

the three regressions is the presence of inflation, the growth of inflation or the absence of this

measure. There is a relationship between the exchange rate, inflation and interest rate. This

relation is called UIP (uncovered interest parity). This means that the exchange rate is

partially explained by home inflation, so when the inflation is included the exchange rate

loses explanatory power. The results of those regressions show that inflation and exchange

rate should be included as an explanatory variable for the GDP per capita along with added-

value of services and industry.

Table 6: Selection of Variables for GDP per Capita, Growth Rates of Variables, 1996-2005

Models for

Variable

GDP per capita

Exchange

rate

-0.0284(*)

-0.035(***)

-0.0293(**)

0.0154

0.0124

0.0125

16

Share of tourism is not included in final analysis due to a very low coefficient with GDP per capita

growth.

70

Δ Inflation

-0.0429(**)

0.0161

Inflation

-0.0280(**)

0.0177

Services

0.554(****)

0.5554(***)

0.5384(***)

0.070

0.0731

0.0813

Industry

0.2979(***)

0.2918(***)

0.2940(***)

0.0524

0.0512

0.0541

FDI

-0.0028(*)

-0.002(***)

-0.0024(**)

0.0011

0.001

Arrival

-0.0075

0.0106

0.0101

0.0103

0.0110

0.0103

Share of

Tourism

-0.0017(**)

-0.001(**)

-0.0012(**)

0.0006

0.0014

0.0005

Income

Tourism

0.0142

0.0099

0.0097

0.0086

0.0087

0.0085

Population

-0.1560

-0.2055

-0.2817(**)

0.1166

0.1289

0.1313

Time

Dummy

Yes

F

793.23

880.55

926.86

N

160

165

141

Note: SE values below each coefficient. SE are clustered over countries. Significance level is

(***) for 99%, (**) for 95%, and (*) 90%.

10. Estimation of Treatment Effect

The synthetic control group is estimated using added-value of services per capita, the added-

value of industry per capita, inflation, and the exchange rate. The estimation of the synthetic

control DID was applied using a nested maximum likelihood routine to guarantee robustness

when estimating the weights to the control group. Table 7 shows the estimated weights for

the synthetic control group.

17

Another model was run including share of tourism in exports and population. The results are similar

but with less robustness in the final analysis.

71

Table 7: Estimation of Weights for GDP per Capita Model

State

Weight

ANTIGUA AND

BARBUDA

0

AUSTRALIA

0.066

CHILE

0

COLOMBIA

0

COSTA RICA

0

FIJI

0

GUATEMALA

0

HONDURAS

0.175

INDONESIA

0

JAMAICA

0.552

MALAYSIA

0

MAURITIUS

0

NEW ZEALAND

0

NICARAGUA

0

PANAMA

0

PERU

0

PHILIPPINES

0

SEYCHELLES

0

ST. VINCENT AND

THE GRENADINES

0

THAILAND

0

TRINIDAD AND

TOBAGO

0.207

From 20 countries in the potential control group, the optimization method selected

four: Australia, Honduras, Jamaica, and Trinidad and Tobago. This small selection is the

standard result for the synthetic control approach. In the paper of Abadia, Diamond and

Hainsmuller (op. cit.) the estimator selected 5 out of 38 control states to evaluate a change in

the tobacco control program that California implemented in 1988.

Table 8 describes the predictor's balance, that is the comparison of the pretreatment

characteristics of the actual Dominican Republic with that of the synthetic Dominican

Republic. . The synthetic Dominican Republic is the control group in this class of model. The

Table shows that the pre-treatment averages are well reproduced by the control group.

72

Table 8: Predictors for the Dominican Republic

Variables

Treated

Synthetic

Services

11.13886

11.14427

Industry

10.50495

10.40595

Exchange rate

2.991984

2.993094

Inflation

10.32984

8.317799

Note: these values are averages between 1996 and 2004.

The results for the synthetic model for GDP per capita are in Chart 27 and Chart 28.

Chart 28 is the synthetic and the actual Dominican Republic. Chart 27 shows the difference

between the synthetic and the actual GDP per capita – The gap in the GDP.

The result is direct – the increase of GDP is greater than could be predicted without

the reforms. The average increase in GDP per capita was 15% over 6 years (2006-2012).

The increase in GDP per capita is lower in the second half of the 2000s and sped up in the

2010s. In the year 2012, as shown in Figure 27, the GDP per capita was 23% higher than the

synthetic Dominican Republic.

Chart 27: Synthetic and Actual Dominican Republic

Chart 28: Gap between Synthetic and Actual GDP per Capita

73

The total income benefit from the reform is expressed in Table 9. The gains from the

reforms are expressed in average effect over GPD per capita and GDP. The net effect was a

15.5% increase in GDP per capita between 2006-2012, which can be translated into USD

607 of income. The average effect on the GDP was USD 5.5 billion over 7 years,

approximately (this amount is 9% of GDP in 2012).

18

This amount accounts for externalities

18

Is possible to look at the components of synthetic group vs treatment State to understand (gain

intuition) about the driving forces of change. Table W decomposes the averages of the four regressors

(see Table 3) by pre and post intervention in Dominican Republic.

Table W – Averages of Regressors, Pre and Post Intervention (2006)

Variables/Groups

Averages

Pre 2006

After 2006

Exchange rate:

Dominican Republic

2.9920

3.5833

Synthetic

2.9931

3.3189

Industry per capita:

Dominican Republic

10.5050

10.6847

Synthetic

10.4059

10.5030

Inflation:

Dominican Republic

10.3298

5.8947

Synthetic

8.3178

8.2338

Services per capita:

Dominican Republic

11.1389

11.4356

74

flowing from the tourism sector to other sectors. This is a common effect studied in

economics for decades that establishes that growth in one sector create an effect in other

sectors.

19

Table 9: Average Gains from Reform in GDP: GDP per capita and GDP over 2006-2012

Total Income Increase

Average effect

Average net effect on GDP per capita

15.50%

Average net effect on GDP per capita in USD

$607.00

Average net effect on Services in USD

$3,122,143,330.49

Average net effect on GDP in USD

$5,598,452,324.09

In Charts 27 and 28, it is clear that the gap between the actual and synthetic GDP per capita

start to grow one year before the main change in the regulation of the Dominican Republic.

There are two possible explanations for this happen. First, in markets, firms anticipate

changes in the economic environment and take actions to get a better position to face rivals

and increase profits.

20

Second, the change between 2006 and 2005 lies in the pre-

Synthetic

11.1443

11.3132

The Pre-2006 averages are essentially the same in Table 3, what is relevant here is the

change between pre and post intervention and the between synthetic the control group and the

treatment group. This is what is summarized in Figures 1 and 2. The change in averages is the

following (all variables are in natural log, except inflation): (i) exchange rate: the synthetic currency lost

less value than the actual; (ii) industry per capita: the industry per capita grow more than in the

synthetic Dominican Republic – in the control group the industry grow also, but less than in the actual

Dominican Republic; (iii) inflation: inflation in the synthetic control group is essentially the same, while

in the actual Dominican Republic the inflation as much more lower (an indication of stability and good

economic environment); (iv) services per capita: there is positive growth in actual and the synthetic

Dominican Republic, but the growth in the actual economy was much more prominent, 11.43/11.31 =

1.0108, meaning 10.8% higher in per capita value (in local currency).

19

For example, in the recent past, commodities producers’ countries experienced great prosperity

due to externality effect from exporter sector to the entire economy. Countries with large investments

in R&D of products and process experienced a spillover effect over the entire economy generating

prosperity (long-term growth). For more details see Paul Romer, “Endogenous Economic Growth.”

Journal of Political Economy, 98 (5), 1990; Simeon Djankov, Rafael La Porta, Florencio Lopez-de-

Silanes and Andrei Shleifer. "The Regulation of Entry," The Quarterly Journal of Economics, 117(1),

2002. Charles I. Jones, Introduction to Economic Growth. 3

rd

ed. New York, WW Norton, 2013.

20

There is evidence that firms anticipate changes in economic environment. Goolsbee and Syverson

find that the threat of entry in the US airline industry led to price cuts by incumbents before the entry

occurred (Austan Goolsbee, and Chad Syverson, “How do incumbents respond to the threat of entry?

Evidence from the major airlines.” Quarterly Journal of Economics, 123 (4), 2008). A similar case was

observed at Brazil with the bill that open the market for oil and gas exploration. The state-owned

company, Petrobras, lost the legal monopoly in exploration in 1994, but the competitors start to make

investments one year before the bill be sanctioned (Benjamin Bridgman, Victor Gomes, and Arilton

75

intervention variance interval (i.e., the gap observed before 2006 has some variance and the

change in the gap could be only a usual shift, as one observed in between 1998 and 1997 –

see Figure 27). In the Annex 2, the robustness of these measures is further illustrated.

8.3. Market Results: Microeconomic evidence

There is a large academic literature in economics about the impact of competition in

airline markets. In general, those papers focus on entry and exit in each market.

21

The main idea is to apply a DID estimation of the policy using information based on the

market definition in airline passenger services. In the field of industrial organization and

antitrust the relevant market is the pair of airports: origin/destination at one point in time.

22

We learned from previous studies in the industrial organization field that the

deregulation of the airline market changed the profitability in each relevant market (the pair of

cities/airports). The profitability can change through the increase of competition: more firms

can enter is a market after deregulation. The deregulation can reduce the firm-specific cost of

entry. What is expected is that more entry can increase competition and this will increase the

total of passengers that choose the Dominican Republic. This is a starting point for an

analysis of deregulation in the airline market.

A. Market Share for US Carriers

In Chart 28, we show the market share (%) for the American carriers that operate in

the Dominican Republic between 1996 and 2017. The market share here is computed by the

total of passengers per year arriving from the United States. Only for the USA is it possible to

build a panel with the number of firms in each pair of cities.

An important characteristic in the market of the Dominican Republic after deregulation

is the entry of JetBlue. In fact, Jet Blue was able to expand the activities in the Dominican

Republic after deregulation.

23

Teixeira, “Threatening to Increase Productivity: Evidence from Brazil’s Oil Industry,” World

Development, 39 (8), 2011).

21

To name a few academic articles: Steve T. Berry. Estimation of a Model of Entry in the Airline

Industry. Econometrica, 60, (4), 1992. Austan Goolsbee and Chad Syverson, "How do Incumbents

Respond to the Threat of Entry? Evidence from the Major Airlines," Quarterly Journal of Economics,

123 (4), 2008. Eli Tamer and Federico Ciliberto, “Market Structure and Multiple Equilibria in Airline

Markets,” Econometrica, 77, (6), 2009.

22

J. Bruce McDonald. “Antitrust for Airlines.” DOJ, 2003. (https://www.justice.gov/atr/speech/antitrust-

airlines). Randy C. Chugh, Nathan G. Goldstein, Eric K. Lewis, Jeffrey S. Lien, Deborah Minehart, and

Nancy L. Rose, “Economics at the Antitrust Division 2015–2016: Household Appliances, Oil Field

Services, and Airport Slots.” Review of Industrial Organization, 49, 2016.

76

In December of 2007, Lufthansa bought a 19% share of JetBlue.

24

The causality here

is not so important, but after this investment strategy by Lufthansa, JetBlue expanded

operations to the Caribbean using the Orlando airport as a hub. New international routes

from Orlando included: Bridgetown (Barbados), Bogotá (Colombia), Cancún (Mexico),

Nassau (Bahamas), San José (Costa Rica), and Santo Domingo (Dominican Republic). The

deregulation allowed the JetBlue strategy of expansion into the Caribbean destinations.

Chart 28 shows reported figures for United and American Airlines despite mergers

and acquisitions of Continental and US Airways, respectively. The merger between United

and Continental took place in 2010. The merger only increased the combined market share

by 0.11%, since United operations were almost inexistent. The acquisition of US Airways by

American Airlines took place in 2015, and increased the market share of American by 2.21%.

This allowed American to surpass Delta as the number 2 airline in terms of market share in

the Dominican Republic. The conclusion is that these mergers changed very little in the

market structure.

Chart 28: Market Share of US Carriers in the Dominican Republic, Annual, 1996-2017

23

JetBlue is a low-cost airliner based in New York City. JetBlue started operations in 1998, going

public in 2002. Currently is the sixty-largest airline in US. The operational focus of the company is

Boston, NYC, Fort Lauderdale, Long Beach, Orlando and San Juan (Puerto Rico).

24

The Wall Street Journal, “Lufthansa to buy 19% Stake in JetBlue,” December 2007.

77

0

5

10

15

20

25

30

35

40

45

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Market Share (%)

American/USAirways JetBlue Delta United/Continental Spirit Southwest Frontier

B. Entry: The Number of Airlines

The first feature of deregulation was more firms entering the Dominican market. This

follows the evidence of several studies in the airline market.

25

If the entry and exit in the State

change a lot, it is difficult to identify the parameter related to the 2006 intervention.

Table 10 shows the three year average of the number of firms, the number of entry

firms (when it was inactive in the past year and active in the current year), and the number of

exit firms (when it was active in the current year but will be inactive in the next year). If a firm

offers a charter flight she it is flagged as a charter entry or charter exit. Regular carriers could

offer charter flights, so charter entry and exit is not a pure measure of charter flights.

The facts described in Table 10 are that the turnover of firms was higher before the

law changed in 2006. On average, there are more firms active before 2006 than after, but 23

carriers is a recurrent figure.

The patterns of entry and exit are slightly different before and after 2006. There is

more turnover of firms before 2006. This behavior is explained by the reduction of entry of

charter companies. These trends are described in Chart 29 below.

Table 10: Three-years Average Numbers of Firms, Entry, and Exit by Type, 1997-2016

25

See Berry, 1992, op.cit., and Steve T. Berry and Peter C. Reiss. Empirical Models of Entry and

Market Structure. In: Handbook of Industrial Organization, Volume 3, 2006.

78

Total

Charter

Years

Airlines

Entry

Exit (t+1)

Entry

Exit (t+1)

1998

25.0

4.7

6.3

4.0

5.7

1999

23.3

4.7

3.7

4.3

3.7

2000

26.0

6.3

5.3

5.7

5.3

2001

28.7

8.0

7.3

6.7

2002

29.0

7.7

8.0

7.0

2003

27.0

6.0

7.7

5.7

6.7

2004

23.0

3.7

4.7

3.3

4.3

2005

21.3

3.0

4.7

2.3

4.3

2006

19.0

2.3

3.7

1.3

3.3

2007

18.7

3.3

4.3

2.7

3.7

2008

19.0

4.7

3.3

4.3

3.0

2009

22.0

6.3

4.3

6.0

4.0

2010

23.0

5.3

4.3

5.0

4.3

2011

22.7

4.0

4.7

3.7

4.7

2012

21.7

3.7

2013

22.7

4.7

4.3

3.7

2014

23.5

5.5

4.5

5.0

3.5

2015

25.0

6.0

5.0

4.0

Note: Three-years average assigns the same weight for every observation. Exit (t+1): the firm is not

active in the next year.

Chart 29: Three-years Average for the Number of Entry and Exit by the Type of Airline: Charter

and Noncharter, 1996-2015.

The most prominent feature that illustrates what took place in the Dominican Republic

market is the increase in competition. This is illustrated in Chart 30, which shows the HHI

index calculated by the market share for each carrier arriving in the Dominican Republic.

79

Chart 30: HHI for Airline Transportation in the Dominican Republic, Total number of

Passengers per Month, 1995-2015

C. A Model for Passengers

The quantitative analysis explores a large dataset by origin in the United States and

destinations abroad. The variables selected for the models are the following: number of

passengers, distance, price of kerosene, exchange rate and a measure of the cycle of the

income in the USA. A description is available in the Annex 2.

As the Dominican Republic is a tourist destination, the control group was chosen for

airports below the tropic of Cancer (it should be an indication of most tourist destinations with

beaches and mountains). This simple selection excludes the bulk of business travelers. This

is a kind of selection of North-South, excluding the North-North routes that contain the most

active trade routes in the world.

Two classes of models are utilized: a classical difference in differences (DID) model

and panel data DID model. For an explanation of these models, see Angrist and Pischke

(2009).

26

For the panel data estimation, a Hausman-Taylor model estimation is applied.

27

The estimation of a panel using the Hausman-Taylor method has the potential to reduce the

selection bias caused by the entry and exit of airlines in each market.

26

Joshua D. Angrist and Jorn S. Pischke. Mostly Harmless Econometrics. An Empiricist's Companion.

Cambridge, MIT Press, 2009, chapter 5.

27

Jerry A. Hausman, and W. E. Taylor. Panel data and unobservable individual effects. Econometrica,

49, 1981, pp. 1377–1398.

80

The results are separated into two groups. The first group is characterized by models

of market share. The market share of each route was calculated for airlines taking into

accunt the impact of the 2006 law on market share. Since the competition is higher after

2006, the expected effect is negative. The second group in the estimation is out to target: the

average treatment effect of the 2006 intervention. For this estimation, data is aggregated t by

each State of destination and calculated as a share of the total of passengers by State in the

total number of passengers. So, if the 2006 intervention increased the relative number of

passengers that chose the Dominican Republic, a positive value is expected for this

coefficient.

C.1. Models of market share per route (origin-destination), monthly data.

This market share is the total number of passengers that flow between a pair of

airports in the same month. Here are the routes for the treatment group (Dominican

Republic) that arrive at the 5 international airports. I.e. PAX

carrier

/ PAX

route

. At Table 11 we

describe the results (FE stands for fixed effect).

Table 11: Impact in the Carriers/State Market Share

Variable

Model 1

Model 2

FE Model

Net effect

-0.1662

-0.1679

-0.2074

0.021

0.0906

Policy time

0.1713

0.0122

-0.1374

0.0536

0.0094

0.056

Dominican

0.1725

0.1733

Republic

0.0158

Kerosene

-0.0233

0.0197

0.0432

0.008

Distance

2.2262

2.2131

0.0892

0.0891

Distance 2

-0.121

-0.1202

0.0056

Exchange Rate

-0.0091

-0.0092

0.0645

0.0018

0.0425

Cycle USA

0.13

0.0477

Carrier Dummy

yes

Yes

Time Dummy

yes

Yes

F

.

2.0751

N

171906

81

The results in the first set of analysis is a loss of market share for each carrier.

This is the quantitative explanation of what happened in the market structure in the

Dominican Republic. On average, carriers lost 16% to 20% of market share in the

Dominican Republic after 2006.

C.2. Models of State market share (origin-destination), monthly data.

Here the market share is the total number of passengers that arrive in each State as

a proportion of the total of passengers per month. I.e. ln(PAXState / PAXUS).

In this subsection, four models were run: two OLS models with all controls for DID,

28

one fixed effect (FE) model, and one Hausman-Taylor panel data model. The FE model

captures everything that is constant within each destination. The drawback of the FE

model is that every constant (like distance) is dropped out.

The Hausman-Taylor panel data model is a robust estimation of the FE model. This

alternative model can be viewed as a hybrid model between FE and random effects. The

Hausman-Taylor model has several advantages: it utilizes constants and instrumental

variables associated with the treatment effect. Also, the model has fewer problems

relative to selection bias. I.e., the Hausman-Taylor panel data model is generally robust

for unbalanced panels. The estimator is based on instrumental variables and this model

uses the endogenous variables, with respect to the flow of passengers, the cyclical index

of activity and the treatment effect. The instruments are the exogenous variables to

respect the flow of passengers, that is, distance, the price of oil, exchange rate, and the

dummy for the treatment time.

The models are described in Table 12 using monthly data between 1995 and 2015.

The total number of observations is 11,908. The average treatment in the FE model is

not significant, but the coefficient matches the Hausman-Taylor estimate.

These results show that the change of level was between 23% and 27% in the

participation of PAX going to the Dominican Republic over PAX going to other

destinations with a high degree of confidence. Is important to remember that 23% is the

same impact over the GDP per capita in the synthetic control group. The robustness

checks are explained in the Annex 2.

28

The control of an OLS DID are time dummies, treatment group (here is Dominican Republic), time

of the treatment (2006 onwards), and the average treatment effect = treatment group times the time of

the treatment.

82

Table 12: Average Treatment Effect from 2006 Intervention (Net effect)

Variable

OLS 1

OLS 2

FE 1

HTAYLOR

Net effect

0.2798

0.2764

0.2375

0.2357

0.0613

0.0619

0.1441

0.0842

Policy time

0.1663

0.1418

-0.2063

0.1703

0.3876

0.0694

0.2208

0.0219

Dominican

2.2106

2.2148

Republic

0.0465

0.047

Kerosene

-0.2565

0.0858

-0.0189

0.2933

0.064

0.0191

Distance

1.4528

1.4082

36.4159

0.4442

0.4428

72.6184

Distance 2

-0.1654

-0.1628

-2.3354

0.0271

0.027

4.3678

Exchange Rate

0.1305

0.131

0.1379

0.1405

0.01

0.1987

0.022

Cycle USA

-0.7544

-0.0848

0.3566

0.1116

Time Dummy

Yes

yes

F

53.9947

1698.554

.

33.551

N

11908

The translation of those effects in USD are summarized in Table 13. The average effect

estimated above is used and applied to the level effect over the amount of 2005 PAX (the

pre-intervention volume). As described in Chart 4, the large increase of PAX came from the

United States, so we can assume this is a good representation of the impact over the total

volume of non-residents passengers (tourists) arriving at the Dominican Republic in 2005.

29

Also, the model assumes an average expenditure of 948 per PAX in 2006 numbers (figures

estimated by the Central Bank of the Dominican Republic). In each column are the average

effect estimated by each model. The figures are in terms of change in level (7 years

average):

30

 Increase in PAX: 980,996 to 1,191,596

 Increase in PAX expenses: 837 million to 1.016 billion of current USD

29

The total flow of passengers includes non-residents and residents. To calculate the total impact in

USD we should exclude the share of residents from the total of PAX. The monthly average share of

non-residents of PAX (Jan 2008 to Dec 2017) is 90% of the total. For example, in 2006 there was a

total of 4,383,765 passengers of which 3,965,055 are non-residents, accounting for a share of 90.4%.

30

Also, these figures can be translated into the total amount of taxes collected. The total amounted is

the average collected tax (80 USD) multiplied by the change in level in PAX is (80 x 980,966 = )

78,477,255, approximately.

83

Table 13: Net Effect in USD

Net effect

Variable

did1

did2

FE1

HTAYLOR

Net effect

0.322865213

0.318375109

0.268074997

0.265794515

Average PAX

before 2006

3690692

Share of

non-residents PAX

0.9

Average expenses

2006 (USD)

948

Net increase of

PAX (total)

1,191,596

1,175,024

989,382

980,966

Net average gain

from non-resident

PAX (USD)

1,016,669,757

1,002,530,875

844,140,932

836,959,926

8.4. Some considerations on Taxation and Charges

ICAO, for the purpose of its policy objectives, makes a distinction between a charge

and a tax. Charges are levies to defray the costs of providing facilities and services for civil

aviation while taxes are levies to raise general national and local government revenues that

are applied for non-aviation purposes.

ICAO policies on airport and air navigation charges (DOC 9082) are provided as

guidance to Member States, wherein States are encouraged to incorporate the four key

charging principles of non-discrimination, cost relatedness, transparency and consultation

with users into their national legislation, regulation or policies, as well as into their future air

services agreements. This ensures compliance by airport operators and air navigation

services providers (ANSPs).

It is important to note that the guidance provides that Airports may produce sufficient

revenues to exceed all direct and indirect operating costs (including general administration,

etc.) and so provides for a reasonable return on assets at a sufficient level to secure efficient

financing in capital markets for the purpose of investing in new or expanded airport

infrastructure and, where relevant, to remunerate holders of airport equity.

84

Air navigation services may produce sufficient revenues to exceed all direct and

indirect operating costs and so provide for a reasonable return on assets (before tax and cost

of capital) to secure efficient financing for the purpose of investing in new or enhanced air

navigation services infrastructure.

ICAO’s guidance on taxation is provided in the ‘ICAO’s policies on taxation in the field

of international air transport’ (DOC 8632). The recommendations primarily deal with the

following areas:

i) taxation of fuel, lubricants and other consumable technical supplies when an aircraft

registered in one State arrives in or departs from a customs territory of another

State;

ii) taxation of fuel, lubricants and other consumable technical supplies when an aircraft

registered in one State makes successive stops at two or more airports in one

customs territory of another State;

iii) taxation of the income and aircraft of international air transport enterprises; and

iv) taxes related to the sale or use of international air transport.

With respect to taxes on fuel, lubricants or other consumable technical supplies and

the taxation of income of international air transport enterprises and taxation of aircraft and

other moveable property, the recommendations call for the exemption of all customs and

other duties and all taxation on the basis of reciprocity.

With respect to taxes on the sale and use of international air transport: each

Contracting State shall reduce to the fullest practicable extent and make plans to eliminate

as soon as its economic conditions permit, all forms of taxation on the sale or use of

international transport by air, including taxes on gross receipts of operators and taxes levied

directly on passengers or shippers.

The expression “customs and other duties” shall include import, export, excise, sales,

consumption and internal duties and taxes of all kinds levied upon the fuel, lubricants and

other consumable technical supplies. The duties and taxes include those levied by any taxing

authority within a Contracting State, whether national or local.

The policies related to taxation of international air transport as well as the policies on airport

and air navigation services charges of the Dominican Republic were examined in light of the

recommendations and guidance provided by ICAO.

This study compares the charges and taxation collected by the State and compares it

with those collected by other similar economies in the region where tourism is also a

significant contributor.

85

Air Navigation Charges

Air navigation Charges for flight Miami – Punta Cana for an A320 (ICAO Aero Tariffs)

FIR

State

Charge Type

Distance

Cost Currency

Cost

USD

SANTO

DOMINGO

Dominican Republic

En Route

359.50km

120.00 USD

120

Air navigation Charges for flight Miami – Montego Bay for an A320 (ICAO Aero Tariffs)

FIR

State

Charge Type

Distance

Cost Currency

Cost USD

HABANA

Cuba

En Route

462.77km

197.42 CUP

197.42

KINGSTON

Jamaica

En Route

172.82km

160.00 USD

160

KINGSTON

Jamaica

Approach

172.82km

68.00 USD

68

KINGSTON

Jamaica

Communication Service

Charge

172.82km

22.00 USD

22

On a Miami – Punta Cana flight operated by an A320, the Dominican Republic

collects USD 120 in air navigation charges. On the Miami – Montego Bay flight, Jamaica

collects USD 250 in air navigation charges.

Airport Charges (aircraft related component only)

The following tables indicate the landing charges for an arriving international flight

operated by an A320 (ICAO Aero Tariffs)

Punta Cana (PUJ)

Landing

54.40

Total

54.40

Montego Bay (MBJ)

Landing

390.39

PAX Boarding

Charge

113.41

Total

503.80

Antigua (ANU)

Landing

201.48

Aircraft parking

charge

5.00

Total

206.48

The landing charges listed above indicate that aircraft related charges in the

Dominican Republic appear to be reasonable and not excessive when compared to similar

economies that depend on tourism traffic by air transport.

86

Taxes and charges levied per passenger

In this example we look at the taxes and charges levied per passenger as indicated

on the ticket price breakdown. The total airfare is the roundtrip ticket price bought 2 weeks in

advance from Miami to the following destinations. Fare and taxes per ticket.

Total airfare including

taxes

Tax levied by the US

Tax levied by the

destination

Punta Cana (PUJ)

USD 547

USD 64.03

USD 92.60

Cancun (CUN)

USD 493

USD 64.03

USD 59.17

Montego Bay (MBJ)

USD 512

USD 64.03

USD 114.09

San Juan (SJU)

USD 531

USD 57.40

N/A

Antigua (ANU)

USD 1189

USD 64.03

USD 75

Saint Martin (SXM)

USD 395

USD 64.03

US D56.32

Source: airline website

 The Dominican Republic collects USD 92.60 (USD 30 Airport Authority fee, USD 20

Airport Departure tax, USD 32.60 Airport Infrastructure fee, USD 10 various taxes)

 Mexico collects USD 59.17 (USD 30.18 International Airport Departure tax, USD

28.99 Tourism tax)

 Jamaica collects USD 114.09 (USD 20 Airline Passenger levy, USD 5 Airport

Improvement fees, USD 8 Passenger Aviation Service charge, USD 3 Passenger

Facility charge, USD 23.09 Passenger Service and Facility fee, USD 20 Tourism

enhancement fee, USD 35 Travel tax)

 Antigua collects a USD 75 Airport Administration charge

 Saint Martin collects USD 56.32 (USD 39 Airport Departure tax, USD 5.5 Airport

Improvement fee, USD 11.82 Passenger Screening fee)

Charges and taxes levied per passenger are in the range of USD 56 to USD 114 for

the destinations above.

The analysis above indicates that airport and air navigation charges as well as taxes

in the Dominican Republic appear to be reasonable and not excessive when compared to

similar economies that depend on tourism traffic by air transport. The State has recognized

that high taxation and charges imposed on international air transport could have a

detrimental impact on the growth of air traffic and could negate the positive impact of its air

transport policies on its economy.

Contribution of taxation to the economy of Dominican Republic

The contribution of taxation to the economy (GDP) of Dominican Republic is

significant. Estimates indicate that for the year 2017, taxation contributed around USD [non-

87

residents 80 unit tax] 490 million to the economy of the State

31

. The proactive policies

indicated in Chapter 5 saw a significant increase in tourists and passengers carried by air

transport in the State. Moderate taxation and charges imposed by the State, especially when

compared with other similar States, ensured that traffic growth was not negatively impacted

and the State was able to reap the full benefits of its policy interventions to grow air transport.

8.5. Conclusion

This report shows strong evidence that the reforms undertaken in the Dominican

Republic generated benefits to the economy. Clearly, pro-market reforms had their intended

effect.

This report relied on a large database that contains all passengers transported from

any American airport to a destination abroad. With all possible choices that consumers of a

(large) State can pursue, it becomes clear that nothing besides the legal reform could explain

the increase in the flow of passengers choosing the Dominican Republic as their destination.

The report shows that after deregulation the competition between the American airliners

increased significantly. In a market that was previously dominated by American Airlines,

there is now intense competition between four major airliners. The evidence suggests the

reform accounts for this situation, and models estimate 23 to 27%, at least, in the total of

passengers transported to the Dominican Republic.

The report also illustrates a significant impact on GDP per capita after the reforms.

This report applied a synthetic control group approach to identify the total impact of reforms.

Using a donor pool of 20 countries and a parsimonious model with the internal structure of

GDP, and taking price shocks into account, there was a large impact on GDP per capita. The

figures are around a 15% increase of GDP per capita in the years after deregulation.

Using a conservative estimate, the total net benefit to Dominican Republic in the

period of 2006-2012 attributable to the policy, is USD 837 million through American tourist

spending, and USD 78 million in taxes charged by the State to non-residents, reaching a

total of USD 915 million.

31

This is estimated using 2017 ICAO data from Dominican Republic which indicates around 6.8.

million passengers. Assuming 90.5% of these passengers are non-residents and a unit tax rate of

USD 80, total taxes collected in 2017 is estimated to be 490 million.

88

8. Policies that could further enhance the economic contribution of

civil air transport in the Dominican Republic

The Dominican Republic selected the aviation sector as a state priority. In order to

address negative outcomes during the FAA and ICAO audits that led to thirteen years at

Category II, the island carried out important reforms to conform with international standards.

These reforms, extensively described in this study, led to important benefits for the tourism

sector and the State’s economy as a whole. It also transformed the Dominican Republic into

one of the top countries in the world in terms of USOAPs application, according to ICAO

audits.

However, the Dominican Republic is still working on improving its aviation sector. The

State, IDB and ICAO defined the next wave of reforms to achieve these objectives, such as:

(1) Assessing continuously the conditions of the airport infrastructure to deal with the

growth of future demands;

(2) Studying ways to foster the development of national airlines, through regulation and

legal reforms;

(3) Investing in civil aviation careers at the university level;

(4) Developing the aeronautic and aerospace industry;

(5) Developing general and executive aviation;

(6) Keeping the current tax and charge policies to foster the sustainable growth of the

aviation sector;

(7) Implementing policies to mitigate the side effects of civil aviation on the environment,

such as feasibility studies for clean fuel production, optimal routes to reduce fuel

usage and the adaptation of the infrastructure to the use of clean energy.

(8) Keeping the implementation of the Global State Safety Programme and the upgrade

of the aviation system block.

ANNEX 1: Dominican Republic Airlines

Dominican Republic

Number of flights

Dominican Republic Airlines and Routes

89

2015-2018 y Jan-June 2019

Aerolíneas

Rutas Aéreas

Ene

Feb

Mar

Abr

May

Jun

Total

Aerolíneas

Santo

Domingo, S.A.

The Valley, Anguila/Las Américas, JFPG

-

29

95

35

159

Montego Bay/La Romana

10

30

49

10

-

99

Willemstad (Curazao)/La Romana

18

9

37

8

-

72

Other Routes

-

Total

28

39

86

47

95

35

330

Air Century,

S.A.

Puerto Príncipe/El Higüero

1,112

1,059

1,223

1,078

1,238

864

6,574

Willemstad (Curazao)/El Higüero

760

561

887

1,125

1,037

1,192

5,562

Isla Verde, San Juan PR/El Higüero

937

783

1,093

1,129

656

835

5,433

Saint Marteen/El Higüero

905

636

687

922

995

1,057

5,202

La Habana/El Higüero

563

525

559

589

576

640

3,452

Aruba (Oranjestad) /El Higüero

648

328

494

512

487

617

3,086

Isla Verde, San Juan PR/Del Cibao

-

370

353

382

1,105

Other Routes

386

192

203

187

24

58

1,050

Total

5,311

4,084

5,146

5,912

5,366

5,645

31,464

Helidosa

Aviation

Group

Opa-locka-Florida/El Higüero

57

30

29

34

45

25

220

Puerto Príncipe/El Higüero

30

39

9

18

36

45

177

Isla Verde, San Juan PR/El Higüero

5

12

4

28

15

20

84

Orlando-Florida/El Higüero

24

-

17

13

5

3

62

Fort Lauderdale-Hollywood/El Higüero

5

2

32

1

-

13

53

Other Routes

145

147

106

233

166

114

911

Total

121

83

91

94

101

106

1,507

Sky High

Aviation

Services,

S.R.L.

Melville Hall /Las Américas, JFPG

588

406

1,106

1,044

-

3,144

Saint Marteen/Las Américas, JFPG

186

154

370

414

464

626

2,214

Willemstad (Curazao)/Las Américas, JFPG

104

17

428

560

444

397

1,950

Islas Vírgenes Británicas/Las Américas, JFPG

325

194

283

375

371

368

1,916

Saint Johns, Antigua y Barbuda /Las Américas,

JFPG

377

195

198

282

473

353

1,878

Aruba (Oranjestad) /Las Américas, JFPG

216

111

228

382

405

335

1,677

Isla Verde, San Juan PR/Punta Cana

-

293

1,248

1,541

Aguadilla/Punta Cana

-

197

1,017

1,214

Other Routes

414

192

427

765

644

968

3,410

Total

2,210

1,269

3,040

3,822

3,291

5,312

15,534

Servicios

Aéreos

Profesionales

(SAP).

Puerto Príncipe/El Higüero

1,138

1,003

1,209

1,334

1,097

-

5,781

Melville Hall /Las Américas, JFPG

678

609

346

-

1,633

The Valley, Anguila/Las Américas, JFPG

272

234

178

58

-

742

Willemstad (Curazao)/Las Américas, JFPG

127

132

195

10

-

464

Aruba (Oranjestad) /Las Américas, JFPG

187

55

115

-

357

Saint Marteen/Las Américas, JFPG

143

147

60

-

350

Basseterre/Las Américas, JFPG

111

36

-

258

Saint Johns, Antigua y Barbuda /Las Américas,

JFPG

104

79

55

-

238

Islas Vírgenes Británicas/Las Américas, JFPG

112

68

57

-

237

Other Routes

400

308

194

111

100

-

1,113

90

Total

3,272

2,746

2,445

1,513

1,197

-

11,173

Total

10,942

8,221

10,808

11,388

10,050

11,098

62,507

Dominican Republic

Passengers Flow

Dominican Republic Airlines and Routes

2015-2018 y Jan-June 2019

Airlines

Routes

2015

2016

2017

2018

J-J 2019

Aerojet

Services, S.A.

Municipal de Scottsdale/Las Américas, JFPG

-

5

-

Morrisville/Del Cibao

-

3

-

Total

-

5

3

-

Aerolíneas

Mas S.A.

Puerto Príncipe/El Higüero

7,123

39

-

Aruba (Oranjestad) /El Higüero

771

-

Willemstad (Curazao)/El Higüero

197

-

Tocumen/El Higüero

16

-

Del Cibao/El Higüero

2

-

Total

8,109

39

-

Aerolíneas

Santo

Domingo, S.A.

Isla Verde, San Juan PR/Las Américas, JFPG

504

61

179

10

-

Barbados/Las Américas, JFPG

228

183

-

20

The Valley, Anguila/Las Américas, JFPG

-

159

Montego Bay/La Romana

-

40

99

Willemstad (Curazao)/La Romana

-

9

72

Barbados/La Romana

-

9

-

27

18

Montego Bay/Las Américas, JFPG

-

20

30

Melville Hall /El Higüero

-

28

Isla Verde, San Juan PR/Puerto Plata

25

-

Othe Routes

27

4

18

26

20

Total

784

257

197

132

446

Air Century,

S.A. / A C S A

Puerto Príncipe/El Higüero

21

6,882

11,101

12,029

6,574

Isla Verde, San Juan PR/El Higüero

5

329

4,489

9,049

5,433

Willemstad (Curazao)/El Higüero

33

-

2,945

5,562

Saint Marteen/El Higüero

-

46

-

3,201

5,202

Aruba (Oranjestad) /El Higüero

25

8

9

2,512

3,086

La Habana/El Higüero

22

-

1

315

3,452

Bonaire/Punta Cana

82

839

862

903

-

Montego Bay/Punta Cana

358

280

642

281

76

91

La Habana/Punta Cana

1,075

337

-

31

1

Montego Bay/La Romana

149

97

190

644

347

Isla Verde, San Juan PR/Del Cibao

-

1,105

Barbados/Punta Cana

399

137

142

286

-

Barbados/La Romana

145

253

272

101

-

Aruba (Oranjestad) /Punta Cana

11

321

50

92

148

Willemstad (Curazao)/Punta Cana

487

56

29

36

-

Other Routes

1,189

490

886

1,636

478

Total

4,001

10,075

18,673

34,061

31,464

Dominican

Wings, S.A.

(Dw)

Newark/Punta Cana

-

2,965

-

Buffalo-Niagara/Punta Cana

-

2,844

-

Piarco/Las Américas, JFPG

-

713

581

-

Piarco/Punta Cana

-

356

179

-

Isla Verde, San Juan PR/Punta Cana

-

329

-

Piarco/Puerto Plata

-

326

-

Other Routes

-

480

88

-

Total

-

2,204

6,657

-

Helidosa

Aviation

Group

Puerto Príncipe/El Higüero

112

216

122

366

177

Opa-locka-Florida/El Higüero

97

192

193

275

220

Isla Verde, San Juan PR/El Higüero

47

14

148

208

84

Saint Marteen/El Higüero

84

77

113

116

41

Isla Grande, San Juan PR/El Higüero

38

98

244

18

12

Maiquetía/El Higüero

67

10

101

122

18

Teterboro/El Higüero

9

30

70

74

27

Fort Lauderdale-Hollywood/El Higüero

26

32

36

41

53

Aruba (Oranjestad) /El Higüero

3

-

60

95

25

Kingston, Norman Manley/El Higüero

6

59

23

61

16

Isla Verde, San Juan PR/La Romana

-

4

-

117

36

Other Routes

593

956

1,228

1,963

798

Total

1,082

1,688

2,338

3,456

1,507

Pawa

Dominicana

Miami-Florida/Las Américas, JFPG

-

13,426

76,211

5,945

-

Saint Marteen/Las Américas, JFPG

4,717

25,759

48,688

2,609

-

Aruba (Oranjestad) /Las Américas, JFPG

3,209

15,711

42,925

2,439

-

Willemstad (Curazao)/Las Américas, JFPG

3,551

24,591

30,831

2,081

-

Isla Verde, San Juan PR/Las Américas, JFPG

-

12,586

43,049

3,423

-

92

La Habana/Las Américas, JFPG

-

16,869

35,291

2,745

-

Puerto Príncipe/Las Américas, JFPG

-

2,470

6,481

-

Piarco/Puerto Plata

-

2,493

1,327

-

Las Américas, JFPG/Puerto Plata

-

1,728

-

Maiquetía/Las Américas, JFPG

-

1,061

-

Other Routes

-

1,093

938

88

-

Total

11,477

114,998

288,530

19,330

-

Republic

Flight Lines,

S.R.L.

Isla Grande, San Juan PR/El Higüero

-

45

-

Puerto Príncipe/El Higüero

-

4

19

-

Kingston, Norman Manley/Las Américas, JFPG

-

19

-

Saint Marteen/El Higüero

-

12

-

Matthew Town/El Higüero

-

11

-

Other Routes

-

6

20

2

18

Total

-

10

126

2

18

Servicios

Aéreos

Profesionales,

S.A.

Puerto Príncipe/El Higüero

445

755

6,315

14,870

6,418

The Valley, Anguila/Las Américas, JFPG

-

1,433

1,638

859

Melville Hall /Las Américas, JFPG

-

154

1,642

Barbados/Punta Cana

303

364

502

432

123

Islas Vírgenes Británicas/Las Américas, JFPG

-

299

648

49

237

Montego Bay/Punta Cana

449

149

52

240

114

Saint Johns, Antigua y Barbuda /Las Américas, JFPG

391

-

38

238

Holguín/Punta Cana

120

160

290

15

74

Willemstad (Curazao)/Las Américas, JFPG

-

69

-

14

464

Pointe a Pitre/Punta Cana

16

-

69

282

46

Aruba (Oranjestad) /Punta Cana

124

102

22

63

64

Aruba (Oranjestad) /Las Américas, JFPG

-

9

357

Saint Marteen/Las Américas, JFPG

-

15

350

Saint Johns, Antigua y Barbuda /Punta Cana

-

9

123

179

Other Routes

642

508

535

1,028

877

Total

2,490

2,406

9,875

18,970

12,042

Sky High

Aviation

Services,

S.R.L.

Islas Vírgenes Británicas/Las Américas, JFPG

1,261

2,687

3,996

3,388

1,916

Willemstad (Curazao)/Las Américas, JFPG

13

-

5,539

1,950

Saint Marteen/Las Américas, JFPG

-

8

230

4,983

2,214

Saint Johns, Antigua y Barbuda /Las Américas, JFPG

1,357

249

801

2,788

1,878

Aruba (Oranjestad) /Las Américas, JFPG

12

-

4

5,168

1,677

93

Melville Hall /Las Américas, JFPG

12

-

350

2,242

3,144

The Valley, Anguila/Las Américas, JFPG

-

134

549

2,375

788

Bonaire/Las Américas, JFPG

-

21

583

2,041

783

Basseterre/Las Américas, JFPG

118

-

826

1,831

582

Isla Verde, San Juan PR/Punta Cana

-

1,541

Aguadilla/Punta Cana

-

1,214

Aguadilla/Las Américas, JFPG

-

12

-

694

St Eustatius/Las Américas, JFPG

-

259

246

21

Isla Verde, San Juan PR/Las Américas, JFPG

-

20

405

Other Routes

98

132

342

132

137

Total

2,871

3,243

7,940

30,753

18,944

Tropical Aero

Servicios,

S.R.L. (Tas)

Puerto Príncipe/El Higüero

29

44

-

Cabo Haitiano/El Higüero

-

22

-

Cabo Haitiano/Del Cibao

-

11

-

Other Routes

1

2

-

Total

30

78

2

-

Total

30,844

135,003

334,341

106,704

64,421

ANNEX 2: Impact Evaluation variables and robustness checks

1.1. The table below describes each variable chosen.

Variable

Description

94

GDP per capita

GDP per capita is gross domestic product divided by midyear population. GDP at

purchaser's prices is the sum of gross value added by all resident producers in the

economy plus any product taxes and minus any subsidies not included in the value of the

products. Data are in constant local currency. Source: World Development Indicators

(WDI), World Bank.

Consumer Price

Index (CPI)

Countries with more inflation could have less growth in GDP and less strong institutions.

32

The CPI reflects changes in the cost to the average consumer of acquiring a basket of

goods and services that may be fixed or changed at specified intervals, such as yearly.

The Laspeyres formula is generally used. Data are yearly averages. Source: International

Monetary Fund, International Financial Statistics.

Exchange rate

Countries with devaluated currency means more purchase power for tourists. Eventually,

this can be a factor of the attraction of inflow of tourist meaning more growth if a State is

making more income from tourism. Exchange rate could be correlated with inflation and

with economic growth. The evidence is not conclusive but could be one factor in the

determination of GDP in the short run. Official exchange rate refers to the exchange rate

determined by national authorities or to the rate determined in the legally sanctioned

exchange market. It is calculated as an annual average based on monthly averages (local

currency units relative to the U.S. dollar). Source: International Monetary Fund,

International Financial Statistics.

Value-added of

industry (per

capita)

Measures of industry and services are set to capture the domestic structure of the

economy. In general, developed countries experienced the growing importance of

services when compared to the industry. Industry corresponds to ISIC divisions 10-45 and

includes manufacturing (ISIC divisions 15-37). It comprises value added in mining,

manufacturing (also reported as a separate subgroup), construction, electricity, water, and

gas. Value added is the net output of a sector after adding up all outputs and subtracting

intermediate inputs. It is calculated without making deductions for depreciation of

fabricated assets or depletion and degradation of natural resources. The origin of value

added is determined by the International Standard Industrial Classification (ISIC), revision

3. Data are in constant local currency. Source: WDI, World Bank.

Value-added of

services (per

capita)

Measures of industry and services are set to capture the domestic structure of the

economy. Services correspond to ISIC divisions 50-99. They include value added in

wholesale and retail trade (including hotels and restaurants), transport, and government,

financial, professional, and personal services such as education, health care, and real

estate services. Also included are imputed bank service charges and import duties. Value

added is the net output of a sector after adding up all outputs and subtracting intermediate

inputs. It is calculated without making deductions for depreciation of fabricated assets or

depletion and degradation of natural resources. The industrial origin of value added is

determined by the International Standard Industrial Classification (ISIC), revision 3. Data

are in constant local currency. Source: WDI, World Bank.

Population

Variable for per capita calculations and robustness. It can be applying as a measure of

the size of a State. Source: WDI, World Bank.

International

tourists arrival

Number of international tourists is set to test if the inbound of tourists can affect the GDP

per capita or can be affected by the policy intervention. International inbound tourists

(overnight visitors) are the number of tourists who travel to a State other than that in which

they have their usual residence, but outside their usual environment, for a period not

exceeding 12 months and whose main purpose in visiting is other than an activity

remunerated from within the State visited. When data on the number of tourists are not

available, the number of visitors, which includes tourists, same-day visitors, cruise

32

See the evidence in Michael Bruno and William Easterly. “Inflation crises and long-run growth.”

Journal of Monetary Economics, 41, 1998, and Robert J. Barro and Xavier Sala-i-Martin. Economic

Growth. Cambridge, MIT Press, 2014.

95

passengers, and crew members, is shown instead. Sources and collection methods for

arrivals differ across countries. In some cases, data are from border statistics (police,

immigration, and the like) and supplemented by border surveys. In other cases, data are

from tourism accommodation establishments. For some countries, the number of arrivals

is limited to arrivals by air and for others to arrivals staying in hotels. Some countries

include arrivals of nationals residing abroad while others do not. Caution should thus be

used in comparing arrivals across countries. The data on inbound tourists refer to the

number of arrivals, not to the number of people traveling. Thus a person who makes

several trips to a State during a given period is counted each time as a new arrival.

Source: WDI, World Bank from World Tourism Organization, Yearbook of Tourism

Statistics, Compendium of Tourism Statistics.

The share of

tourism in the total

of exports

Variables associated with tourism are used to the determination of GDP since we intend

to study the impact associated with the inflow of passengers in a tourist destination.

International tourism receipts are expenditures by international inbound visitors, including

payments to national carriers for international transport. These receipts include any other

prepayment made for goods or services received in the destination State. They also may

include receipts from same-day visitors, except when these are important enough to

justify separate classification. For some countries, they do not include receipts for

passenger transport items. Their share in exports is calculated as a ratio to exports of

goods and services, which comprise all transactions between residents of a State and the

rest of the world involving a change of ownership from residents to nonresidents of

general merchandise, goods sent for processing and repairs, nonmonetary gold, and

services. Source: WDI, World Bank.

International

tourism, receipts

(in current USD)

Variable that would cause an increase in GDP but can be a dependent variable as well.

International tourism receipts are expenditures by international inbound visitors, including

payments to national carriers for international transport. These receipts include any other

prepayment made for goods or services received in the destination State. They also may

include receipts from same-day visitors, except when these are important enough to

justify separate classification. For some countries, they do not include receipts for

passenger transport items. Data are in current U.S. dollars. Source WDI, World Bank.

1.2. Robustness checks for the macroeconomic model

The recommended test for robustness is the placebo test applied in the original

papers of the synthetic control group. Here we are following Abadie, Diamond, and

Hainmueller (op. cit).

The idea of a placebo test is the following: How often would we obtain results of this

magnitude if we had chosen another State in the pool of donators instead of the Dominican

Republic? To apply this test, we ran the same estimation for all countries in the control group

and estimate the GDP gap as shown in Figure 2. That is, the synthetic control method is

reapplied for the 20 countries and calculated as 20 GDP gaps. The result of this procedure is

described in Figure A. The solid orange line is the GDP gap between the actual and the

synthetic Dominican Republic. All the remaining lines are GDP gaps for the countries that are

in the pool of donators (all countries in the control group – see Table 3). Please, observe that

for almost all countries the GDP gap is falling while in the Dominican Republic the gap is

increasing.

96

Figure A also shows that the synthetic control approach provides a good fit before the

intervention. A measure of the prediction error is the square error of prediction. That is, the

difference between the actual and synthetic Dominican Republic to the square power. The

square of the error in the pre-treatment time period is 0.0012. This is a good fit for the

prediction. The median among the donor pool is 0.0062. This number also is small, indicating

a good fit prior to the intervention.

Figure A: Placebo Test for GDP per Capita in the Dominican Republic and in the Control Group

As in Abadie, Diamond, and Hainmueller (2010), Figure A also indicates that the GDP

per capita cannot be well reproduced by all states. Previously, we excluded Indonesia from

Figure 3 because the fit is very distinct from the other countries. We also excluded countries

that were a bad fit in the pre-treatment period. The criteria applied is to remove countries with

RMSE 5 times higher than the Dominican Republic synthetic model. This standard results in

the removal of Fiji, Indonesia, and Panama.

In Figure B, we removed three countries and got a better fit for the donor pool in the

period of pre-intervention. Now, is easy to observe that the trajectory of GDP per capita for

the Dominican Republic is quite distinctive from the other countries. Only one State had a

GDP as high as the Dominican Republic, but the trajectory after 2006 is negative towards

zero.

Figure B: Placebo Tests excluding Fiji, Indonesia, and Panama

97

One final test for Dominican GDP gap relative to the gaps obtained from placebo runs is to

look at the distribution of the ratios of post/pre-intervention MSPE (see Abadie, Diamond,

and Hainmuller, 2010, p. 503). The main advantage of such a test is avoiding the choice of a

cutoff MSPE. In Figure C, we show the MSPE ratio for the countries in the control group. The

ratio for the Dominican Republic is the highest between the countries assigned as a potential

control group. It’s important to note that this ratio is the highest.

Figure C: Ratio of the post and pre-intervention MSPE

98

Our final robustness check is a test to control for the possibility that a policy adopted

by airliners in the United States distorted the distribution of passengers to international

destinations. The question to be tested could be: was there also a policy in the US that

enabled more passengers to R.D. or other destinations?

To address this question, we added the yearly flow of passengers to a foreign

destination in our donor's pool.

33

The base model is revaluated and the changes are very

small. First, there is no change in the control group. The countries are the same and the

weights suffer a small change of 0.001. Second, despite the good explanatory power of “PAX

USA” there are only marginal changes in the level of the base case variables (see Table B).

Table B – Predictors with Passenger from the USA for the Dominican Republic

Variables

Treated

Synthetic

Services

11.1388

11.1353

Industry

10.5049

10.3964

Exchange rate

2.99198

2.98896

Inflation

10.3298

8.30530

PAX USA

17.8730

17.2561

Note: these values are averages between 1996 and 2004.

33

The data of (natural log) passengers from USA to foreign destinations is from DoT, and is the same

used in the next section. Destination here is a State. When the flow of passengers is zero to a

destination, say Indonesia, we replace missing by a small number to not change the estimation

methodology. If the base model is a valid model this change should produce only insignificant

changes.

99

The result of this alternative scenario is summed up in Figure Y. We plotted the gap between

the actual GDP per capita and the synthetic group for the base model and the new model

augmented with passengers from the USA. The result is that the model designed to capture

some US policy change did not show any significant change in the trajectory. In fact, the new

model is a little higher in level, but we choose to maintain the base case model.

Figure D: Gap between Synthetic and Actual GDP per Capita: Base Model and Model with

Passenger from the USA

1.3. Variables for the microeconomic model

Variable

Description

Number of

passengers

The total of passengers transported between two airports. One airport is within the United

States and others abroad. The pair of cities is US-airport/Foreign-airport. The average

treatment effect is over the flow of passengers at international airports in the Dominican

Republic.

Distance

Distance is calculated between 2 airports using the pair of coordinates and using an

approximate spherical constant to approximate the earth’s curvature. Distance affects the

willingness to travel and the cost of transportation. Distance is included as square to

capture a curvature in the distance relationship with the number of passengers. In

general, the microeconomic models of I.O. and transportation economics includes the

distance and the populations of origin and destinations cities (see Berry, 1992). For

tourism destination population is not the more important feature for demand, the number

of hotels, quality of beaches or mountains, etc. are more important than the population. In

the estimated models we maintain distance but excluded population.

100

Price of kerosene

Since the airfare is not available in the U.S. database we are including the price of

kerosene to account to some variation in the price of one important input to air travel. This

is a monthly variable.

Exchange rate

The relative price of local currency in US dollars. This is an important variable since could

capture (i) the willingness to travel (purchasing power for the tourist), (ii) the cost of

operation at the destination (foreign airport), and (iii) political/economic instability at the

destination (see the synthetic control section), for example, a large devaluation could be

an indication of some political turmoil. This is a monthly variable within each State.

Cycle USA

We added an index that captures the economic activity of the USA. Since we are fixing

the origin (USA), the variation of economic conditions could affect the willingness to travel

in the USA. This is a monthly variable.

1.4. Robustness checks for the control group (the Microeconomic model)

The models estimated above are already robust to various econometric problems.

One of the problems not accounted for is a sensibility in the control group. We estimate the

same model with some variations in the control group.

First, we removed African countries, followed by Europe, and then Mexico. Without

African countries, the average treatment effect rises to 0.37 in all models (and the FE model

is now significative). When we excluded Europe and Mexico, the Hausman-Taylor coefficient

does not change significantly, but OLS estimations fell 0.32-0.33 figures.

Table C: Average Treatment Effect from the 2006 Intervention (Net effect), dropping Africa

Variable

did1

did2

FE1

HTAYLOR

Net effect

0.3721

0.3699

0.3843

0.3747

0.0614

0.0618

0.139

0.0807

Policy time

0.0664

-0.054

-0.4556

0.0785

0.5045

0.0711

0.2295

0.022

Dominican

2.0372

2.0406

Republic

0.0442

0.0458

Kerosene

-0.3163

0.0615

-0.0385

0.3001

0.0676

0.0192

Distance

-0.2392

-0.2906

47.3198

0.4562

0.4546

66.0135

Distance 2

-0.0449

-0.0419

-2.9803

0.028

0.0279

3.9912

Exchange

Rate

0.2128

0.2133

0.0429

0.0592

0.011

0.1953

0.0239

Cycle USA

-0.3437

0.0767

0.378

0.1117

Time

Dummy

yes

101

Table D: Average Treatment Effect from the 2006 Intervention (Net effect), dropping Africa and

Europe

Variable

did1

did2

FE1

HTAYLOR

Net effect

0.3328

0.3273

0.4034

0.3875

0.061

0.0617

0.128

0.0725

Policy time

0.2847

0.1449

-0.3253

0.2009

0.3829

0.0731

0.2715

0.0252

Dominican

1.222

1.2233

Republic

0.0447

0.0459

Kerosene

-0.5108

-0.0933

-0.1291

0.3391

0.0652

0.0221

Distance

16.6767

16.8171

67.0873

0.6055

0.6116

16.8733

Distance 2

-1.1192

-1.1292

-4.3478

0.0409

0.0413

1.0726

Exchange

Rate

0.0824

0.0822

-0.2248

-0.197

0.0098

0.01

0.1948

0.0265

Cycle USA

0.2175

0.8351

0.3647

0.1296

Time

Dummy

yes

Table E: Average Treatment Effect from the 2006 Intervention (Net effect), dropping Africa,

Europe, and Mexico

Variable

did1

did2

FE1

HTAYLOR

Net effect

0.3283

0.3223

0.3857

0.3693

0.0597

0.06

0.1337

0.0737

Policy time

0.9854

0.1546

-0.5217

0.2162

0.518

0.0675

0.3103

0.0261

Dominican

1.4701

1.4715

Republic

0.0425

0.0436

Kerosene

-0.5107

-0.0907

-0.1274

0.3218

0.0608

0.0228

Distance

14.3982

14.5462

65.6732

0.5906

0.5983

15.6518

Distance 2

-0.966

-0.9765

-4.2533

0.04

0.0404

0.9956

Exchange

Rate

0.067

0.0668

-0.219

-0.1907

0.0099

0.01

0.1996

0.0269

Cycle USA

0.2327

0.8175

102

0.3407

0.1338

Time

Dummy

yes

F

25.7849

821.7142

.

43.2724

N

6072

The last scenario with changes in the control group excluded countries with HHI higher than

1200. Markets with HHI are considered very concentrated. This is an interpretation that

poses that a treatment model should compare the “sick market” with “healthy markets.” So,

with this cutoff rule, we focused only on markets with some degree of competition.

The results are in line with our baseline estimation, that was 0.23. In the table below, we

arrived at estimates of 0.2192 for Hausman-Taylor model and 0.39 for the OLS model.

Table F: Average Treatment Effect from the 2006 Intervention (Net effect), dropping Countries

with HHI > 1200.

Variable

OLS1

OLS2

FE

HTAYLOR

Net effect

0.3956

0.3902

0.2209

0.2192

0.0625

0.1527

0.0843

Policy time

0.0374

0.0344

-0.3232

0.152

0.4949

0.0722

0.2185

0.0228

Dominican

2.1962

2.2028

Republic

0.0477

0.048

Kerosene

-0.2272

0.0633

-0.0122

0.315

0.0654

0.0197

Distance

-0.0613

-0.0981

53.4249

0.5941

0.5924

71.5894

Distance 2

-0.0753

-0.0731

-3.353

0.0359

0.0358

4.2933

Exchange

Rate

0.1341

0.1342

0.1567

0.1586

0.0109

0.2052

0.0223

Cycle USA

-0.6652

0.0009

0.3661

0.1141

Time

Dummy

yes

F

52.5915

1686.395

.

35.3778

N

11194

List of References

103

Aside of the material provided by the Dominican Republic government (IDAC and JAC), the

document used the following sources:

Abadie, Alberto. The Economic Costs of Conﬂict: A Case Study of the Basque State,”

American Economic Review, 2003

Abadie, Alberto; Diamond, Alexis; Hainmueller, Jens. Synthetic Control Methods for

Comparative Case Studies: Estimating the Effect of California’s Tobacco Control Program.”

Journal of the American Statistical Association, 105 (490), 2010

Alvarado, Jennifer; Oddone, Nahuel; Gil, Lisette. Fortalecimiento de la cadena de valor de

turismo en Pedernales, República Dominicana. CEPAL, 2017.

Athey, Susan; Imbems, Guido W. The State of Applied Econometrics: Causality and Policy

Evaluation.” Journal of Economic Literature, 31 (2), 2017, p. 9.

Blanke, Jennifer; Chiesa, Tea. Travel and Tourism Competitiveness Report, 2011. World

Economic Forum, Geneva, Switzerland, 2011.

Instituto Dominicano de Aviación Civil. Dominican Republic State Air Navigation Plan. Draft

Version, August 7, 2018.

JAC. Air Transport Statistics Report: Dominican Republic 2018, Dominican Republic, 2019.

OACI. Informe Final de Auditoría de la Vigilancia de la Seguridad Operacional del Sistema

de Aviación Civil de República Dominicana. Programa Universal OACI de auditoría de la

vigilancia de la seguridad operacional, 2009.