Logan Airport in the Boston Regional Economy: A REMI Analysis

Logan Airport in the Boston Regional Economy: A REMI Analysis Logan Airport Team Final Presentation 11.482J Regional Socioeconomic Impact Analyses and Modeling Professor: Karen R. Polenske Michael Brown, Travis Dunn, Manshi Low Isabelle Yi Xu, Hongliang Zhang Massachusetts Institute of Technology December 8, 2004 Dec 2004 1 MIT 11.482J Logan Airport Team

Agenda Logan Airport Overview Research Questions Methodology Analysis (3 Scenarios) Conclusions Dec 2004 2 MIT 11.482J Logan Airport Team

Logan Airport Logan has one of the country s highest percentage of business travelers Logan is the nation s 19 th busiest airport, serving 23 million travelers annually About 90% of Logan passengers use Logan as a destination (as opposed to a hub) Boston s growth sectors account for the largest industry demand and share for air service Demand for air service will outpace overall economic growth Opportunity to tailor services to best meet the needs of industries with the greatest demand Dec 2004 3 MIT 11.482J Logan Airport Team

Logan Airport: Seasonal Variation Logan Passenger Volumes 3 2.5 2 1.5 1 Millions of passengers 0.5 0 J a n- 98 Ap r - 98 Ju l- 98 Oc t - 98 J a n- 99 Ap r -99 Ju l- 99 Oc t -9 9 J a n- 00 Ap r -00 Ju l- 00 Oc t -00 J a n- 01 Ap r - 01 Ju l- 01 Oc t - 01 Ja n- 02 Ap r - 02 Ju l- 02 Oc t - 02 J a n- 03 Ap r - 03 J ul- 03 Oc t- J 03 a n- 04 Ap r- 04 J ul- 04 Month Source: Compiled using data from Massport, Statistics for Logan Airport, About Logan, www.massport.com. Dec 2004 4 MIT 11.482J Logan Airport Team

Logan Airport: Seasonal Variation Monthly passenger volume change relative to previous year 60% 40% 20% 0% -20% -40% Percent change from previous year's volume -60% J a 99 Ap r- 99 Ju n- l -99 Oc t 9 J a 9 n-00 Ap r- 00 J ul- 0 Oc 0 t 0 J a 0 n-01 Ap r- 01 Jul -01 Oc t 0 J a 1 n-02 A pr -02 J ul- 0 2 Oct -0 J a 2 ul- n- 03 Ap r- 03 Jul -03 Oc t 0 J a 3 n-04 Ap r- 04 J 04 Source: Compiled using data from Massport, Statistics for Logan Airport, About Logan, www.massport.com. Dec 2004 5 MIT 11.482J Logan Airport Team

REMI 5-County Region Source: Adapted from University of Texas Perry-Castaneda Library Map Collection and U.S. Census Bureau Dec 2004 6 MIT 11.482J Logan Airport Team

Research Questions Explore interactions between the Boston regional economy and Logan Airport over 20 years. Specifically: The impacts of industry expansion on Logan airport output and jobs The impacts of unforeseeable events, e.g., terror warnings on air travel and regional economy Logan Logan Airport Unforeseeable Airport Unforeseeable Industry Industry Sectors Sectors Events Events Dec 2004 7 MIT 11.482J Logan Airport Team

Research Questions Baseline forecast Growth scenario Consider growth 5% above baseline in identified sectors and use REMI to determine impact on air transportation sector Consider growth 10% above baseline in identified sectors and use REMI to determine impact on air transportation sector Security uncertainty scenario Consider impact of Homeland Security Orange alerts on air travel and use REMI to determine impact on regional economy Dec 2004 8 MIT 11.482J Logan Airport Team

Methodology: Criteria for Identifying Sectors Sector s share of the regional economy and growth trends Share of jobs (%) Growth in job share Sector s reliance on air transportation services Air travel cost as a percentage of total industry revenue Employee annual air travel trips Sector s significance to the air transportation-services industry Sector spending on air services as a percentage of total output of air services Dec 2004 9 MIT 11.482J Logan Airport Team

Methodology: Job-Share for Selected Sectors, 2000 Job-share for selected industries in 2000: Suffolk County, Boston Metro, and US Suffolk County 5-County Metro US 18.0 16.0 14.0 12.0 (%) 10.0 8.0 6.0 4.0 2.0 0.0 FIRE Medical Prof. Service Education Comp, Electr Air mfg Tranportation Source: Authors' calculations based on the baseline regional and national controls in REMI 5.4, 2003 Dec 2004 10 MIT 11.482J Logan Airport Team

Methodology: Job-Share for Selected Sectors 2020 Job-share for selected industries in 2020: Suffolk County, Boston Metro, and US Suffolk County 5-County Metro US 18.0 16.0 14.0 12.0 (%) 10.0 8.0 6.0 4.0 2.0 0.0 FIRE Medical Prof. Service Education Comp, Electr Air mfg Tranportation Source: Authors' calculations based on the baseline regional and national controls in REMI 5.4, 2003 Dec 2004 11 MIT 11.482J Logan Airport Team

Methodology: Industry Reliance on Air Services Index of industry spending on air services as a proportion of total revenue, 1996 Data Source: US Department of Commerce and BTS in EDR Group, 2001 Logan International Airport s Evolving Role in New England Economy. Dec 2004 12 MIT 11.482J Logan Airport Team

Methodology: Industry Reliance on Air Services Annual air passenger trips per employee (by industry), 1998 Business service Management service Manufacturing/ High tech Communications Finance Retail Trade Other Services Construction Education Health Service Real Estate Values reflect average annual air passenger trips per employee 0 1 2 3 4 5 6 7 8 9 Data Source: Massport in EDR Group, 2001 Logan International Airport s Evolving Role in New England Economy. Dec 2004 13 MIT 11.482J Logan Airport Team

Methodology: Industry Reliance on Air Services The regional Boston economy s dependence on air services is increased by transition towards a knowledge-based economy, which includes Professional services (e.g., engineering services, legal services) Financial services Technology (Information Technology, Biotechnology) Education Boston exports services of knowledge-based sectors Finance, professional services, and computer manufacturing are among the industries that purchase the most air services Employees in the education and healthcare sectors purchase air services at an average level; however, non-employee travel (e.g., student and patient travel induced by the sectors) not included Dec 2004 14 MIT 11.482J Logan Airport Team

Methodology: Industry s Significance to the Air Services Sector Industries with high share of total air service demand in Boston Metro Professional Services Air transportation Computer/electronic manufactur ing Securities Wholesale trade Monetary author ities, et al. Reta il trade Administrative, support services Publishing Hospitals Educationa l services Construct ion Ambulatory health care services Insurance Real estate 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 (%) Source: Authors' calculations based on data from REMI Policy Insight Version 6.0.100, 2004 Dec 2004 15 MIT 11.482J Logan Airport Team

Methodology: Key Sectors Identified Key sectors for Boston's economy and the air-services industry include: FIRE, professional services, healthcare, education, and computer/electronics manufacturing. The five sectors jointly account for more than one-third of total jobs in Boston Metro Each of the five promising key growth sectors has a greater than average or average reliance on air services They together account for nearly half of the industry demand for air services in the region (industry represents about 1/3 of total passenger demand) Dec 2004 16 MIT 11.482J Logan Airport Team

Scenario I: Base Case Assumptions REMI data for 2002-2020 forecast is based on historical trends and data gathered from the Bureau of Economic Analysis, Bureau of Labor Statistics, and US Census Bureau No significant shocks to regional economy or air transportation sector Jobs in air transportation sector are directly associated with air transport at Logan Airport Demand structure for Logan Airport service remains constant (e.g., proportion of travel for business) Dec 2004 17 MIT 11.482J Logan Airport Team

Scenario I: Base Case Results Scenario I: Air transportation sector baseline REMI forecast, 2002-2020 12 10 Jobs (000's) 8 6 4 2 0 Output ($ billions) Output (1996 $ billions) Jobs (thousands) 2002 20 0 3 2004 2005 2006 200 7 2008 20 09 201 0 201 1 201 2 2013 201 4 2015 201 6 2017 201 8 2019 202 0 Year Source: Authors' calculations based on data from REMI Policy Insight Version 6.0.100, 2004 Dec 2004 18 MIT 11.482J Logan Airport Team

Scenario I: Base Case Results Total job loss of 1,400 in air-services sector (Boston Metro) by 2020 (~13%) Output nearly doubles Perhaps reflective of increasing automation of in-airport services and location of airline service jobs in remote locations Because Logan is a destination airport and not a hub, increase in output likely reflects increasing demand for travel from within Boston and to Boston from other locations Dec 2004 19 MIT 11.482J Logan Airport Team

Scenario II: Growth in Knowledge Sectors Assumptions Assume higher growth than in the baseline forecast, as represented by the following industries: Hospitals Education services Securities, common contracts, and investments Monetary authorities Insurance Professional Services Computer and electronics manufacturing Assume uniform percentage change in export growth across the 5-county region (5% and 10%) Assume new travel associated with growth in knowledge sectors is business travel (e.g., induced demand for air travel is negligible) Except for CEM sector, whose demand for air travel is mostly cargo-related Assume 75% of new growth is business-travel growth Dec 2004 20 MIT 11.482J Logan Airport Team

Scenario II: Growth in Knowledge Sectors Variables Exogenous Change Change in REMI Variables Additional growth in exports as 5% or Output Block 10% of industry output >> Industry Output >> Industry Sales / International Exports (share) Dec 2004 21 MIT 11.482J Logan Airport Team

Scenario II: Growth in Knowledge Sectors Individual Results Growth in Air Transportation due to 5% growth in knowledge sectors individually 0.9% Computer Manufacturing Percent Growth in Output of Air Transportation Sector 0.8% 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% -0.1% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Securities Professional Servces i Wholesale Trade Monetary Authorities Educational Services Retail Trade Rea l Estate Insurance Hospitals Administrative & Support Servces i Ambulatory Services Oil & G Year Source: Authors' calculations based on data from REMI Policy Insight Version 6.0.100, 2004 Dec 2004 22 MIT 11.482J Logan Airport Team

Scenario II: Growth in Knowledge Sectors Joint Results Impact on Air Transportation of growth in selected knowledge sectors 6% 5% Output Growth (10% Scenario) Job Growth (10% Scenario) 4% 3% Output Growth (5% Scenario) 2% Job Growth (5% Scenario) 1% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Year Source: Authors' calculations based on data from REMI Policy Insight Version 6.0.100, 2004 Dec 2004 23 MIT 11.482J Logan Airport Team

Scenario II: Growth in Knowledge Sectors Results Under 5% growth of knowledge sectors, total job loss in base case is offset somewhat by addition of about 300 jobs in 2005. By 2020, reduction in jobs is fewer than 1100. Under 10% growth of knowledge sectors, total job loss in base case is offset by addition of 600 jobs in 2005. By 2020, reduction in jobs is fewer than 900. Proportion of business travelers shifts slightly for years 2005-2020 according to table below: Base Case 5% Growth 10% Growth Scenario Scenario Leisure (%) 44.0 43.1 42.4 Business (%) 56.0 56.9 57.6 Dec 2004 24 MIT 11.482J Logan Airport Team

Scenario III: Orange Alert Assumptions Homeland Security implemented a color-coded terrorism advisory system in March 2002 Terror levels have remained at yellow, or elevated, except for 5 periods when the alert was raised to orange, or high. These occurred: September 10-24, 2002 February 7-27, 2003 March 17-April 16, 2003 May 20-30, 2003 December 21, 2003-January 9, 2004 Relative declines in passenger volumes at Logan Airport were observed during these periods, as compared to the historical share for the months involved. Dec 2004 25 MIT 11.482J Logan Airport Team

Scenario III: Orange Alert Assumptions Monthly Share of Passengers 98-00 Average Since Orange Alert Orange-alert periods 11.0% 10.5% 10.0% 9.5% Share 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0% Aug 02 Apr-02 Jun 02 Oct-02 Dec-02 Aug 03 Feb-03 A pr-03 J un-03 Oct-03 Dec 03 Feb-04 Apr-04 Jun-04 Aug 04 Month Source: Data compiled from Massport, Statistics for Logan Airport, About Logan, www.massport.com Dec 2004 26 MIT 11.482J Logan Airport Team

Scenario III: Orange Alert Assumptions Month Historical Average Share for month Actual share for month Difference April-02 0.086 0.087 0.001 May-02 0.086 0.088 0.001 June-02 0.091 0.092 0.002 July-02 0.094 0.096 0.001 August-02 0.097 0.101 0.004 September-02 0.083 0.080-0.003 October-02 0.092 0.091-0.002 November-02 0.081 0.076-0.005 December-02 0.072 0.078 0.006 January-03 0.065 0.067 0.002 February-03 0.068 0.066-0.002 March-03 0.085 0.081-0.003 April-03 0.086 0.084-0.002 May-03 0.086 0.083-0.003 June-03 0.091 0.091 0.001 July-03 0.094 0.096 0.001 August-03 0.097 0.098 0.001 September-03 0.083 0.079-0.004 October-03 0.092 0.095 0.003 November-03 0.081 0.080 0.000 December-03 0.072 0.079 0.007 January-04 0.065 0.063-0.002 February-04 0.068 0.070 0.002 Source: Data compiled from Massport, Statistics for Logan Airport, About Logan, www.massport.com Dec 2004 27 MIT 11.482J Logan Airport Team

Scenario III: Orange Alert Assumptions Based on monthly share losses, assume 150 thousand passenger loss per orange alert Based on historical trend of 5 orange alerts in 2.5 years, assume 2 orange alerts per year from 2005-2010 Based on current volume of ~23 million passengers per year, a loss of 300,000 passengers represents roughly a 1% decline in travel In REMI, assume a decline of 1% in output of air transportation for each year from 2005-2010 (Suffolk County only) Measure impacts of this change on the Boston region Dec 2004 28 MIT 11.482J Logan Airport Team

Scenario III: Orange Alert Variables Exogenous Change Change in REMI Variables Decline of 1% in output of air transportation Output Block >> Industry Output >> Industry Sales / Int l Exports (share) Dec 2004 29 MIT 11.482J Logan Airport Team

Scenario III: Orange Alert Results Jobs Lost under Orange Alert Scenario 0-20 -40 Air Transportation Jobs Jobs -60-80 Food Service Jobs Administrative Support Jobs -100-120 2005 2006 2007 2008 2009 2010 Year Source: Authors' calculations based on data from REMI Policy Insight Version 6.0.100, 2004 Dec 2004 30 MIT 11.482J Logan Airport Team

Scenario III: Orange Alert Results Difference in output from base under Orange Alert 0-5 Air Transport Output Total GRP -10 1996 $ (millions) -15-20 -25-30 -35-40 2005 2006 2007 2008 2009 2010 Year Source: Authors' calculations based on data from REMI Policy Insight Version 6.0.100, 2004 Dec 2004 31 MIT 11.482J Logan Airport Team

Conclusions Our Logan Airport team has determined interdependencies among identified industry sectors and the air-services sector using three scenarios The key growth sectors all have greater than average or average reliance on air services, and together account for more than 50% of industry demand for air services in the region Interdependence between industries has been explored through linkages between identified industry sectors and the air service sector via 3 scenarios Impact of Homeland Security alerts is small, but noteworthy. Correlation between alerts and economic performance should be examined in more detail Further growth in business travel, though modest, implies that a continued focus on business travel-oriented services at Logan is appropriate Dec 2004 32 MIT 11.482J Logan Airport Team

Selected References Boston Redevelopment Authority Publication. 1 September 2004. The Boston Economy 2004 Turning the Corner. Boston Redevelopment Authority Publication. 1 October 2003. The Boston Economy - 2003. Boston Redevelopment Authority Publication. 1 January 2003. Leadership Through Innovation: The History of Boston's Economy: 1970-2000. EDR Group. 2001. Logan International Airport s Evolving Role in New England Economy. Harrison, B., and J. Kluver, 1989. Deindustrialization and Regional Restructuring in Massachusetts. In Deindustrialization and the Regional Economic Transformation: The Experience of the United States, edited by Lloyd Rodwin and Hidehiko Sasanami. Boston, MA: Unwin Hyman, pp. 104-131. Leonard, P., Modicamore, D., and G.W. Perkins, 2004. The Boston Economy 2004 - Turning the Corner. Boston Redevelopment Authority Publication # 599. Lewis, G., Avault, J., and J. Vrabel, 1999. History of Boston's Economy: Growth and Transition 1970-1998. Boston Redevelopment Authority Publication # 529. Massport. 2004. Logan Airport Statistics, About Logan. www.massport.com. REMI Policy Insight Model, Version 5.4, 2003. REMI Policy Insight Model, Version 6.0, 2004. Rickman, D.S. and R.K. Schwer, 1995. "A Comparison of the Multipliers of IMPLAN, REMI, and RIMS II: Benchmarking Ready-Made Models for Comparison," The Annals of Regional Science, Vol. 29, No. 4, pp. 363-374. U.S. Census Bureau. 20 December 2003. Population in Metropolitan and Micropolitan Statistical Areas in Alphabetical Order and Numerical and Percent Change for the United States and Puerto Rico: 1990 and 2000. http://www.census.gov/population/cen2000/phc-t29/tab01a.pdf Dec 2004 33 MIT 11.482J Logan Airport Team