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ACRP AIRPORT COOPERATIVE RESEARCH PROGRAM REPORT 48 Sponsored by the Federal Aviation Administration Impact of Jet Fuel Price Uncertainty on Airport Planning and Development

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ACRP OVERSIGHT COMMITTEE* TRANSPORTATION RESEARCH BOARD 2011 EXECUTIVE COMMITTEE* CHAIR OFFICERS James Wilding CHAIR: Neil J. Pedersen, Administrator, Maryland State Highway Administration, Baltimore Metropolitan Washington Airports Authority (re- VICE CHAIR: Sandra Rosenbloom, Professor of Planning, University of Arizona, Tucson tired) EXECUTIVE DIRECTOR: Robert E. Skinner, Jr., Transportation Research Board VICE CHAIR MEMBERS Jeff Hamiel MinneapolisSt. Paul J. Barry Barker, Executive Director, Transit Authority of River City, Louisville, KY Metropolitan Airports Commission Deborah H. Butler, Executive Vice President, Planning, and CIO, Norfolk Southern Corporation, Norfolk, VA MEMBERS William A.V. Clark, Professor, Department of Geography, University of California, Los Angeles James Crites Eugene A. Conti, Jr., Secretary of Transportation, North Carolina DOT, Raleigh DallasFort Worth International Airport James M. Crites, Executive Vice President of Operations, Dallas-Fort Worth International Airport, TX Richard de Neufville Paula J. Hammond, Secretary, Washington State DOT, Olympia Massachusetts Institute of Technology Kevin C. Dolliole Adib K. Kanafani, Cahill Professor of Civil Engineering, University of California, Berkeley Unison Consulting Susan Martinovich, Director, Nevada DOT, Carson City John K. Duval Michael R. Morris, Director of Transportation, North Central Texas Council of Governments, Arlington Austin Commercial, LP Tracy L. Rosser, Vice President, Regional General Manager, Wal-Mart Stores, Inc., Mandeville, LA Kitty Freidheim Steven T. Scalzo, Chief Operating Officer, Marine Resources Group, Seattle, WA Freidheim Consulting Steve Grossman Henry G. (Gerry) Schwartz, Jr., Chairman (retired), Jacobs/Sverdrup Civil, Inc., St. Louis, MO Jacksonville Aviation Authority Beverly A. Scott, General Manager and CEO, Metropolitan Atlanta Rapid Transit Authority, Tom Jensen Atlanta, GA National Safe Skies Alliance David Seltzer, Principal, Mercator Advisors LLC, Philadelphia, PA Catherine M. Lang Lawrence A. Selzer, President and CEO, The Conservation Fund, Arlington, VA Federal Aviation Administration Gina Marie Lindsey Kumares C. Sinha, Olson Distinguished Professor of Civil Engineering, Purdue University, West Los Angeles World Airports Lafayette, IN Carolyn Motz Daniel Sperling, Professor of Civil Engineering and Environmental Science and Policy; Director, Institute of Hagerstown Regional Airport Transportation Studies; and Interim Director, Energy Efficiency Center, University of California, Davis Richard Tucker Kirk T. Steudle, Director, Michigan DOT, Lansing Huntsville International Airport Douglas W. Stotlar, President and CEO, Con-Way, Inc., Ann Arbor, MI EX OFFICIO MEMBERS C. Michael Walton, Ernest H. Cockrell Centennial Chair in Engineering, University of Texas, Austin Paula P. Hochstetler EX OFFICIO MEMBERS Airport Consultants Council Sabrina Johnson Peter H. Appel, Administrator, Research and Innovative Technology Administration, U.S.DOT U.S. Environmental Protection Agency J. Randolph Babbitt, Administrator, Federal Aviation Administration, U.S.DOT Richard Marchi Rebecca M. Brewster, President and COO, American Transportation Research Institute, Smyrna, GA Airports Council International--North America Laura McKee Anne S. Ferro, Administrator, Federal Motor Carrier Safety Administration, U.S.DOT Air Transport Association of America John T. Gray, Senior Vice President, Policy and Economics, Association of American Railroads, Henry Ogrodzinski Washington, DC National Association of State Aviation Officials John C. Horsley, Executive Director, American Association of State Highway and Transportation Melissa Sabatine Officials, Washington, DC American Association of Airport Executives Robert E. Skinner, Jr. David T. Matsuda, Deputy Administrator, Maritime Administration, U.S.DOT Transportation Research Board Victor M. Mendez, Administrator, Federal Highway Administration, U.S.DOT William W. Millar, President, American Public Transportation Association, Washington, DC SECRETARY Tara O'Toole, Under Secretary for Science and Technology, U.S. Department of Homeland Security, Christopher W. Jenks Washington, DC Transportation Research Board Robert J. Papp (Adm., U.S. Coast Guard), Commandant, U.S. Coast Guard, U.S. Department of Homeland Security, Washington, DC Cynthia L. Quarterman, Administrator, Pipeline and Hazardous Materials Safety Administration, U.S.DOT Peter M. Rogoff, Administrator, Federal Transit Administration, U.S.DOT David L. Strickland, Administrator, National Highway Traffic Safety Administration, U.S.DOT Joseph C. Szabo, Administrator, Federal Railroad Administration, U.S.DOT Polly Trottenberg, Assistant Secretary for Transportation Policy, U.S.DOT Robert L. Van Antwerp (Lt. Gen., U.S. Army), Chief of Engineers and Commanding General, U.S. Army Corps of Engineers, Washington, DC Barry R. Wallerstein, Executive Officer, South Coast Air Quality Management District, Diamond Bar, CA *Membership as of October 2010. *Membership as of March 2011.

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AIRPORT COOPERATIVE RESEARCH PROGRAM ACRP REPORT 48 Impact of Jet Fuel Price Uncertainty on Airport Planning and Development William Spitz Frank Berardino GRA, INCORPORATED Jenkintown, PA Subscriber Categories Aviation Research sponsored by the Federal Aviation Administration TRANSPORTATION RESEARCH BOARD WASHINGTON, D.C. 2011 www.TRB.org

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AIRPORT COOPERATIVE RESEARCH PROGRAM ACRP REPORT 48 Airports are vital national resources. They serve a key role in trans- Project 03-15 portation of people and goods and in regional, national, and inter- ISSN 1935-9802 national commerce. They are where the nation's aviation system ISBN 978-0-309-15550-2 connects with other modes of transportation and where federal respon- Library of Congress Control Number 2011924201 sibility for managing and regulating air traffic operations intersects with the role of state and local governments that own and operate most 2011 National Academy of Sciences. All rights reserved. airports. Research is necessary to solve common operating problems, to adapt appropriate new technologies from other industries, and to introduce innovations into the airport industry. The Airport Coopera- COPYRIGHT INFORMATION tive Research Program (ACRP) serves as one of the principal means by Authors herein are responsible for the authenticity of their materials and for obtaining which the airport industry can develop innovative near-term solutions written permissions from publishers or persons who own the copyright to any previously to meet demands placed on it. published or copyrighted material used herein. The need for ACRP was identified in TRB Special Report 272: Airport Research Needs: Cooperative Solutions in 2003, based on a study spon- Cooperative Research Programs (CRP) grants permission to reproduce material in this publication for classroom and not-for-profit purposes. Permission is given with the sored by the Federal Aviation Administration (FAA). The ACRP carries understanding that none of the material will be used to imply TRB or FAA endorsement out applied research on problems that are shared by airport operating of a particular product, method, or practice. It is expected that those reproducing the agencies and are not being adequately addressed by existing federal material in this document for educational and not-for-profit uses will give appropriate research programs. It is modeled after the successful National Coopera- acknowledgment of the source of any reprinted or reproduced material. For other uses of tive Highway Research Program and Transit Cooperative Research Pro- the material, request permission from CRP. gram. The ACRP undertakes research and other technical activities in a variety of airport subject areas, including design, construction, mainte- nance, operations, safety, security, policy, planning, human resources, NOTICE and administration. The ACRP provides a forum where airport opera- tors can cooperatively address common operational problems. The project that is the subject of this report was a part of the Airport Cooperative Research Program, conducted by the Transportation Research Board with the approval of the The ACRP was authorized in December 2003 as part of the Vision Governing Board of the National Research Council. 100-Century of Aviation Reauthorization Act. The primary partici- pants in the ACRP are (1) an independent governing board, the ACRP The members of the technical panel selected to monitor this project and to review this report were chosen for their special competencies and with regard for appropriate balance. Oversight Committee (AOC), appointed by the Secretary of the U.S. The report was reviewed by the technical panel and accepted for publication according to Department of Transportation with representation from airport oper- procedures established and overseen by the Transportation Research Board and approved ating agencies, other stakeholders, and relevant industry organizations by the Governing Board of the National Research Council. such as the Airports Council International-North America (ACI-NA), The opinions and conclusions expressed or implied in this report are those of the the American Association of Airport Executives (AAAE), the National researchers who performed the research and are not necessarily those of the Transportation Association of State Aviation Officials (NASAO), and the Air Transport Research Board, the National Research Council, or the program sponsors. Association (ATA) as vital links to the airport community; (2) the TRB The Transportation Research Board of the National Academies, the National Research as program manager and secretariat for the governing board; and Council, and the sponsors of the Airport Cooperative Research Program do not endorse (3) the FAA as program sponsor. In October 2005, the FAA executed a products or manufacturers. Trade or manufacturers' names appear herein solely because contract with the National Academies formally initiating the program. they are considered essential to the object of the report. The ACRP benefits from the cooperation and participation of airport professionals, air carriers, shippers, state and local government officials, equipment and service suppliers, other airport users, and research orga- nizations. Each of these participants has different interests and respon- sibilities, and each is an integral part of this cooperative research effort. Research problem statements for the ACRP are solicited periodically but may be submitted to the TRB by anyone at any time. It is the responsibility of the AOC to formulate the research program by iden- tifying the highest priority projects and defining funding levels and expected products. Once selected, each ACRP project is assigned to an expert panel, appointed by the TRB. Panels include experienced practitioners and research specialists; heavy emphasis is placed on including airport pro- fessionals, the intended users of the research products. The panels pre- pare project statements (requests for proposals), select contractors, and provide technical guidance and counsel throughout the life of the project. The process for developing research problem statements and Published reports of the selecting research agencies has been used by TRB in managing cooper- AIRPORT COOPERATIVE RESEARCH PROGRAM ative research programs since 1962. As in other TRB activities, ACRP are available from: project panels serve voluntarily without compensation. Primary emphasis is placed on disseminating ACRP results to the Transportation Research Board Business Office intended end-users of the research: airport operating agencies, service 500 Fifth Street, NW providers, and suppliers. The ACRP produces a series of research Washington, DC 20001 reports for use by airport operators, local agencies, the FAA, and other interested parties, and industry associations may arrange for work- and can be ordered through the Internet at shops, training aids, field visits, and other activities to ensure that http://www.national-academies.org/trb/bookstore results are implemented by airport-industry practitioners. Printed in the United States of America

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The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. On the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Charles M. Vest is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, on its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Charles M. Vest are chair and vice chair, respectively, of the National Research Council. The Transportation Research Board is one of six major divisions of the National Research Council. The mission of the Transporta- tion Research Board is to provide leadership in transportation innovation and progress through research and information exchange, conducted within a setting that is objective, interdisciplinary, and multimodal. The Board's varied activities annually engage about 7,000 engineers, scientists, and other transportation researchers and practitioners from the public and private sectors and academia, all of whom contribute their expertise in the public interest. The program is supported by state transportation departments, federal agencies including the component administrations of the U.S. Department of Transportation, and other organizations and individu- als interested in the development of transportation. www.TRB.org www.national-academies.org

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COOPERATIVE RESEARCH PROGRAMS CRP STAFF FOR ACRP REPORT 48 Christopher W. Jenks, Director, Cooperative Research Programs Crawford F. Jencks, Deputy Director, Cooperative Research Programs Michael R. Salamone, ACRP Manager Lawrence D. Goldstein, Senior Program Officer Tiana M. Barnes, Senior Program Assistant Eileen P. Delaney, Director of Publications Natalie Barnes, Editor ACRP PROJECT 03-15 PANEL Field of Policy and Planning John K. Duval, Austin Commercial, L.P., Los Angeles, CA (Chair) Michael T. Hackett, Metropolitan Washington Airports Authority, Washington, DC Glenn Hipp, JetBlue Airways, Forest Hills, NY Michael E. Levine, New York University, New York, NY Barry Molar, Unison Consulting, Inc., Wheaton, MD Jeff Mulder, Tulsa Airport Authority, Tulsa, OK Clinton Oster, Jr., Indiana University, Bloomington, IN Carl Burleson, FAA Liaison Joseph Hebert, FAA Liaison John P. Heimlich, Air Transport Association of America, Inc. Liaison Richard Marchi, Airports Council InternationalNorth America Liaison Melissa Sabatine, American Association of Airport Executives Liaison Christine Gerencher, TRB Liaison AUTHOR ACKNOWLEDGMENTS The research reported herein was performed under ACRP Project 03-15 by GRA, Incorporated, Jenk- intown, PA. GRA, Incorporated was the contractor for this study. Frank Berardino, President at GRA, was the Project Manager. Dr. William H. Spitz, Ph.D., of GRA was the Principal Investigator.

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FOREWORD By Lawrence D. Goldstein Staff Officer Transportation Research Board ACRP Report 48 provides background research, a computer model on the attached CD- ROM, and a user manual to help airport operators and planners measure the impact of changes in jet fuel price on supply and demand for air service at commercial service airports. The output of the model can ultimately be used to help evaluate the impact of uncertainty on airport development and finance. Applying specific input parameters, the model, embedded in a user-friendly program, allows airport planners and managers to assess how fuel, economic, and other uncertainties may affect their particular airport and to test the sensitivity of varying assumptions about key drivers of airport activity. The supporting research examines historical changes in fuel prices in the context of changing economic conditions and uses this experience to assess risk in adhering to exist- ing air traffic forecasts when planning future airport improvements or expansion. The model illustrates risk using confidence bands that indicate a range of forecasts as a function of changing jet fuel prices and other factors. The research also examines the historic link between changes in jet fuel prices in relation to periodic occurrence of recessions and how changing demand may, in turn, result in changes in fleet composition and size. In the summer of 2008, jet fuel prices were up more than 200 percent over those experienced in 2000. During this same period, jet fuel costs increased from 15 percent to 40 percent of total domestic airline operating costs. These increases caused airlines to raise fares and other fees, cut schedules, and drop scheduled service to some communities. The volatility that began dur- ing that period contributed to large and unexpected fluctuations in activity at airports throughout the United States. Following that period, fuel prices declined but began to rise again at the end of 2010. Further changes in air service as well as service reductions are possi- ble, especially if jet fuel prices return to or exceed the high levels that prevailed during 2008. What exacerbates the problem is that jet fuel prices can change rapidly and in ways that are difficult if not impossible to forecast. As a result, the current level of uncertainty about future jet fuel prices can present significant challenges to airlines and airports as they plan to accommodate changing levels of demand. The premise of this research was that, if air- lines and airports were better able to predict the effect of jet fuel price changes on airline service and airport development and finance, they could strategize better (both individually and, where appropriate, collaboratively) how to plan for and accommodate such change. The underlying research that formed the basis for the computer model uses economic data, airport characteristics and operations data, energy futures, and a variety of institutional pro- jections to create a risk-based forecasting model. This model was tested through a series of presentations and applications, reaching out to airport sponsors, operators, and other air- port professionals to generate useful feedback.

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The report was prepared with airport planners in mind--more specifically, those involved in preparing and/or analyzing short- to medium-term airport activity forecasts (i.e., over a period of two-and-one-half to five years). These planners often have a basic understanding of how to prepare or look at trend-based forecasts but typically do not have the ability to measure or characterize the uncertainty inherent in such projections. This report and the associated computer model provide a practical means for planners to address uncertainty so they can answer substantive questions about how changes in fuel prices and/or the macro-economy can impact their activity forecasts. The software program helps airport planners anticipate changes to existing forecasts of air services at literally hundreds of different-sized airports in the United States.

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CONTENTS PA RT I Background Research 3 Summary 5 Chapter 1 Introduction 7 Chapter 2 Project Overview and Motivation 7 2.1 Fuel Price Uncertainty and the Economy 7 2.2 Effects on Aviation Markets and Carriers 13 2.3 Changes in Air Services by Airport Type 16 2.4 Changes in Development Programs and Budgets at Specific Airports 19 Chapter 3 Statistical Model Development 19 3.1 Air Service Models 21 3.2 Statistical Results 23 3.3 Airport Impact Models 24 Chapter 4 Software Approach and Design 24 4.1 Embedding Uncertainty into Forecasts 27 4.2 Airport Outreach 29 Chapter 5 Areas for Future Research 30 Appendix Literature Review PA RT I I Documentation for Airport Forecasting Risk Assessment Program 39 Software Quick Start 47 Software User Manual 47 SelectLOCID Worksheet 48 OAGHistory Worksheet 49 CurrentService Worksheet 51 Baseline&Scenarios Worksheet 59 Risk Analysis Features of the Software 59 Interpreting Results