SOCIAL AND ECONOMIC IMPACT OF AIR TRANSPORTATION: GENERAL REVIEW

SOCIAL AND ECONOMIC IMPACT OF AIR TRANSPORTATION: GENERAL REVIEW Hakan Oktal Anadolu University, School of Civil Aviation, ESKISEHIR, TURKEY Phone : 222 3238803, Fax : 222 3221619 hoktal@anadolu.edu.tr Hatice Küçükönal Anadolu University, School of Civil Aviation, ESKISEHIR, TURKEY Phone : 222 3238803, Fax : 222 3221619 hkucukon@anadolu.edu.tr Vildan Korul Anadolu University, School of Civil Aviation, ESKISEHIR, TURKEY Phone : 222 3238803, Fax : 222 3221619 vkorul@anadolu.edu.tr Ali Emre Sarılgan Anadolu University, School of Civil Aviation, ESKISEHIR, TURKEY Phone : 222 3238803, Fax : 222 3221619 aesarilgan@anadolu.edu.tr Savas S. Ateş Anadolu University, School of Civil Aviation, ESKISEHIR, TURKEY Phone : 222 3238803, Fax : 222 3221619 ssates@anadolu.edu.tr Abstract Air transportation is the safest and the most efficient mean of public transportation. Over long distances and across geographical barriers, no alternative means of transport exist. Air transportation s vast network of affordable transportation services offers freedom to travel for nations, regions and individuals and facilitates the exchange of cultural and educational experiences. Many outlying communities would be isolated without access to 1

air services. It provides the only worldwide transportation network, which makes it essential for global business and tourism. This study focuses on social and economic contribution of air transportation in general. First, social and economic impacts of air transportation are examined in macro level and then its impacts are discussed by analyzing the current situation of air transportation and economic indicators in Turkey. Key words: Air Transportation, Social Impact, Economic Impact JEL Classificiation : R4 Transportation Systems, R40 General 1. INTRODUCTION Few industries are as important to the economic and social well-being of a nation as transportation. Transportation is a prime factor in shaping patterns of human social, economic and cultural existence. By shrinking the planet, air transport is a principle means of intermingling and integrating disparate economies and cultures and stimulating social and cultural cross-fertilization, economic growth, and diversity in an increasingly interdependent global environment. Whole economic sectors (e.g., hotels, automobile rental firms, convention business and tourist destinations) depend on safe, reliable, efficient and reasonably priced commercial air transportation. (Dempsey,2000:431) Air transport for passengers and freight is an essential component of the modern global economy. Globalization of the world economy is a key driver of air traffic growth. (ACI,2004:7) Air transportation industry involved about 2 billion airline passenger worldwide and 40% of interregional exports of goods by value in 2004. (ATAG,2005:2) World air travel has shown positive growth for 32 of the past 35 years. Only 1991 and 2001 through 2002 have experienced negative growth. (Boeing,2005:6) In the third quarter of the twentieth century, over good and bad years, passenger traffic increased an average of about 6 % worldwide. This meant that the amount of air travel doubled about every 10 to 15 years. The rate of growth slowed down in the last decades of the century, to about 4% a year, but this still implies between a doubling and tripling of traffic over a 25 year generation. (Neufville,2003:9) The fundamentals of economic development, globalization, and the need for people to travel will be strong in the coming decades. Although the industry does experience short-term highs and lows, the long-term forecast assumes that these cycles will smooth out over the 20-year period. (Boeing,2005:3) Air transport, at the start of the twenty-first century, constitute an exciting long term growth industry. The industry is large, innovative and has excellent prospects. (Neufville,2003:4) For the future 20-year forecast shows that increasing number of 2

people will travel to visit friends and relatives, to transact business, and to enjoy leisure and educational opportunities not available close to home. The major determinant of air travel growth will continue to be economic growth. Travel growth is also stimulated by lower fares, additional world trade, and service improvements, such as increased frequencies and more direct service. (Boeing,2005:6) 2. ECONOMIC IMPACT OF AIR TRANSPORTATION Even though there are a variety of transportation modes, such as automobiles, trucks, ships and railroads, perhaps no other mode has more significant impact on intercity trade and commerce than aviation. Travel in the aviation system allows for intercontinental travel of large volumes of passenger and cargo in relatively short periods of time. Access to markets around the world has resulted in the largest of communities reaping extraordinary economic benefit. (Wells,2004:348) The air transport become vital to the growth of business and industry in a community by providing air access for companies that must meet the demands of supply, competition and expanding marketing areas. Communities without airports or sufficient air service have limitations placed on their capacity for economic growth. (Wells,2004:349) The air transport industry has a substantial economic impact, both through its own activities and as an enabler of other industries. Its contribution includes direct, indirect, induced and catalytic impacts, which are related to the total revenues of the air transport industry. (ATAG,2005:6) These contributions are shown in Figure 1. 3

Figure-1: The Air Transport Industry and Its Economic Impacts Direct (within the industry) Indirect/Induced (industry supply chain) Catalytic effects (impacts on other industries) Air Transport Industry Aviation Sector Civil Aerospace Sector Airlines Passenger carriers Air cargo carriers Airline ticketing General aviation Airport & services Civil airports General aviation airports Handling & catering Freight services Aircraft maintenance Fuelling on-site Retail Air navigation Service providers Civil aerospace Airframes Engines Equipment Off-site maintenance Suppliers Off-site fuel suppliers Food & beverage Construction Manufacturing Computers/ Electronics Retail goods Business services Call centres Accountants Lawyers, banks Computer software Induced (spending of direct & indirect employees) Food & beverages Recreation & leisure Transport Clothing Household goods Trade Tourism Location/ investment Labour supply Productivity/ Market efficiency Consumer welfare/ social Congestion/ environmental Source: ATAG: 2005: 5. Direct impacts: These cover employment and activity within the air transport industry including airline and airport operations, aircraft maintenance, air traffic control and regulation, and activities directly serving air passengers, such as check-in, baggage-handling, on-site retail and catering facilities. Not all of these activities necessarily take place at an airport, with some taking place at head office. Direct impacts also include the activities of the aerospace manufacturers selling aircraft and components 4

to airlines and related businesses. Of the 5 million direct jobs generated by the air transport industry worldwide, 4.3 million people are employed by the airlines and airports globally, contributing around US$ 330 billion of GDP to the global economy in 2004. Indirect impacts: These include employment and activities of suppliers to the air transport industry, for example, jobs linked to aviation fuel suppliers; construction companies that build additional facilities; the manufacture of goods sold in airport retail outlets, and a wide variety of activities in the business services sector (call centers, IT, accountancy, etc.). 5.8 million indirect jobs are supported through purchases of goods and services by companies in the air transport industry. Examples include jobs in the energy sector generated through the purchase of aircraft fuel; employment in the IT sector providing computer systems for the air transport industry; or the workers required to manufacture retail goods. The contribution of these indirect jobs to global GDP is US$ 375 billion. Induced impacts: These include spending by those directly or indirectly employed in the air transport industry that supports jobs in industries such as retail outlets, companies producing consumer goods and a range of service industries (e.g. banks, restaurants, etc.). 2.7 million induced jobs are supported through employees in the air transport industry (whether direct or indirect) using their income to purchase goods and services for their own consumption. This includes jobs in retail and a range of service industries. The induced contribution to global GDP is US$ 175 billion (2004 estimation). (ATAG,2005:6) Catalytic impacts: The air transport industry s most important economic contribution is through its impact on the performance of other industries and as a facilitator of their growth. It affects the performance of the world economy, improving the efficiency of other industries across the whole spectrum of economic activity referred to as catalytic benefits. 15.5 million jobs are the result of catalytic impact. According to 2004 estimation of the catalytic contribution to global GDP is US$ 2135 billion. (ATAG,2005:9) The air transport industry generates a total of 29 million jobs globally and it contributes around US$ 880 billion a year to world GDP, taking into account direct, indirect and induced impacts equivalent to 2.4% of global GDP. (ATAG,2005:2) The air transport industry is one of the most efficient sectors measured in terms of GDP per worker. At US$ 65,000 per worker per year, this is around three and a half times the average across the world economy as a whole and exceeds most other sectors of the economy. This 5

means that air transport employees individually make a greater contribution to the global economy. (ATAG,2005:7) 3. SOCIAL IMPACT OF AIR TRANSPORTATION The impact of the air transport industry is not just a result of the economic activity it generates or facilitates. Air transport expands the range of consumer choices and opportunities to visit other countries and to experience new cultures. (ATAG,2005:21) Availability of air services can be an important indicator of the quality of life - particularly for remote areas. These social and regional accessibility benefits are far more difficult to quantify. However, they are vital to the development of remote regions. Quite simply, without air service access, many regions would be denied participation in the modern world. (ACI,2004:7) Air transport also contributes to people s quality of life in a number of other ways that are not captured in standard economic indicators: for example, by contributing to sustainable development, supporting remote communities and widening consumer choice: (ATAG,2005:21) Air transport contributes to sustainable development: Air transport makes a major contribution to sustainable development by supporting and promoting international tourism. Tourism helps reduce poverty by generating economic growth, providing employment opportunities, increasing tax collection, and by fostering the development and conservation of protected areas and the environment. In effect, protecting the environment attracts tourism and the development of the tourism industry, which in turn makes it possible to finance the protection of nature and cultural heritage, thereby increasing the benefits of protected areas to the country. Moreover, the promotion of nature-based tourism is an effective lobbying tool that favors nature conservation over non-sustainable agricultural activities. It can also increase the sense of ownership and responsibility for natural resources, among local communities. Air transport provides access to remote areas: Air transport provides access to remote areas where other transport modes are limited, thus opening them up to contact with other communities, and providing a means for the delivery of essential supplies. Many essential services such as hospitals, education, post, etc. would not be available for people in such locations, without the presence of air services. Air transport delivers humanitarian aid: Air services play an essential role in humanitarian assistance to countries facing natural disasters, famine 6

and war through cargo deliveries, refugee transfers or the evacuation of people trapped by natural disasters. They are particularly important in situations where access is a problem. Natural disasters often mean that whole communities are cut off. Humanitarian assistance in such circumstances can only be delivered rapidly to those in need through the use of airports and air services. In certain circumstances when even the airports are damaged, air drops are among the first response of aid agencies to stem a humanitarian crisis. Air transport also plays a vital role in the rapid delivery of medical supplies and organs for transplantation worldwide. Air transport contributes to consumer welfare: Travel and tourism provide substantial consumer welfare and social benefits by increasing understanding of different cultures and nationalities which facilitates closer international integration; improving living standards by widening choice: cheaper and more frequent access to air travel has increased the range of potential holiday destinations. Seasonal fruit and vegetables are now available year round at reasonable prices. The large number of overseas visitors has also helped widen the range of leisure and cultural activities available in many countries. 4. THE AIR TRANSPORT INDUSTRY IN TURKEY AND ITS CONTRIBUTION The air transport industry in Turkey has undergone a rapid development since the enactment of Law No. 2920 in 1983 which permits private companies to operate airline, airport and ground handling services. Annual passenger traffic increased 30.7% from 34.3 million in 2003 to 45 million in 2004 and 2005 results show 23.3% growth rate with 55.5 million passengers (DHMI,2006) When these figures are compared with the world air travel growth rate and the growth rates realized in Turkey before 2003, it is clear that there is an amazing increase in air passenger traffic. This sharp growth rate will be expected to continue in the near future. The main reason of this increase is the right given by Ministry of Transport to private air carriers in 2003 to operate in domestic routes which was in the monopoly of Turkish Airlines. Rapid economic growth and increase in GDP in Turkey have also a great contribution to this unexpected air traffic figures. Some general statistical information is given below related to economic and social contribution of air transportation in Turkey: As a result of the liberalization efforts in economy, air transport is one of the fastest growing industries in Turkey. However, unexpected events such as the global economic crisis in 1998, the earthquake in Turkey in 1999 and September 11, 2001 negatively affected the growth of the Turkish air 7

transport industry. These events were reflected in the Turkish economy. There is a close relationship between the growth rate of GDP and of passenger and cargo traffic in the period of 1995-2005 in Turkey as seen in Figure 2. (DHMI,1997-2005), (DPT, 2006) Figure-2. Growth Rates of GDP, Passenger and Cargo Traffic Between 1995-2005 Grow th Rate of Passenger Traffic and Cargo (%) Grow th Rate of GDP (%) 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 15% 10% 5% 0% -5% -10% -15% Growth Rate Of Passenger Traffic (%) Growth Rate Of Cargo (%) Growth Rate Of GDP (%) Source: DHMI, HEAS, DPT: 2006 There are 37 national/international commercial airports in Turkey. All of them are operated by General Directorate of State Airports (DHMI), except one is operated by a private company, HEAS. 16 Turkish air carriers, of which their fleet is composed of 246 aircraft, use these airports. (SHGM,2006) According to 2005 statistics obtained by Turkish Civil Aviation Authority (SHGM), DHMI and HEAS, about 8,500 people work directly for airport operators (e.g. in airport management, air traffic control, maintenance, security etc.), 3,200 pilots and 3,800 maintenance personnel for airlines. It is estimated about totally 80,000 people working directly in air transport industry in Turkey. According to data given by TUROB, HEAS, DHMI, TAV, Bayindir, HAVAS and CELEBI, total endorsement of Turkish airline companies is 8

about US$ 5 billion (TUROB,2006), about US$ 1.5 billion of airport operators (DHMI, Radikal,2006) and US$ 300 million of ground handling companies (CELEBI,2006:3) in 2005. The use of air freight as a means of transport is increasing, particularly for high value, low weight goods, or those requiring urgent transport. The Organization for Economic Cooperation and Development (OECD) has estimated that up to a third in value of world trade in merchandise travels by air. (ACI,2004:11) Although air cargo in Turkey grows very rapidly, it could not reach the expected progress. In 2004, 90% of total cargo was carried by land transportation however, only 0.01% of cargo was carried by air (information obtained by Ministry of Transport). Tourism is an increasingly important sector in the economy of Turkey as the other countries. In 2004, 17.5 million tourists visited Turkey by spending about US$16 billion and 71.7% of those people were carried by air. (TUIK,2005:375) Tourism industry and its economic contributions to Turkey have been doubled in the last five years. These results show that air transportation is a vital tool for development and sustainability of tourism. Tourism depends on air transportation to bring visitors, while the air transport industry depends on tourism to generate demand for its services. 5. CONCLUSION Air transport is seen an important factor in the economic and social integration of Turkey and an important indicator of quality of life. In access to international and domestic markets, transport links are regarded as absolutely essential to businesses making location decisions. The catalytic effect of air transport operates primarily through enhancing business efficiency and productivity by providing easy access to suppliers and customers, particularly over medium to long distances. (ACI,2004:6) Global accessibility is a key factor for business location and success in all regions of Turkey. It is known that the economic, social and cultural development levels of a region are achieved by a highly developed transportation system. This is why socio-economic development level of Eastern Turkey is lower than in the Western part. The economic contribution of the eastern part of Turkey to Gross Domestic Product (GDP) is less than 10 percent (Dinçer:2003:68). So air transportation is a must in order to improve the development level of this region when considering the social, economic and cultural impacts of air transport. According to data by TUIK (Turkish Statistical Institute) GDP per person was $ 4172 in 2004 which was very low when compared to developed European countries. It is clear that GDP per person in the east will be lower than in the west. So the air fares should be decreased to attract more passengers whose income levels are low. Therefore, low cost air transportation should be encouraged by the government. 9

Turkey will keep pace with the globalization process in the world if it provides economic, social and cultural integration of the whole country. Air transportation will also be one of the most important key factors to enter and to integrate to European Union. Air transport is an innovative and environmentally-responsible industry that drives economic and social progress. It has become one of the greatest contributors to the advancement of modern-day society and is the consumer s preferred mode of transportation. The air transport industry has responded to the growing demand for mobility, by investing regularly in new technologies, safety and security improvements, quieter and more fuel-efficient aircraft, infrastructure modernization and adaptation, business simplification, improved services and facilitation for its customers. (ATAG,2005:22) Acknowledgements This paper is based on work supported by TUBITAK (The Scientific and Technological Research Council of Turkey) under a contract no of SOBAG-105K095. BIBLIOGRAPHY Books Dempsey, P. Stephen (2000), Airport Planning & Development Handbook: A Global Survey, New York, McGraw-Hill Dinçer, Bülent, Özaslan, Metin and Kavasoğlu, Taner (2003), The Study on Socioeconomic Development Levels of Cities and Regions, Ankara, Publication of State Planning Organization DHMI (2005), Statistics Yearbook 2004, Ankara DHMI (2004), Statistics Yearbook 2003, Ankara DHMI (2003), Statistics Yearbook 2002, Ankara DHMI (2002), Statistics Yearbook 2001, Ankara DHMI (2001), Statistics Yearbook 2000, Ankara DHMI (2000), Statistics Yearbook 1999, Ankara DHMI (1997), Statistics Yearbook 1996, Ankara Neufville, de Richard and Odoni, Amedeo R.(2003), Airport Systems: Planning, Design and Management, New York, McGraw-Hill 10

Wells, Alexander T. and Young, Seth B. (2004), Airport Planning & Management, New York, McGraw-Hill Internet Resources ACI (2004), The Social and Economic Impact of Airports in Europe, http://www.acieurope.org/upload/the%20social%20and%20economic%20impact%20of%20airports%2 0in%20Europe.pdf, [Accessed 01.03.2006] ATAG (2005), The Economic & Social Benefits of Air Transport, http://www.atag.org/files/soceconomic-121116a.pdf, [Accessed 01.05.2006] Boeing (2005), Current Market Outlook, http://www.boeing.com/commercial/cmo/pdf/cmo2005_outlookreport.pdf, [Accessed 01.03.2006] CELEBI (2006), Management Board Act Plan 2005, http://www.celebihandling.com/download/f_r/2005/chs_faaliyetraporu_2005.pdf, [Accessed 01.05.2006] DHMI (2006), 2005 Passenger Traffic Statistics, http://www.dhmi.gov.tr/dosyalar/istatistik/2005/2005tum/2005yolcu.pdf, [Accessed 01.05.2006] DHMI (2006), DHMI Incomes 2004-2006, http://www.dhmi.gov.tr/dosyalar/bilanco/2005/gelirler.pdf, [Accessed 01.05.2006] DPT (2006), Economic and Social Indicators, http://ekutup.dpt.gov.tr/ekonomi/gosterge/tr, [Accessed 01.03.2006] Radikal (2006), News From TAV, http://www.radikal.com.tr/haber.php?haberno=179292, [Accessed 01.05.2006] SHGM (2006), Statistic Report 2005, http://www.shgm.gov.tr/doc3/istatistik.xls, [Accessed 05.04.2006] TUIK (2005), Statistical Indicators, www.die.gov.tr/ist_gostergeler.pdf, [Accessed 01.03.2006] TUROB (2006), News Detail, http://www.turob.com/newsdetail.aspx?newsid=3223, [Accessed 01.05.2006] 11

THE SECOND INTERNATIONAL CONFERENCE ON BUSINESS, MANAGEMENT & ECONOMICS Cesme, Izmir, Turkey 15-18 June 2006 E-CONFERENCE PROCEEDINGS CONFERENCE PROGRAM Thursday, June 15, 2006 Friday, June 16, 2006 Saturday, June 17, 2006 PAPERS & PARTICIPANTS Data and Statistics Complete List of Participants Partially funded and supported by Scientific and Technical Research Council of Turkey Financially sponsored by Yasar Corporate Group Yasar University http://www.yasar.edu.tr Şehitler Caddesi 1522 Sokak No:6 Alsancak - İzmir / Turkey Tel : +90 232 463 33 44 / Fax : +90 232 463 07 80