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CHAPTER 5 Costs and Benefits There are costs and benefits associated with the financial performance of the offsite terminal and transportation link. Additionally, there are potential on-airport cost savings and revenue impacts and other important benefits due to vehicle trip reduction and emissions savings that may influence the project sponsor to go forward with an offsite terminal and transportation link even if it is projected to lose money. This chapter is organized into three sections: Financial performance of an offsite terminal and transportation link, Other benefits, and On-airport financial impacts. Financial Performance of an Offsite Terminal and Transportation Link The projected financial performance of the offsite terminal and transportation link may influ- ence the project scope or the decision to go forward with the project. This section presents guide- lines for developing the pro forma and information on the revenues and costs generated by an offsite terminal and transportation link. Guidelines in Developing the Pro Forma The pro forma is the vehicle for developing financial projections for the project and can be used as a tool to test scenarios during project planning such as different fare levels, parking rates, and costs and revenues associated with different amenities. Depending on the goals and objectives of the project, it may be acceptable for the offsite termi- nal and transportation link to lose money, at least in the early years of the project, while the cus- tomer base is developing. One way to handle this in the pro forma is to treat the loss, or part of the loss, as a "contribution" or "investment" toward the primary project goals. For example, if the pri- mary goal is traffic mitigation, the loss could be treated as a mitigation contribution. If the primary goal is customer service, the loss could be treated as a customer-service contribution. Revenue Sources Potential revenue sources include bus fare, parking fees, concession revenue and tenant rents, advertising, partnerships, and funding assistance such as grants. Bus Fare The project sponsor should introduce a fare on the airport transportation link that reflects local market conditions and is consistent with the project goals and objectives defined at the 39

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40 Planning for Offsite Airport Terminals beginning of the project. In theory, the market will support a price point that is considerably above any available combination of commuter-oriented public transportation services and below the price of on-airport parking, direct taxi/limousine service, and door-to-door shuttle services. The price-sensitive customer will compare the cost of using the airport transportation link and offsite terminal parking (if applicable) with the cost of more direct services, factoring in the size of the travel party (per-person fares) and the number of days away (daily rates). The time-sensitive customer will be less concerned about cost and more concerned about travel time, convenience, and reliability. The following analysis can serve as a starting point for determining the fare on the airport transportation link: 1. Calculate the fare required to achieve cost recovery (breakeven fare) on annual bus capi- tal and operating costs for passengers using the service during the third or fourth year of service, when ridership has reached maturity. During the first 2 to 3 years of service, the off- site terminal and bus link will be building its customer base as it becomes known and accepted by customers. Typically by the third or fourth year of service, the customer growth rate will be similar to the air passenger growth rate. Although it is instructional to determine the breakeven fare based on first and second year ridership projections, this calculation will most likely yield a fare so high that it discourages ridership. For a facility with constrained parking, full ridership potential for the bus may not be realized. This should be incorporated into the cost recovery analysis. If airport employees will be charged a lower fare than air passengers to use the service, cal- culate the breakeven passenger fare based on projected air passenger ridership and bus oper- ating expenses less employee fare revenue. When establishing an amount for bus capital and operating costs, the project sponsor should make a decision about what percentage of the ter- minal capital and operating costs will be allocated to the bus operation and what percentage will be allocated to the parking operation. 2. Compare the breakeven fare to the user cost of other modes in the market area, particularly the low-occupancy-vehicle modes with which the airport transportation link is intended to compete. Travel party size and days away will influence this comparison. There are two ways to calculate the user costs of other modes in the market area, the difference being in how the cost of using an automobile is calculated: The true cost of the trip to the passenger includes automobile operating costs and out-of- pocket costs (see Table 8). Out-of-pocket costs include only the cost of using a service. For a pick-up or drop-off trip, the traveler may consider the cost to be nothing or the cost of the price of gas; for long-term parking, most travelers would consider the cost to be the parking fee and the price of gas. Figure 4 presents an example of the difference between the true cost and out-of-pocket costs for an access trip to the airport. The project sponsor may also consider introducing special fare categories for specific customer groups or categories such as children, senior citizens, or weekend travelers. Data on the breakeven fare for the transportation link compared with other modes in the market is one methodology that will allow the project sponsor to deliberate on the appropriate fare to charge in the context of its goals and objectives and to calibrate the fare to market conditions. Another approach would be for the project sponsor to offer a fare on the airport transportation link and a daily long-term parking rate at the offsite terminal that results in cost recovery or a profit for the project, with bus revenue subsidizing the parking operation or parking revenue subsidizing the bus operation. Alternative methodologies would incorporate revenue sources in addition to the transportation link and parking.

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Costs and Benefits 41 Table 8. True cost methodology for calculating one-way travel cost of airport ground transportation modes. Mode/ 1 2 3 4 Party Size Offsite terminal bus Bus fare x party size Bus fare x party size dropped off at terminal Offsite terminal bus, ((bus fare x party size) ((bus fare x party size) long-term parking at + + offsite terminal (daily parking rate x days/2a)) (daily parking rate x days)) /party size /party size Other Modes Taxi (taxi fare + tip) / party size ( taxi fare + tip) / party size Door-to-door van (door-to-door van fare + tip) x (door-to-door van fare + tip ) x party size party size Private automobile, (automobile operating cost 3 x 2) (automobile operating cost3 x 2) drop-off 1 / party size /party size Private automobile, [(automobile operating cost 3 + [(automobile operating cost 3 + long-term park 2 parking cost 4) / 2] / party size parking cost 4) / 2] / party size Lowest on-airport daily parking rate Private automobile, [(automobile operating cost 3 + [(automobile operating cost 3 + long-term park 2 parking cost 4) / 2] / party size parking cost 4) / 2] / party size Lowest off-airport daily parking rate Private automobile, [(automobile operating cost 3 + [(automobile operating cost 3 + long-term park 2 parking cost 4) / 2] / party size parking cost 4) / 2] / party size Highest daily parking rate Additional modes fare x party size fare x party size Source: DMR Consulting 1 A pick-up or drop-off trip by private automobile requires a two-way vehicle trip for a one-way air trip. For a drop-off trip, the driver travels to the airport and drops off the passenger and then departs the airport. For a trip by private automobile using long-term parking, the automobile remains at the airport until the air passenger returns; therefore, it is a one-way automobile trip for a one-way air trip. The American Automobile Association offers a per mile automobile operating cost that could be used for this calculation. 2 The total cost of parking is divided in two to apportion the cost between two one-way trips. 3 Automobile operating cost = per mile automobile operating cost x distance from offsite terminal to airport. 4 Parking cost = daily parking rate x number of days. Parking Fees Air passengers who typically drive to the airport and use long-term parking will compare the price of long-term parking at the offsite terminal with the cost of parking they normally use at the airport as a factor in deciding whether to use the offsite terminal or drive directly to the airport. The proj- ect sponsor should be familiar with parking rates at on-airport and off-airport parking facilities (including discount rates) when developing parking rates for the offsite terminal. The parking rate at the offsite terminal should be priced lower than the parking facilities in the vicinity of the airport. The project sponsor should compare the breakeven parking rate for the third or fourth year of the project with long-term parking rates on- and off-airport as a point of departure for ratemak- ing. During the third or fourth year of a successful offsite terminal, ridership on the airport

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42 Planning for Offsite Airport Terminals Assumptions: Distance = 21 miles Per mile automobile operating cost = $.52 Airport daily parking rate = $12 Party size = 1 Length of stay = 3 days User Cost, One-Way Automobile Trip Mode True Cost Out-of-Pocket Cost Drop-off $21.84 $0.00 Long-term park $28.92 $18.00 A pick-up or drop-off trip by private automobile requires a two-way vehicle trip for a one-way air trip. For a drop-off trip, the driver travels to the airport and drops off the passenger and then departs the airport. For a trip by private automobile using long-term parking, the automobile remains at the airport until the air passenger returns; therefore, it is a one-way automobile trip for a one-way air trip. The long-term parking cost for a one-way trip is the total parking cost Figure 4. Comparison of user costs to access airport. transportation link should be close to maturity. The breakeven parking rate is computed by divid- ing the annual capital and operating cost of the parking facility by the projected number of occu- pied parking spaces by day for the year. When establishing an amount for capital and operating costs of the parking operation, a determination must be made on what percentage of the capital and oper- ating costs of the offsite terminal will be allocated to the bus operation and what percentage will be allocated to the parking operation. If the offsite terminal is co-located in an intermodal center, it is possible that parking rates will be determined by the property owner. This may impact parking utilization and ridership if park- ing is priced too high. Concession Revenue and Tenant Rents This category includes revenue from vending machines and pay phones, concessionaires, and tenants such as food and beverage, retail, and rental car companies. Advertising Depending on project goals and objectives, revenue could be generated by selling advertising space on the property, in the terminal, and on the bus. The project sponsor should consider how particular advertising methods may impact the identity or image of the offsite terminal. Exam- ples of advertising options include Billboards on the property; Advertising inside the terminal or the parking facility; Advertising placards inside the bus; Items to distribute to passengers on the bus such as luggage tags with a company logo or a complimentary copy of a newspaper or magazine; Advertising placed on the back of bus tickets or parking tickets; Naming rights to the terminal, the parking facility, or sections of either; and Advertising on the outside of the bus is not recommended unless it is subtle since the identity of the bus is important in attracting riders (this will be explained in Chapter 8: Branding, Advertising and Customer Service).

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Costs and Benefits 43 Partnerships Partnerships may supplement revenue or lower costs. For example, the governing body in the jurisdiction in which the offsite terminal is located may provide a subsidy for the service or cover specific costs such as advertising to ensure the service is available for residents, businesses, or tourists, thereby increasing the appeal or visibility of a location. This might also be offered in the form of low rent or reduced rent by the property owner. If revenue sharing is a condition of the partnership and the project sponsor is the airport operator, this may be considered to be revenue diversion and should be explored with the FAA. Funding Assistance Funding assistance such as grants and funding vehicles may also supplement revenue or lower costs. Potential funding sources are explored in Chapter 7: Plan of Finance and Financial Feasibility. Cost Categories It is important for the project sponsor to estimate all the costs associated with planning, devel- oping, and operating the offsite terminal and transportation link. Cost categories include capital and operating costs plus overhead. Capital Costs Included in capital costs are the following: Bus--any costs related to acquiring or equipping buses and capital costs of fare collection equipment. Parking--costs related to designing, constructing, and equipping the parking facility, includ- ing revenue control equipment and video monitoring equipment. Table 9 presents an esti- mate of construction costs for surface parking spaces as of January 2008. The cost of parking will vary by the type of facility and by labor and materials costs in the specific airport market area. Table 10 contains links to websites providing construction cost estimates for structured parking. Table 9. Construction cost per surface parking space,1 January 2008. Range High Medium Low Cost $4,000 $3,000 $1,600 1 Does not include cost of land. Source: Jacobs Consultancy Table 10. Internet references for parking construction costs. Structured Parking Website Parking Structure www.rsmeans.com/calculator/index.asp Surface Parking www.city.newport-beach.ca.us/PlnAgendas/i03222007- 05-02.htm tp.osu.edu/planning/southcampparkplan/AppendixD.htm www.vtpi.org/parking.xls www.vtpi.org/tca/tca0504.pdf Source: Jacobs Consultancy