Economic Impact of Small Community Airports and the Potential Threat to the Economies with the Loss of Air Service January 2017
There are over 350 small communities in the U.S. that currently receive air service Number of Small Airports / Share of Activity in the Region PACIFIC 38 / 13% MOUNTAIN 45 / 24% CENTRAL 51 / 26% GREAT LAKES 49 / 18% NORTHEAST/ MID ATLANTIC 68 / 22% SOUTHWEST 38 / 15% SOUTHEAST 66 / 24% Source: Innovata Schedules, August 2016 Note: Departures 2
What is a small community? 350+ Small Communities 186 105 EAS NON Hubs 64 Daily departures Small Hubs EAS NON Hubs Small Hubs 1,500 290 2,400 Seat departures EAS NON Hubs Small Hubs 91k 7k 220k Average seats/departure EAS Small Hubs NON Hubs 60 24 91 Share of departures with 70 seats or less EAS 99% Small Hubs 43% NON Hubs 75% Average distance to medium or large hub EAS 198 miles Small Hubs 125 miles NON Hubs 146 miles 3
In 2015, the economic impact of small community air service is conservatively estimated at 121B supporting over 1.1m jobs 1.1 M 36.1 B 121.5 B 4
Yet, 121B understates the impact that air service has on the economies of small communities Without air service communities fall off the grid Categories of impact included in the economic impact estimate Airport Spending Visitor Spend Does not include impacts associated with economic development Impact would likely more than double 5
Discussion topics for today s session 1 Importance of small communities to the U.S. aviation system 2 Importance of aviation to small communities 3 Understanding the economic impact of aviation on small communities based on the FAA s well established methodology 4 The economic cost of a loss in service to a small community 6
In 2016, small communities had over 4,000 daily departures representing 20% of the nations domestic daily departures 80,000 Monthly Domestic Departures by Hub Size 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Small Hub Non Hub EAS Almost 50% of departures are on aircraft of 50 seats or less Small Community is Small, Non hub and EAS markets Source: Innovata Schedules, August 2016 7
Service to small communities are important to our system accounting up to 45% of departures at the domestic connecting hubs 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Small Communities Share of Connecting Hub Departures 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Small Communities Share of Other Large Hub Departures Small Community is Small, Non hub and EAS markets Source: Innovata Schedules, August 2016 8
Effective air service at small communities is vital to the health of small communities all across America Air Service at Small Community Airports: Provides the necessary link to the nation s economy Increases the community s economic output by adding jobs and helping to bring in visitors Improves efficiency for local businesses Helps create business ties globally Is critical to a small community s tourism/visitor profile 9
Three issues threaten small community airports If left unresolved, some will fall off the grid and all will lose frequency and vital access 1 An inadequate pilot supply 2 A trend toward larger aircraft by the U.S. airline industry 3 Airports are restricted on using their revenue to enhance air service X 10
History is not on our side small communities are losing service at a rate of 5X that of large hub airports Air Service Changes 2007-2016 10% 5% 0% -5% -10% Large Hub Airports 6.6% 1.6% -6.2% Small and Non-Hub Airports -15% -20% -25% -16.9% -13.4% -30% -35% -31.5% Departures Seats Connectivity 11
Economic Impact
What is economic impact? Aviation plays a significant role in stimulating local and regional economies. It has significant direct, indirect and induced economic benefits (impacts). DIRECT ECONOMIC IMPACTS Reflect the visitor, passenger and airline spending directly attributable to the new airline services. Main Drivers: Visitor spending in the local economy (i.e., expenditures on lodging, dining, local transportation, retail, entertainment and other purchases) and local airline spending (i.e., fuel, facility use fees and crew expenses for overnight stays). INDIRECT IMPACT Represents the businesses that supply and support the industries that are related to the direct impacts (i.e. hotels and restaurants purchasing goods or services from vendors). INDUCED IMPACTS Contributions that represent the re- spending of direct business revenues within the local economy (i.e. airport employees local purchases). 13
The FAA published a study in 2015 that discussed the economic impact associated with aviation activity This study analyzed economic activity related to aviation for each state and the District of Columbia. The FAA identified the direct and indirect impacts associated with all the airports in each state and using the RIMS II model also examined the induced impacts. This analysis included: airline operations airport operations general aviation aircraft related manufacturing air couriers visitor expenditure travel arrangements The FAA Economic Impact Report Provides an Analytical Structure to Model the Impacts 14
We based our study on the FAA s estimates of the impacts related to commercial passenger activity. This study analyzed economic activity related to aviation for each state and the District of Columbia. The FAA identified the direct and indirect impacts associated with all the airports in each state and using the RIMS II model also examined the induced impacts. This analysis included: airline operations airport operations general aviation aircraft related manufacturing air couriers visitor expenditure travel arrangements 15
The FAA estimates that commercial passenger aviation accounted for 818B almost 3% of GDP Economic Output 818 B Jobs 7 M Earnings 244 B Source: FAA Economic Impact Study Based on 2012 16
Overall, small communities have an economic impact of 121 billion InterVISTAS regional economic impact methodology followed a 2-step process 1. Using the FAA s 2015 study, InterVISTAS isolated the commercial aviation related economic impact of small community airports on a regional level. 2. The Small Community Airports were aggregated into 7 regions: PACIFIC MOUNTAIN CENTRAL GREAT LAKES NORTHEAST/ MID ATLANTIC SOUTHWEST SOUTHEAST 17
Again, history is not on our side: Since 2007, the economic impact of commercial air service in small communities has already declined by 6.2% or 8.1BN History of Small Community Aviation Related Economic Impact 150 125 Small Non EAS Billions 100 75 50 25 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 Small Community as defined by 2015 for Small, Non hub and EAS markets 18
In 2015, commercial passenger service at small hub airports had an economic impact of 86B PACIFIC 105K 4.0B MOUNTAIN 41K 1.1B 3.6B CENTRAL 51K 1.4B 4.8B GREAT LAKES 92K 2.8B 9.7B NORTHEAST/ MID ATLANTIC 152K 5.4B 19.7B 13.0B SOUTHEAST 107K 3.6B 11.6B SOUTHWEST 227K 7.1B 23.5B 19
In 2015, commercial passenger service at non-hub airports had an economic impact of 34B PACIFIC 29K 1.0B MOUNTAIN 38K 1.1B 3.7B CENTRAL 21K 0.6B 2.0B GREAT LAKES 52K 1.7B 5.7B NORTHEAST/ MID ATLANTIC 44K 1.6B 5.6B 3.4B SOUTHEAST 35K 1.3B 4.2B SOUTHWEST 85K 2.8B 9.3B 20
In 2015, commercial passenger service at EAS airports had an economic impact of 1.7B PACIFIC 160 6.0M MOUNTAIN 1,750 49.1M 160.6M CENTRAL 5,300 149.5M 514.2M GREAT LAKES 3,500 111.8M 374.8M NORTHEAST/ MID ATLANTIC 4,000 143.2M 507.1M 20.0M SOUTHEAST 365 12.5M 39.8M SOUTHWEST 570 17.5M 58.8M 21
Next step, overlay RASA s air service vulnerability index map to economic impact Composite ranking of small and non-hub airport air service vulnerability 1 st Quartile (Most Vulnerable) 2 nd Quartile 3 rd Quartile 4 th Quartile (Least Vulnerable) 22
27% of small communities impact is from the Southeast, with almost half the region containing communities that are extremely vulnerable SOUTHEAST 1 st Quartile (Most Vulnerable) 2 nd Quartile 3 rd Quartile 4 th Quartile (Least Vulnerable) 312.4K 10.0B 32.8B 23
21% of small communities impact is from the Northeast, containing communities that are extremely vulnerable in 3 states NORTHEAST/ MID ATLANTIC 200.2K 7.1B 25.8B 1 st Quartile (Most Vulnerable) 2 nd Quartile 3 rd Quartile 4 th Quartile (Least Vulnerable) 24
14% of small communities impact is from the Pacific, containing communities that are extremely vulnerable in 2 states PACIFIC 133.2K 5.0B 16.5B 1 st Quartile (Most Vulnerable) 2 nd Quartile 3 rd Quartile 4 th Quartile (Least Vulnerable) 25
13% of small communities impact is from the Southwest, half the region contains communities that are extremely vulnerable 142.6K 4.9B 15.9B SOUTHWEST 1 st Quartile (Most Vulnerable) 2 nd Quartile 3 rd Quartile 4 th Quartile (Least Vulnerable) 26
13% of small communities impact is from the Great Lakes, containing communities that are extremely vulnerable in 1 state GREAT LAKES 147.1K 4.6B 15.8B 1 st Quartile (Most Vulnerable) 2 nd Quartile 3 rd Quartile 4 th Quartile (Least Vulnerable) 27
6% of small communities impact is from the Mountain Region, containing communities that are extremely vulnerable in 1 state MOUNTAIN 80K 2.3B 7.4B 1 st Quartile (Most Vulnerable) 2 nd Quartile 3 rd Quartile 4 th Quartile (Least Vulnerable) 28
6% of small communities impact is from the Central Region, containing communities that are extremely vulnerable in 1 state CENTRAL 77.6K 2.1B 7.3B 1 st Quartile (Most Vulnerable) 2 nd Quartile 3 rd Quartile 4 th Quartile (Least Vulnerable) 29
Small community service has a disproportionate impact in the Mountain and Central Regions 30% Share of Total Small Community Impact Compared to Share of Region 25% 20% 15% 10% 5% 0% Southeast Northeast Pacific Southwest Great Lakes Mountain Central Share of Total Small Community Impact Share of Activity Within the Region 30
This Economic Impact is Threatened
The economic impact associated with commercial aviation is threatened under the following assumptions in small communities InterVISTAS estimated the economic impact that could be threatened with the following methodology. 1. For non-hub airports that have 2 or fewer departures per day on 50-seat or less aircraft, I eliminated the economic impact. 2. For non-hub airports that have between 2 and 4 departures per day on 50-seat or less aircraft I eliminated a third of the economic impact. 3. For small hub airports with a 50-seat jet operations, I estimated a loss of one 50 seat jet departure which resulted in a loss of 6-12million of economic output Source: Innovata Schedules, August 2016 32
On average, non-hub airports with 2 or fewer departures per day would lose 15.4m in economic output associated with their commercial service (18 Communities) 143 4.6 M 15.4 M Source: Innovata Schedules, August 2016 Simplifying assumptions were used for illustrative purposes 33
On average, non-hub airports with 2-4 departures per day would lose 17M in economic output associated with their commercial service (19 communities) 163 5.2 M 17 M Source: Innovata Schedules, August 2016 Simplifying assumptions were used for illustrative purposes 34
Small hub airports with a loss of a 50 seat jet departure would lose between 6-12M in economic output associated with their commercial service (57 communities) 40-98 1.4-3.6 M 6-12 M Source: Innovata Schedules Simplifying assumptions were used for illustrative purposes 35
Even these estimates are understated Communities do not go off the grid for 1 year! To fully understand the implication of the economic loss, InterVISTAS looked at the net present value of the scenarios using a 10% discount rate over 10 years Degree of Loss per Community Total Loss of Service Loss of 1/3 of Service One 50-seat Departure (low end of range) One 50-seat Departure (high end of range) Net Present Value 94.4 M 104.6 M 38.9 M 71.3 M Simplifying assumptions were used for illustrative purposes 36
The 121B Conundrum The Cost of Going off the Grid is Unacceptable