Director, Professor of Transportation & Logistics. Vice-President EDR Group David Gillen, University of British Columbia

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1 ACRP Report 132: The Role of U.S. Airports in the National Economy The Role of U.S. Airports in the National Economy a ACRP 03-28: The Role of U.S. Airports in the National Economy Steven Landau, Vice-President EDR Group David Gillen, Director, Professor of Transportation & Logistics University of British Columbia

2 Research Team Steven Landau (PI), Glen Weisbrod (Co-PI), & Derek Cutler, EDR Group David Gillen, University of British Columbia Geoffrey Gosling & Beverly Jones, ICF International Lois Kramer, Kramer Aerotech, Inc. Stephanie Ward & Regan Massey, Mead & Hunt

3 ACRP Report 132 Oversight Panel Christopher A. Poinsatte, DFW Airport, TX (Chair) William Randell Forister, Allegheney County Airport Authority, John W. Fuller, University of Iowa Jennifer Gentry, MITRE Center for Advanced Aviation System Development (CAASD) Michael A. Klein, Arizona DOT Therese Norcross, Missoula County Airport Authority Sharon Glasgow, FAA Liaison Liying Gu, ACI-NA Liaison Theresia H. Schatz, Senior Program Officer

4 Purpose of ARCP 132 Distinguish between airports impacts on the national economy from local, regional and state economic impact reports of airports. Estimate the national economic contribution of the U.S. airport system to the national economy Estimate how change in airport services (nonstop flights, air cargo transported and cost of air travel) effect the national economy

5 Research Components Assess Contribution of Airports to National Economy On- Airport Aviation Related Activity Inflow of Income to the U.S. Due to Airports Sale of Exports to International Markets Spending by International Visitors in U.S. Economy Qualitative Contribution Determine How Changes in Airports/Aviation Affect U.S. Economy Connectivity Improved Connectivity by Nonstop Flights Air Cargo and Industry Productivity Airfares Lower Costs of Air Transportation as a Consumer Benefit Non-economic

6 Connectivity The benefits of an airline network The dynamic analysis of co ectivity estimates the growth in GDP in reaction to changing non-stop service among airports. Connectivity metrics capture the total resource costs in time and out of pocket expenditure to move between two places. The connectivity analysis estimates the economic impacts of resource cost changes due to changes in connectivity.

7 Multi-factor Productivity (MFP) MFP is a technique estimates the growth in value added in reaction to changes of all inputs into production processes. In ACRP 132, the research team estimated growth in net value added from strengthening non-stop connectivity among airports while holding all other factors of production constant

8 Approach to MFP Element Airport Network Connectivity Effect Measured Change in Industry Productivity Economic Impacts Initial From MFP Analysis Changes : From Subsequent modeling Changes in jobs, labor income and gross output

9 20 Sampled Metropolitan Regions

10 National & International Markets Airport and Market Airports in Multi- Airport Regions SF Bay San Francisco Bay Area SFO, OAK, SJC Chicago Chicago metropolitan region ORD, MDW ATL Hartsfield-Jackson Atlanta International Airport CVG Cincinnati/Northern Kentucky International Airport STL Lambert-St. Louis International Airport PIT Pittsburgh International Airport RDU Raleigh-Durham International Airport DEN Denver International Airport Phoenix Phoenix metropolitan region PHX, AZA SLC Salt Lake City International Airport Boston Boston metropolitan region BOS, MHT, PVD PHL Philadelphia International Airport DTW Detroit Metropolitan Wayne County Airport SAN San Diego International Airport PDX Portland International Airport TPA Tampa International Airport MCI Kansas City International Airport TUL Tulsa International Airport SAT San Antonio International Airport BNA Nashville International Airport

11 11 Connectivity Measures Two or More Daily Nonstop Domestic Flights International Nonstop Destinations Domestic Nonstop Destinations Percent of the World GDP Served Daily Five or More Daily Nonstop Domestic Flights Airline Hubs Served-Domestic International Nonstop Departures Percent of the World GDP Served Nonstop Domestic Nonstop Departures Percent of the World GDP Served Twice or More Daily Number of Airlines Note: 18 connectivity variables were analyzed. The table above shows the measures that proved significant for one or more industries (see next slide).

12 10 Industry Sectors& Other Included in Connectivity Analysis NAICS Sector Manufacturing 42 Wholesale Trade 51 Information 52 Finance and Insurance 53 Real Estate and Renting and Leasing 54 Professional, Scientific, and Technical Services 55 Management of Companies and Enterprises 56 Administrative Support, Waste Management & Remediation Services 71 Arts, Entertainments, and Recreation 72 Accommodation and Food Services Other: Agriculture, Forestry, Fishing & Hunting; Mining, Quarrying, and Oil & Gas Extraction; Utilities; Retail Trade; Transportation & Warehousing; Educational Services; Health Care and Social Assistance; Other Services; and Public Administration

13 Economic Data By Region Population GDP Employment By Region and Industry Value Added Employment Years 1995, 2000, 2005, 2010

14 Application of MFP The U.S. Bureau of Labor Statistics (BLS) measures of MFP by industry over time at the national level. To translate the national measures to be meaningful at the MSA level: we used measures of labor productivity since these can be calculated for productivity for a specific industry for a specific MSA. (Labor Productivity = Value Added/ Employment by Industry) MFP by industry for a single MSA was developed by: 1. Calculating the ratios of labor productivity in each industry within a given MSA 2. Comparing the productivity of labor at the national level for each industry 3. Multiplying the products of these comparisons by the MFP for each industry at the national level.

15 Developing MFP by Industry at MSA Level Measures of time series of MFP by industry at National Level Can calculate measure of Labor Productivity at MSA Level Reasonable to consider labor productivity is a significant proportion of MFP measure Assumed that the MFP at the regional level and MFP at the national level for a given sector are both proportional to the respective labor productivity MFP k i = βk L i k MFP N i = βn L i N Further assuming that β k = β N gives: MFP k i = k L i L N i MFP N i

16 Developing MFP by Industry at MSA Level This approach effectively assumes that differences in MFP for a given industry across regions in a given year are proportional to differences in labor productivity THEREFORE, the regression equations are largely measuring the effect of changes in air service on labor productivity

17 Estimation Results for MFP Regressions by Industry (1of 2) Variable MFG Wholesale Info. Finance & Ins. Real Estate Prof, Sc. & Tech. Services Ln Number of Airlines Ln Domestic Nonstop Departures Ln Airline Hubs Served-Domestic Ln Domestic Nonstop Destinations Ln Two or More Daily Nonstop Domestic Flights Ln Five or More Daily Nonstop Domestic Flights Ln International Nonstop Departures Ln International Nonstop Destinations Ln Percent of the World GDP Served Nonstop Ln Percent of the World GDP Served re Daily Ln Percent of the World GDP Served Twice or More Daily Adjusted R Significant Findings only.

18 Estimation Results for MFP Regressions by Industry (2of 2) Ln Number of Airlines Variable Mngmnt Companies Enterprises Admin. & Waste Mngmnt Art, Ent. & Recreation Accom. & Food Service Ln Domestic Nonstop Departures Ln Airline Hubs Served-Domestic Ln Domestic Nonstop Destinations Ln Two or More Daily Nonstop Domestic Flights Ln Five or More Daily Nonstop Domestic Flights Ln International Nonstop Departures Ln International Nonstop Destinations Ln Percent of the World GDP Served Nonstop Ln Percent of the World GDP Served Daily Ln Percent of the World GDP Served Twice or More Daily Adjusted R Significant Findings only. Table does not include other sector.

19 Interpretation of Results The results for the manufacturing sector, for example, show that a 1% increase in the number of airlines serving a region would lead to a 0.044% (0.044 of 1%) increase in productivity (value added) for manufacturing 1% increase in the number of domestic nonstop flights departures would increase manufacturing productivity by 0.024%. 1% increase in the number of nonstop domestic and international destinations served will increase manufacturing productivity by 0.082%.

20 Values of Air Service Elasticities Across MSAs for all Industries Connectivity Measure Elasticity (average) Relative Weight Two or More Daily Nonstop Domestic Flights International Nonstop Destinations Domestic Nonstop Destinations Percent of the World GDP Served Daily Five or More Daily Nonstop Domestic Flights Airline Hubs Served Domestic International Nonstop Departures Percent of the World GDP Served Nonstop Domestic Nonstop Departures Percent of the World GDP Served Twice or More Daily Number of Airlines

21 Impacts of Connectivity Variables Differ According to Industry Sector Example of Findings: Dollars in 2010 Millions of GDP Generated by 1% Increases in the 3 connectivity variables shown Industry Number of Airlines Domestic Non-Stop Departures Airline Hubs Served-Domestic Manufacturing $158 $85 Wholesale Trade $43 $51 Information $24 Finance & Insurance $151 $226 Real Estate, Rental & Leasing $95 Professional Scientific & Technical Services $57 $112 Management of Companies & Enterprises $8 Administration & Support Waste Management Services $11 Art, Entertainment & Recreation $3 Accommodation & Food Services $0.1 Other** $3 Total $201 $453 $374

22 Direct Value Added per Industry Sector in 20 MSAs Based on 1% Increases of Connectivity Variables 2010 $ millions

23 Application of I-O Package Ratios found in Input/Output packages, can be used to illustrate how changes in industry value added (GDP) can lead to changes in jobs, labor income and gross output Ratios by industry at the county, state and national levels can be found in IMPLAN, REMI, RIMS II and others Business Sales & Expenditures (Goss Output) Value Added (Local Productivity) Labor Income (Wages & Benefits to Workers) Jobs

24 Aggregated direct economic impacts for the 20 MSAs driven by a 1% change in each variable Variable Jobs Labor Gross Income Output Number of Airlines 1,300 $106 $651 Domestic Nonstop Departures 3,100 $218 $858 Airline Hubs Served-Domestic 2,900 $228 $582 Domestic Nonstop Destinations 6,900 $369 $1,270 Two or More Daily Nonstop Domestic Flights 4,000 $268 $1,749 Five or More Daily Nonstop Domestic Flights 800 $46 $168 International Nonstop Departures 1,900 $129 $293 International Nonstop Destinations 6,400 $317 $1,357 Percent of World GDP Served Nonstop 1,300 $56 $99 Percent of the World GDP Served Daily 4,300 $257 $543 Percent of the World GDP Served Two or More Daily 500 $43 $232 Jobs rounded to the nearest 100. Dollars in Millions $2010. Calculations using data aggregated by IMPLAN LLC based on the MFP calculations previously presented.

25 Usefulness in Practice Evaluate which aviation strategies are more important to a region, given: Mix of regional industries Type of new service proposed and resulting connectivity Scale (frequency) of proposed new service Benefit for airports/airport sponsors and economic development agencies. Added connectivity provides levers to achieve regional economic development strategies.

26 National Impacts The connectivity analysis is based on: 20 sample U.S. metropolitan regions that contain 26 commercial airports 15 major international airports The years 1995, 2000, 2005 and Findings were expanded to national levels based on GDP. The extrapolation reflects an order of magnitude and should be considered for illustrative purposes only. Direct Changes Generated by Connectivity in the National Economy from a 1% Improvement in Connectivity ($2010) Jobs Labor Income Value Added Gross Output 13,000 $795 $1,507 $3,043 Notes: Values for connectivity represent the mean average of all 11 variables. B = $Billions Jobs are rounded to the nearest hundred. Calculations used IMPLAN, LLC national model, Version 3, 2012.

27 Next Steps for MFP Incorporate a continuous time series of data ACRP 132 was limited to four discrete years in 5 year intervals, 1995, 2000,2005 and 2010 Integrate detailed economic data for at least threedigit NAICS codes (89 sectors, although many are not sensitive to airport connectivity) ACRP 132 was limited to two-digit NAICS A three-digit approach would allow for a finer differentiation between productivity related to cargo and productivity generated by passenger connectivity. Enlarge the sample of MSAs and airports Provide a broader sample of the U.S. economy and airports Undertake research to determine whether general aviation (GA) airports (at least large GA facilities) can be usefully incorporated into the MFP framework Current research focused on commercial airports

28 Modeling Next Steps for MFP Develop models that help us understand the mechanism and reasons why changes in connectivity affect the economy Enhance labor productivity through better labor market access Enhance labor productivity by allowing greater specialization due to market size expansion and agglomeration & clustering Enhance labor productivity through agglomeration Productivity improvements through increased competition Complementarity of labor with other factors; e.g. capital Develop connectivity metric that measures the difference between frequency, capacity and pricing effects across industries

29 For additional information: ACRP Report 132: Role of U.S. Airports in the National Economy Appendix 1: Multifactor Productivity Appendix 2: Consumer Surplus Appendix 2A: Calculations for Consumer Surplus Appendix 3: Economic Role of U.S. Airports Appendix 3A: NPIAS Database Appendix 4: Qualitative Research Appendix 5: Literature Review A PowerPoint presentation and brochure supplement the report Steven Landau slandau@edrgroup.com