NEXTT. Preliminary Cost Benefit Analysis: Technical Report

Transcription

1 NEXTT Preliminary Cost Benefit Analysis: Technical Report 14 November 2018

2 Notice This document and its contents have been prepared and are intended solely as information for IATA and use in relation to NEXTT. WS Atkins International Limited assumes no responsibility to any other party in respect of or arising out of or in connection with this document and/or its contents. This document has 29 pages including the cover. Document history Revision Purpose description Origin ated Checked Reviewed Authorised Date Rev 1.0 Draft AD CR WS AC 20/11/18 Rev 2.0 Issue AD CR WS AC 07/12/18 Page 2 of 29

3 Contents Chapter Page 1. Executive summary 4 2. Introduction 6 3. Methodology Approach Methodology General assumptions 8 4. Baseline scenario Global trends Baseline trends for airports Baseline trends for airlines Baseline trends for passengers and cargo customers NEXTT impacts Benefits for airports Benefits for airlines Benefits for passengers and cargo customers Deployment Scenarios Deployment scenarios for data processing measures Deployment scenarios for automation measures Deployment scenarios for off-airport activities NEXTT implementation costs Preliminary CBA results Overview Benefits for airports Benefits for airlines Benefits for users Sensitivity analysis Conclusions and recommendations 28 Page 3 of 29

4 1. Executive summary As part of the New Experience Travel Technologies (NEXTT) initiative, a Preliminary Cost-Benefit Analysis (Preliminary CBA) was commissioned to help understand the scale, timeline and distribution of benefits and costs to the aviation industry and consumers. The stated goal of this Preliminary CBA was to provide initial quantification of the potential impact of NEXTT on future aviation infrastructure demand, and to understand the combined impact of these technologies. NEXTT comprises a broad range of technologies, coordinated and accelerated via the strategic, overarching NEXTT vision. Details of NEXTT are provided at It is recognised that these concepts are at various stages of implementation; a few are already globally commonplace (such as online check-in) whilst others will require both technology and policy developments that may take many years. It is also acknowledged that NEXTT shall not be applied as a one-size fit for all locations; decisions will need to be made by airports, airlines and governments based on their local circumstances and complexity. In this regard, 100% deployment indicates the technology or process is globally commonplace, the norm, rather than exists in absolutely every location. This assessment considers the impact of all the underlying concepts being deployed in an integrated manner within a feasible time. It presents one of many plausible scenarios to give indicative costs and benefits of NEXTT integration and the technologies themselves. Assessment of the impact of the NEXTT demonstrates a highly positive opportunity for the industry. Findings in the Preliminary CBA indicate that the present value benefits assessed over a 20-year period are an estimated $1.8 trillion, greatly outweighing the costs estimated at $130 billion. Data processing is the key driver; shown to deliver the most long-term economic value of NEXTT yielding approximately 71% of these benefits. Conservative estimates demonstrate that a further 15% of benefits can be captured from automation, and 14% from off-airport activities. Considerable economic benefits are realised across airports, airlines and industry stakeholders. In aggregate, airlines and associated service providers stand to gain the most of any group, with over $850 billion benefits derived over the 20-years assessment period from various initiatives envisaged under NEXTT. These benefits are distributed between several benefit streams, including station costs savings (64% of benefits), and flight equipment costs savings (6% of benefits). The overall cargo supply chain will also benefit from an increase in revenue (23% of benefits). For airports, total benefits from NEXTT implementation amount to $270 billion over the 20-year assessment period. However, this equates to a benefit of $0.25 per dollar of airport revenue, whilst airlines will benefit circa $0.13 per dollar of airline revenue. These benefits are distributed between reductions of investment needs (67%), the ability to service increasing demand without proportional increases in staff levels (25%) and increases in the utilisation of apron and runway space (8%). Some of these benefits can be related directly to governments for provisions of border and security controls. The benefits for passengers and cargo customers (the users) are driven by reductions in the time spent on processes at the airport. For passengers, this time was attributed with its monetary value, which enabled an account of the economic impact of significant time savings generated by NEXTT, while for cargo owners shortening of the processing time was evaluated qualitatively. Total calculated benefits resulting from time savings for passengers amounted to $680 billion. The report has identified the technological readiness levels of key technologies. Largely the core building blocks of NEXTT are either deployed in other sectors, or currently at prototype within the aviation sector, suggesting the challenge is related to scalability and organisational change and adoption. For the cargo sector, adoption of existing technologies developed by the logistics sector, and mimicry of the data systems deployed in the passenger sector would create a step-change in performance. For passenger and baggage systems, it is proposed that the regulatory, security, and governmental policy of regions with greatest traffic share (e.g. USA, EU, China) will be the decisive factor for sector transformation as opposed to technological readiness. Implementation of NEXTT clearly creates an opportunity for a step-change in operational performance, and systemic optimisation is therefore likely to be the main economic differentiator for Page 4 of 29

5 the global aviation sector. However, NEXTT will also create a disruptive technology economy that may lead to the evolution of new business models and aviation-sector companies. Further work is needed to consider how the industry might exploit these opportunities. Without a central, coordinated vision, the benefits detailed here will not be realised at scale. The investigation has highlighted that delivery of coordinated technology systems at a global scale will unlock benefit significantly in excess of an isolated approach. Page 5 of 29

6 2. Introduction New Experience Travel Technologies - NEXTT - is a collaboration between the International Air Transport Association (IATA) and Airports Council International (ACI). Given the projected doubling of demand for air travel by 2036, new on-ground concepts are required to optimize the use of emerging technologies, processes and design developments. NEXTT aims to help deliver this future by developing a common vision to enhance the on-ground transport experience, guide industry investments and help governments improve the regulatory framework. Full details of the NEXTT vision are provided at NEXTT comprises of the journey of the four key elements moving through an airport: passenger, baggage, cargo, aircraft. In each element three categories of measures were defined: interactive decision making, advanced processing and off-airport activities. As part of the NEXTT initiative, a preliminary cost-benefit analysis (Preliminary CBA) was commissioned by IATA to help to understand the scale, timeline and distribution of benefits to the industry. The stated goal of this was to provide initial quantification of the potential impact of NEXTT technologies on future aviation infrastructure demand, and to understand the combined impact of these technologies. A joint team of economists, technology specialists and industry subject matter experts worked together to produce this technical output. The following report showcases the findings of this study, covering the methodology used, the benefits realised by stakeholders, and the costs assumed to deliver the NEXTT vision. Page 6 of 29

7 3. Methodology 3.1. Approach A Preliminary CBA of NEXTT was conducted with a systemic approach ensuring that a potential double counting of benefits is avoided. The analysis of NEXTT focused on each of the NEXTT vision elements (passenger, baggage, cargo and aircraft) and themes (interactive decision making, advanced processing and off-airport activities). The consulting team worked in close coordination with subject matter experts to assess the impact of the various elements of the NEXTT vision. During this exercise, three distinct categories for investment and further development arose, captured below. These categories have been used for this analysis to capture the benefits and costs arising over the assessment period. Data processing: capturing impacts related to the advancement of connected digital (or IT) technologies on the aviation sector, including efficiencies driven by an ability to increase optimisation and utilisation of resources as a result of shared data. Automation: identifying impacts related to the automation possibilities created by new types of physical infrastructure with more advanced, next generation technology. Off-airport, allowing for impacts of using technological advances to enable more activities to take place in places outside of current airport boundaries. The categories span the overarching NEXTT vision, underpinning all the emerging themes and elements (journeys) Methodology A structured methodology was adopted through the study with the aim of a transparent, logical process throughout to ensure the traceability of findings. The method broke the activities down to four key areas: Defining the deployment scenarios Building the baseline scenario Building NEXTT benefits matrix Developing the preliminary Cost Benefit Assessment (CBA) The key deliverable from the study is a Preliminary CBA tool, which will enable re-modelling of the analysis as new or more detailed information becomes available. Figure Methodology framework for Preliminary CBA assessment Page 7 of 29

8 The preliminary economic assessment aimed to capture the key drivers of economic growth related to the NEXTT vision, along with their associated costs. All the previously described inputs were incorporated into an economic appraisal of the potential impact of technological change on the aviation industry. The analysis assessed benefits in the following aspects: Benefits for stakeholders, assessing the ways NEXTT is likely to impact airports, airlines and users (passengers and cargo customers). Benefits of NEXTT categories, allowing for identification of benefits resulting from data processing, automation, and off-airport activities Benefits of NEXTT elements, showing the impact of the technological changes to the on-ground journey of passengers, baggage, cargo and aircraft. Due to the preliminary nature of this appraisal, not all areas of benefits have been considered or quantified. The Preliminary CBA does not include any multiplier effects or impact on (for example) external industries, emissions, wider economic and environmental impacts General assumptions Several assumptions for the Preliminary CBA were defined regarding the basic parameters of the assessment. Monetary values used in the analysis were expressed in 2018 values. Discount rate of 7% was adopted, based on recent guidance for aviation industry projects and the nature of NEXTT vision 1. All benefit and cost streams were discounted to Deployment scenarios and the baseline scenario were developed for 30 years ( ), Preliminary CBA was conducted for two assessment periods: o 20 years ( ), reflecting the existing traffic forecasts and the NEXTT deployment period, o 30 years ( ), allowing for additional ten years of benefits from full NEXTT implementation to be accrued 2. NEXTT impact was evaluated in terms of supply improvements, which means that future passenger and cargo demand volumes were independent from NEXTT implementation. 1 US Office of Management and Budget guidance, 2018; Australian Office of Best Practice Regulation, Cost-Benefit Analysis Guidance Note, 2016; UK Treasury, Central Government Guidance on Appraisal and Evaluation, For the years beyond the IATA s 20 year forecast an average traffic growth of 1% was assumed. This assumption is subject to sensitivity analysis. Page 8 of 29

9 4. Baseline scenario The baseline scenario constituted a reference base on which the benefits of NEXTT were calculated. This scenario was designed based on a do nothing situation, when the components of NEXTT are not implemented, and technology-driven solutions are not introduced in the aviation industry. The key assumption behind this scenario is that the integrated technology vision described by NEXTT is not realised, either under the umbrella of NEXTT implementation or otherwise. The baseline scenario was generated by collating core industry data, analysis and trends relating to the supply and demand for aviation for the next 30 years. Data collected covered airports, airlines, passengers, baggage and cargo. The baseline scenario provides a robust foundation upon which the Preliminary CBA was built, and includes the following components: Global data, including forecasted volumes of passenger traffic and GDP per capita worldwide, Airports-specific data, including forecasts on airports investment needs, operational costs and revenues Airlines-specific data, including forecasts of operational costs and revenues, costs of delays and of mishandled baggage, Users-specific data, including assessment and forecasts of time spent at airports and estimated value of each hour of this time Global trends Global trends for passenger traffic in aviation were derived from IATA forecasts. They assume a dynamic growth in passenger volumes over the next 20 years (average 3.5% of annual growth). Global volume of traffic is envisaged to more than double over the next 20 years and reach 6.9 billion passengers. Passenger traffic is not distributed evenly over global regions. Currently, the majority of traffic is generated by Asia Pacific (37% of which China alone counts for 22%), Europe (27%) and North America (22%). With the remaining proportion of traffic shared between Middle East (5%), Latin America (5%) and Africa (3%). In the next 20 years, the role of China is predicted to continue to increase. By 2038, it is forecasted that China will lead the market with a total share of 26%, with high growth elsewhere in Asia Pacific (20%). The volumes generated by Europe and North America will grow more steadily, and at the end of assessment period their respective shares will reach 20% and 19%. Whilst the other regions, Middle East, Latin America and Africa, will retain their current share. Figure Passenger traffic forecasts by region ( ) Page 9 of 29

10 Similarly, a dynamic growth is envisaged in global economy, with the annual growth rate of GDP per capita at 3% on average. GDP per capita was adopted to reflect not only the availability of capital, but also a relative wealth of society, which significantly impacts people s mobility, especially the use of aviation. Positive economic growth is forecasted for all world regions, with leading positions of North America and Europe. Figure GDP per capita by global regions ( ) Also, world air cargo traffic is forecast to increase dynamically, with the annual growth rate over 4% in the next 20 years 3. In that, air freight is projected to grow at a rate of 4.3% per annum while airmail will grow at an average rate of 2%. Over all, world air cargo traffic will more than double in the next 20 years, expanding from 256 billion RTKs in 2017 to 584 billion RTKs in Air cargo market is and will be significantly stimulated by the boom of e-commerce, with its market size forecast to increase 20% per annum during the next five years, to about $5 trillion in Baseline trends for airports Baseline trends for airports include global forecasts for cost and revenue streams, including investment needs, operational costs and revenues. Elements accounted for within the airports stakeholder group may be directly attributed to governments e.g. border controls. Investment needs forecasts were based on Global Infrastructure Outlook data 4. The source forecasts covered the period to After that it was assumed that investment needs will stay constant till 2050 on the level of Based on the available case studies, it was also assumed that half of the investment needs are related to investment in terminals, and half in the airfield. Operational costs were based on ACI data for 2016 and extrapolated to Unit values per passenger from 2020 were assumed constant over the assessment period. This assumption was tested in the sensitivity analysis. Out of operational costs, personnel expenses were separated as 35% of operating costs and this is the basis for specific benefits. Airports revenues were based on ACI data for 2016 and extrapolated to Unit values per passenger from 2020 were assumed constant over the assessment period. Aeronautical and non-aeronautical revenues were separated to form the basis for cost saving assessment, 3 World air cargo forecast, , Boeing 4 Page 10 of 29

11 with aeronautical revenues accounting for 61% of revenues 5 in 2020, and 39% for nonaeronautical revenues. The base year data are presented on the chart below. Total revenues Non-aeronautical revenues Aeronautical revenues Operational expenditures Personnel expenses Total investment needs Investments in airfield Investments in terminals - 20,000 40,000 60,000 80, , , , , ,000 Figure 4-3 Assumptions for the baseline scenario for airports, 2020, mln $ 4.3. Baseline trends for airlines Baseline trends for airlines include global forecasts for cost and revenue streams, and specific costs related to delays and mishandled baggage handling. Airlines are considered to include their direct suppliers such as ground handlers. Operational costs were based on data for Operational costs per passenger were assumed constant over the assessment period. This assumption was tested in the sensitivity analysis. Out of operational costs, several cost streams were separated to be used as the base for specific benefits the assumptions below are based on the evidence cited and represent a continuation of present industry standards for proportional operational cost distribution: o Station costs (or traffic services costs), covering costs of personnel providing services to passengers, baggage and cargo (excluding flight crews). Station costs were assumed as 10% of operating costs, o Crew costs were assumed to be 9% of the operating costs 6. o Fuel costs share in operating costs was estimated at 22% 7. o Flight equipment costs, covering supply and maintenance of the pieces of equipment necessary to conduct the flight. Flight equipment costs were assumed as 20% of operating costs 8. Airlines revenues were also based on data for 2017 and assumed constant over the assessment period, allowing for this assumption to be tested in the sensitivity analysis. Cargo related revenues were separated as 16% of global revenues. Delay costs were based on the unit costs of an hour of delay (which was assumed constant over the assessment period) multiplied by the average aircraft delay time which growth over the next 30 years was assumed stay in line with the passenger traffic growth. Mishandled baggage costs were based on 2017 data 9 and assumed constant over the assessment period. 5 Revenues excluding non-operational revenues 6 World air transport statistics, IATA, World air transport statistics, IATA, World air transport statistics, IATA, Air Transport Industry Insights, The baggage report, SITA, 2017 Page 11 of 29

12 The base year data are presented on the chart below. Figure Assumptions for the baseline scenario for airlines, 2020, mln $ 4.4. Baseline trends for passengers and cargo customers Baseline trends for users (passengers and cargo customers) include global forecasts for average time spent by airline customers (passengers and cargo) at airports and the monetary value attributable to this time where available. Average time spent by passengers at airports on various activities were based on data for 2017 and assumed constant over the assessment period 10. Monetary values attributable to this time were calculated based on European values published by EUROCONTROL for the purposes of CBA assessments 11, averaged over trip purposes and weighted by GDP per capita for world regions. For the future values, global trends in GDP per capita were applied (see section 4.1) Average time of cargo door-to-door shipment was assumed based on the data for , and assumed constant over the assessment period. Due to wide variety of cargo types shipped by air, instead of estimating the unified value of time for the average cargo shipment, a quantitative assessment was used to identify and describe benefits gained by cargo customers. 10 Financial Times, Airport retailers look to make every minute count, Data from Nigel Dolby Consulting for FT 11 EUROONTROL: Standard Inputs for EUROCONTROL Cost Benefit Analyses - Edition Page 12 of 29

13 5. NEXTT impacts A benefits matrix was developed to capture and record the benefits of NEXTT for each of its stakeholders, elements and categories (see Table 5-1). The benefits matrix includes two types of assessment: Quantitative assessment (expressed in percentage), where the NEXTT impact could be clearly identified and allocated to the baseline monetary streams, based on published information and/or SME input. Qualitative assessment (noted as Q in the benefits matrix), where either the impact could not be clearly identified and separated from impacts of other measures or could not be clearly allocated to the baseline monetary streams. Several benefit streams were applicable only to specific elements or categories. Therefore, NA notation was used to mark them as not applicable for other elements and categories. As the sector develops, this matrix can be further refined, whether through adding different quantitative analysis steps (such as monetising the economic savings attributable to environmental impact), or refining the numbers used for the initial analysis Benefits for airports Airports will experience benefits from all NEXTT elements and measures. Some of these benefits will materialise as the following monetary streams and may be directly attributed to facilities/services provided by governments: Reduction of additional infrastructure costs can be achieved due to improved data processing and automation measures. Implementing NEXTT will result in increasing the throughput of passengers, baggage and cargo, and therefore save space and reduce the needs for infrastructure extension. Total reduction of additional global terminal investment costs as a result of NEXTT implementation is estimated at ~65%. The majority of savings will be generated by implementing data processing measures for cargo and passengers (15% and 13% of terminal infrastructure costs respectively) and off-airport activities for baggage (11%). Personnel costs savings can be achieved because of more comprehensive information and control being available to passengers on their mobile devices, in turn this and other information shared with operation teams allows a focus on and improves their efficacy for solving more complex and valuable issues. Additionally, optimised security searches requiring fewer staff per lane. Similarly, by implementing automation for aircraft turnaround, this reduces the proportional number of staff responsible for ground operations 13 of each aircraft turnaround. Total reduction of personnel costs because of NEXTT implementation is estimated at ~30%. Out of that, data processing measures will result in 20% savings on costs and automation allow for accruing another 10%. The savings must be set in the context of a growth industry and reflect an adjustment in the ratio of staff to passenger or aircraft turnaround. The relative personnel costs per passenger will change but in absolute terms airports will require more people to service the forecasted demand and more specialists will be needed to support the new processes and systems enabled by technological advances under NEXTT. Increase in aeronautical revenues, resulting from implementing time-based separation on landing, and therefore increased capacity of airfield, is estimated at 10%. This is primarily as a result of increased utilisation of the apron and runway space Benefits for airlines Airlines and associated service providers will experience benefits from all NEXTT elements and measures. These benefits will materialise as the following monetary streams: 13 Although it is understood, in many cases, these staff are contracted by airlines Page 13 of 29

14 Station cost savings, resulting from a proportional reduction in the number of personnel at gates, bag-drop points and cargo facilities, are estimated to reach 70% of total station costs. These savings will be mostly a result of improved data processing (costs reduction of 50%) and automation (15%). As with airport personnel costs, airlines will require more people as traffic continues to grow and savings relate to a reduction in the growth rate of operational staff relative to traffic growth. Mishandled baggage cost savings can be achieved due to improved information about the location of bags at any point, which means that bags should go missing less often and cost less to reunite with their owners. Total costs reductions are estimated at 55%, out of which more than 40% will be a result of introduction of RFID or other tracking technologies for baggage and related data processing measures. Flight delays cost savings will be realized through improvements to loading, transfer connections and a better understanding of baggage locations within ULDs, which should accelerate offloading where passengers are late to board. The shift away from a necessity that passengers travel with their bags would further enable a reduction to baggage related delays. The benefits are expected to be of 3% of total flight delays costs. Increase in cargo revenues, resulting from shortening cargo handling times and establishment of direct distribution channel in the revenue management prospective. Airlines will have increasing market exposure and manage the capacity and inventory sales better than before. Increase in revenues is expected to reach 20% of total cargo revenues, with 10% attributed to data processing, and 5% to automation and off-airport activities. Flight crew and equipment costs savings, due to shorter turnaround times and reduced ground delay. This means better crew and equipment utilisation and thus reduce the overall flight cost. Flight crew costs can be reduced by 10%, and equipment costs by another 10%. Fuel costs savings due to shorter turnaround times and reduced ground delay. Fuel costs can be reduced by 6% Benefits for passengers and cargo customers Users benefits considered in this assessment include passengers and cargo owners. However, due to data availability and limitations, a quantitative approach was possible only for passengers, and the benefits they experience from time saved during the journey due to NEXTT. These benefits include: Boarding time savings result from an introduction of biometric technologies, process automation and personalised passenger information will allow for the waiting time at the gate to be reduced by up to 50%. Security check time savings will be reduced due to increased scanning capabilities (40% reduction) and effective data processing to evaluate the risks (10% reduction), leading to more efficient queue management and infrastructure use. Total reduction of security check time is estimated to reach 50%. Check-in time savings will be an effect of the implementation of off-airport check-in points (10%) supported by improved data processing of baggage information (10%) and automated on-site baggage drop points (5%). These benefits are expected to reach 25% of total checkin time. Passport control time saving will be realised through biometric control points and walking pace arrivals immigration combined with passenger pre-vetting. Time spent at passport control can therefore be reduced by 80%. Baggage pick-up time can be reduced because of implementation of baggage tracking services (reduction of one third of the time), and introduction of off-airport baggage deliveries (50% reduction). Providing passengers with accurate information about their luggage whereabouts accompanied with tailored delivery services mean that passengers can avoid waiting and route hold bags to their hotel, home, office etc. Time spent on baggage pick-up can therefore be reduced by up to 83%. Delay costs savings can be achieved by improvements to loading, connections and a better understanding of baggage locations within ULDs which should accelerate offloading where passengers are late to board. Shifting away from a necessity that passengers travel with their Page 14 of 29

15 bags would further enable a reduction to baggage related delays. These savings are expected to amount to 3% of total delay costs. Monetary values of travel time savings are currently well recognized economic benefits of most of transport-related interventions. In the aviation sector, EUROCONTROL, among others, recommends using time savings as important indicators of economic value of both new investments and operational improvements. As mentioned before, cargo users benefits were assessed qualitatively. However, a quantitative assessment was conducted to estimate average cargo journey time reduction resulting from the implementation of NEXTT. It is estimated that the average cargo shipment journey takes 140 hours door to door. A detailed review of the cargo handling process and its components revealed that the implementation of NEXTT could reduce this time by at least 35%, especially due to the optimised customs process, improved information flow and automation of cargo handling systems and transport processes at airports. Additionally, the technological transformation of the cargo sector generated by NEXTT provides an opportunity to modernise the industry and supply a potential new global market (driven by e- commerce). As a result of improved transparency of processes, traceability of cargo shipments and reliability of transit times, cargo users will provide better services to their customers and increase their revenues. Page 15 of 29

16 Table NEXTT benefits matrix AIRPORTS AIRLINES USER BENEFITS (PASSENGERS /CARGO) PASSENGER BAGGAGE CARGO AIRCRAFT Total Data Off-airport Data Off-airport Data Off-airport Data Off-airport impact Automation Automation Automation Automation processing activities processing activities processing activities processing activities Reduction of additional infrastructure needs 13% 4% 1% 4% Q 11% 15% 5% 10% Q NA NA 63% Personnel costs savings 20% 10% NA NA NA NA NA NA NA NA 2% NA 32% Increase in AER revenues NA NA NA NA NA NA Q Q Q 10% NA NA 10% Increase in NON-AER revenues Q Q Q Q Q Q Q Q Q NA NA NA 0% Mishandled baggage costs savings NA NA NA 41% 14% Q NA NA NA NA NA NA 55% Station costs savings 10% 10% NA 30% Q Q 10% 5% 5% NA NA NA 70% Flight crew costs savings NA NA NA NA NA NA NA NA NA 10% Q NA 10% Fuel costs savings NA NA NA NA NA NA NA NA NA 5% 1% NA 6% Flight equipment costs savings NA NA NA NA NA NA NA NA NA 5% 5% NA 10% Flight delays costs savings NA NA NA 3% Q NA Q Q NA Q Q NA 3% Increase in cargo revenues Q Q Q Q Q Q 10% 5% 5% NA NA NA 20% Boarding time savings 50% Q NA NA NA NA NA NA NA Q Q NA 50% Security check time savings 10% 40% NA Q Q Q NA NA NA NA NA NA 50% Check-in time savings Q 5% 10% 10% Q Q NA NA NA NA NA NA 25% Passport control time savings 80% Q NA NA NA NA NA NA NA NA NA NA 80% Baggage pick-up time savings NA NA NA 33% NA 50% NA NA NA NA NA NA 83% Delay costs savings Q Q Q 3% NA Q Q Q Q Q Q NA 3% Page 16 of 29

17 Deployment Scenarios Deployment scenarios forecast the rate at which it is expected NEXTT s scope could be delivered. They are regionally distinct owing to the impact on delivery capability expected as a result in variances in existing infrastructure, capital availability, regulatory environments and local cultural norms or preferences. In addition to capturing a view on the capability and capacity of regions organisations and governments, the deployment scenarios influence the economic model results. Benefits are only realised proportionally as deployment progresses. The deployment scenarios are dependent on industry expert assumptions and the GDP per capita to reflect the capital available by region to invest in the NEXTT initiative. The deployment scenarios were built for each element and category, separately for seven global regions: Europe, North America, Latin America, Asia Pacific, North Asia (China), Middle East, and Africa. The deployment scenarios were determined by the following factors: Technology readiness of NEXTT elements for each category, Regulatory framework in global regions enabling or limiting the implementation of NEXTT, The deployment scenarios were aggregated over regions to form global deployment scenarios for each element and category of NEXTT. The aggregation was done as an average weighted by the aviation traffic generated by each region and the GDP share of each region in the global economy. It is fully recognised that not every concept of NEXTT is appropriate or viable in every location. Complete or 100% deployment reflects a time when a NEXTT concept has become a standard, commonly adopted process. It will have been implement in all areas where it is appropriate to do so but there shall remain exceptions. These deployment scenarios illustration just one of many feasible views of the future to give an indicative assessment of NEXTT Deployment scenarios for data processing measures Deployment of data processing measures is dependent on the ability to share data with high levels of trust and accuracy. Data processing, and its associated legislative concerns may hinder the global rollout of the NEXTT vision where technologies rely on interactive decision-making, making it the only category which may not be globally deployable by Biometrics, which underpin substantial amounts of the enhancements to the passenger element, will require multilateral governmental approval which is likely to vary by region. Personal data protection is more enshrined in Europe than China which is already quickly progressing with widescale adoption of facial recognition technology. Advancements in technologies such as blockchain may accelerate or decelerate this adoption, although disrupters in this space (suggest they will not act as an inhibitor. 120% 100% 80% 60% 40% 20% 0% Passenger Baggage Cargo Aircraft Figure 6-1 Deployment scenarios for data processing measures Page 17 of 29

18 Deployment scenarios for automation measures Advanced processing relies on the use of robotics and automation to drive optimisation and is expected to be globally deployed by China is expected to lead in the deployment of automation and reach 100% deployment in this area by 2040 due to the high levels of investment and expertise. Both Europe and North America are expected to follow and have 100% deployment in 2045 as the technology matures. 120% 100% 80% 60% 40% 20% 0% Passenger Baggage Cargo Aircraft Figure Deployment scenarios for automation measures 6.3. Deployment scenarios for off-airport activities Off airport activities as expressed in the NEXTT vision are expected to be the category that is fastest deployed globally, being globally commonplace from Technologies such as booking are already deployed online with high levels of uptake globally, reducing the time needed to fulfil the NEXTT vision. The ability to have off airport Cargo and Baggage activities will be available by 2035, as much of the technology needed to be deployed is already available in sectors such as Rail and Shipping Cargo, allowing for the transfer of best practices for distributed, secure entry gates and delivery locations. With respect to the deployment of off-airport solutions for aviation infrastructure (notably to alleviate some of the challenges related to congested land around airport hub), the practice of outsourcing traditional sector capability to external land parcels was largely not considered, due to the economic benefit only being realised at a granular scale due to differences in local land value. 120% 100% 80% 60% 40% 20% 0% Passenger Baggage Cargo Figure Deployment scenarios for off-airport activities Page 18 of 29

19 7. NEXTT implementation costs A detailed calculation of the costs of NEXTT deployment would require identifying the costs of various technologies which are not yet fully developed or market ready. This approach would generate uncertainty and bias over the specific elements, especially when thinking of a worldwide implementation. Therefore, at this preliminary stage, a high-level approach was adopted to provide an over-arching picture of the magnitude of expenditures necessary for global deployment of NEXTT, separately for airport facilities and airlines data processing systems, and with distinction between passengers, baggage and cargo elements (see Figure 7-1). Figure Costs distribution over 20-year assessment period, billion $ From the cost perspective, passenger and baggage components of NEXTT both refer to providing an integrated data processing system linking passengers identity with their baggage information, and to the introduction of innovative equipment and facilities at the airports. Therefore, data processing costs were estimated jointly for passenger and baggage elements. Data sharing, updating and processing is closely linked to transactions between airlines and passengers, as this is where the data originates and belongs. (Notwithstanding, more direct data exchanges between passengers and border and customs control authorities) Therefore, data sharing and processing costs were attributed to airlines as entities being responsible for direct transactions with passengers and treated as their additional transaction costs. Because of that, per analogia to other sectors transaction costs 14, they were referred to and estimated as 0.2% of the annual volume of airline revenues, giving the average global value of $3 billion annually after full implementation. This percentage is also consistent with the operational costs structure, where about 6% of costs relate to ticketing, sales and promotion 15, with circa 4% of these being IT systems costs 16. It was assumed that the processing connectivity costs would be considered as a fraction of overall airline operational systems costs. Both calculation methods give the present value of these costs as ca $22 billion over the 20-year period of analysis (considering a gradual NEXTT deployment). The approach to calculation of automation costs is a bit different, as it refers to expenditures at airports. A separate assessment was conducted for passenger, baggage, aircraft and cargo facilities. To make a best estimate of the costs of implementing new technologies for screening and biometric 14 Visa transaction fees, IATA World air transport statistics 16 Page 19 of 29

20 identification (passenger facilities), the overall costs of airports security systems were used as a reference point. The assumption is that global implementation of NEXTT will require gradual replacement of the current equipment and facilities at airports with new innovative solutions. The industry insights show, that the global market value of airports security systems is estimated to be about $12 billion in , out of which new technologies in airport screening, access control and surveillance systems are projected to amount to about $9 billion 18. These projections include the deployment of NEXTT, but also cover the natural systems replacement process, not related with NEXTT implementation. To distinguish between these two elements, the estimated airport screening, access control and surveillance systems costs for 2020 ($9 billion) were assumed as relevant to reflect 11% of total NEXTT deployment in automation for the passenger journey. Based on this assumption, total NEXTT deployment costs were calculated as amounting to about $82 billion in nominal values (without discounting). Considering the deployment scenario for passenger automation and a discounting factor, the present value of passenger automation costs is circa $44 billion. This value remains the same over 20 and 30 years appraisal period, as the full implementation of automation measures for passenger and baggage elements of NEXTT is envisaged to occur by We have assumed that the implementation of automation measures for baggage and aircraft elements in 2020 are each equivalent to 50% of passenger automation, considering the scale and readiness for implementation in these areas. Therefore, the reference point of $4.5 billion in 2020 was adopted for baggage and aircraft facilities costs. After applying the deployment levels, the total costs of baggage automation reach $90 billion. Similarly, for aircraft turnaround automation the total costs also account for $90 billion. Considering the respective deployment scenarios and a discounting factor, the present value of baggage automation costs is $30 billion, and $35 billion for aircraft turnaround automation. Deployment of the NEXTT vision for cargo handling operations involves adoption of data sharing and processing systems to facilitate establishing digital shipment records, creating full transparency and optimizing people, processes, and assets. The costs of these data systems are dependent on the annual volume of cargo transactions and are calculated similarly to passenger and baggage data processing cost as an additional transaction cost. Following the assumption that these costs constitute 0.2% of expected cargo revenues, after full global implementation of cargo element of NEXTT, they amount to $510 million annually. Over the 20 years period of analysis, the present value of these costs is estimated on $3 billion. Full implementation of the NEXTT vision for air cargo operations assumes that all cargo handling airports will be equipped with automation systems, including robotic systems, advanced screening and sensor technologies and augmented reality solutions. Based on global cargo volumes in 2020, the required number of square meters of highly automated facilities to accommodate these volumes 19, and approximate cost of $4 thousand per square meter of fully NEXTT compliant facility 20, the global implementation cost of cargo automation is envisaged to generate nominal costs of $28 billion. Considering the deployment scenario for cargo automation over the 20 years period, the discounted value of costs is estimated as $16 billion. For off-airport category of the NEXTT vision, the implementation costs were not included separately in the costs calculations, because in most cases it would result in double counting. Most of offairport activities are envisaged to utilise the existing off-airport infrastructure and implement similar solutions which are assumed to be implemented in the on-airport environment. Therefore, the data processing or automation costs included in the NEXTT costs calculations cover both on-airport and off-airport situations. 17 Airport Security Market Analysis by Technology (Access Control, Cyber Security, Perimeter Security, Screening, Surveillance) And Segment Forecasts To Global Airport Security Market and Technology Forecast to With average throughput of 17 tonnes per square meter 20 Based on case studies of Doha and JFK cargo terminals Page 20 of 29

21 8. Preliminary CBA results 8.1. Overview The overall benefits and costs of NEXTT were calculated over 20 and 30 year periods. In both cases the benefits significantly outweigh the costs of its implementation. All further detailed results are presented for a 20-year assessment period. In the 20-year perspective, the present value benefits (PVB) of the scheme are estimated to reach around $1.8 trillion. The costs of the scheme are estimated to be around $130 billion, suggesting a very high return on investment, typified by the benefit cost ratio of 14. Figure Net present value of NEXTT, 20-year assessment period, billion $ In the 30-year perspective, 10 years after NEXTT implementation, the cost-benefit indicators suggest an even better situation. Present Value Benefits (PVB) of the scheme are estimated to reach around $2.6 trillion. The costs of the scheme are estimated to be around $136 billion suggesting a very high return on investment, typified by the benefit cost ratio of 18. Figure Net present value of NEXTT, 30-year assessment period, billion $ The benefits are distributed between three types of stakeholders: airports, airlines (including their direct service providers) and users (passengers/cargo). In absolute numbers, the majority of benefits are experienced by airlines and users (47% and 38% respectively), see Figure 8-3. Page 21 of 29

22 However, in relative values, NEXTT will enable $0.25 of benefit per dollar of airport revenue, whilst airlines will benefit to the tune of $0.13 per dollar of airline revenue. Figure 8-3 Benefits distribution among stakeholders, PVB over 20-year assessment period, billion $ From an overall perspective, 71% of the value expected from NEXTT comes from data processing, highlighting the scale of benefit available from adopting and adapting relatively well-established technologies in an aviation context (see Figure 8-4). Figure 8-4 Benefits by NEXTT categories, PVB over 20-year assessment period, billion $ Automation presents a more difficult set of benefits to quantify as the initiatives here are more loosely scoped or understood at this stage. Conservative estimation suggests 15% of the total benefit could be delivered in this area. This could well be underestimating the impact of undeveloped or unknown technologies. Off-Airport elements of NEXTT account for $253 billion, or 14%, of the overall value. The convenience this category of initiatives offers users (passengers and cargo) means that they stand to benefit the most in this area. Decoupling the airport from the physical boundaries of the terminal and airfield will also stand airlines in good stead. Airports will get benefits from off-airport measures, by saving space and resources for other needs and operations. The summary of benefits distribution is presented on Figure 8-5. Detailed discussion of the benefits distribution among stakeholders is presented in the next sections of this report. Page 22 of 29

23 Figure 8-5 Benefits structure by stakeholders, element and categories of NEXTT, PVB over 20-year assessment period, billion $ 8.2. Benefits for airports Total airports benefits from NEXTT implementation amount to $270 billion over the 20-years assessment period. These benefits are distributed between reductions of investment needs, personnel costs savings and the increase in aeronautical revenues (see Table 8-1). With passengers moving more quickly and effortlessly through the airport, the need for airport operators to invest in expanding infrastructure will be rationalised. Passenger journey initiatives alone could save $54 billion in capital investment. Airports will also save large amounts from NEXTT s cargo-oriented measures, where infrastructure expansion needs may be reduced by about $84 billion globally. Adding to that increased effectiveness of baggage handling, where the additional infrastructure costs reduction of $42 billion is expected, the total infrastructure benefit is estimated to reach $180 billion over the next 20 years. Personnel cost savings amount to $67 billion, resulting mostly from optimised personnel utilisation in passenger services: security, information services and transfer connections. Data processing plays a key role here, with $44 billion of savings, followed by automation with $23 billion of benefits. Optimisation of runway and airfield performance as a result of enhanced operational information accessibility and sharing presents an opportunity to increase movements and landing slot inventory. This provides airports with $22 billion of additional aeronautical revenue. Page 23 of 29

24 Table Airports' benefits by element and category, PVB over 20-year assessment period, billion $ Type Passenger journey Data processing Automation Off-airport activities Baggage journey Data processing Automation Off-airport activities Reduction of additional infrastructure needs Personnel costs savings Increase in AER revenues Total Type Reduction of additional infrastructure needs Cargo journey Aircraft journey Data Off-airport Data Off-airport Automation Automation processing activities processing activities Personnel costs savings Increase in AER revenues Total Total benefits Reduction of additional 181 infrastructure needs Personnel costs savings 67 Increase in AER revenues 22 Total benefits Benefits for airlines Airlines stand to gain the most of any group, with over $850 billion benefits derived over the 20- years assessment period from various initiatives envisaged under NEXTT. These benefits are distributed between several benefit streams (see Table 8-2). The largest portion of these airline benefits, $546 billion is expected to be derived from station costs savings, attributable to increased personnel efficiencies in passenger, baggage and cargo processing. For example, data processing measures for baggage, such as deployment of self-service infrastructure underpinned by identity management technology and improved tracking capability could save $299 billion from a reduction in baggage handling costs. In passenger journey, data processing and automation measures account for $133 billion of benefits from service optimisation. Just a little bit less can be gained in cargo handling, with $114 billion savings attributed to all NEXTT measures (data processing, automation, off-airport activities). Other benefit streams are specific for each of NEXTT elements. For baggage journey, data processing and automation measures contribute to reductions in mishandled baggage costs ($6.8 billion altogether), while increased data transparency and sharing additionally reduce delay costs related to baggage relocation (another $6 billion). In the cargo handling process, not only savings can be achieved, but also additional revenues can be generated. As spare capacity is better utilised, transparency and effectiveness of cargo pricing improves, and off-airport facilities simplify the air freight process, the additional cargo revenues could reach $193 billion. Finally, efficiencies in aircraft turnaround operations can be achieved, impacting the costs of fuel, flight crews and equipment. Processing of aircraft turnaround related data alone promises to enable $58 billion in value to carriers in these three cost categories. The global implementation of automation technologies optimising limited airfield capacity could unlock up to $35 billion in flight Page 24 of 29