The Role of U.S. Airports in the National Economy (2015)

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1 S U M M A R Y The Role of U.S. Airports in the National Economy Introduction The objective of ACRP Project 03-28 is to estimate the economic role of U.S. public use airports and the national airport system (airports) in the national economy. It can be used to educate communities and aviation stakeholders on the national value of airports. This research project breaks new ground in taking two approaches to airport economic analysis that are distinct from regional and state analyses commissioned by airports, airport authorities, and state departments of transportation. A framework was constructed and applied to identify in detail the current role of the U.S. airport network in the national economy, and, importantly, how changes in the network could result in benefits to the U.S. economy. The economic analyses in this research include documentation of the existing contribu- tions of 3,330 airports in the National Plan of Integrated Airport Systems (NPIAS),1 and how those contributions will be affected given changes in airport connectivity, air cargo, and airfares. The 3,330 NPIAS airports account for about 65% of U.S. public use airports; 17% of all airports, including those privately used; and 99.8% of all enplanements in 2012.2 The examination is limited to the operation of the airports, spending by international visitors, and international air cargo. It differs from most regional and state studies as it does not include estimates of domestic visitor spending and domestic air-cargo shipments that redistribute economic effects among regions or states, but do not add to the economy of the nation. In addition spending of international visitors to the United States is net of the spending of U.S. residents who are traveling internationally. Second, the research team estimated how airport changes will affect the U.S. economy by positing increases in direct air connections between regions, increases in air cargo shipments, and decreases in airfares. This project provides a significantly advanced methodology in iden- tifying the wider economic benefits of airports based on airports’ roles in connecting regions across the United States and of connecting regions in the United States to world markets. The team’s developed methodology complements straightforward economic impact studies and allows the use of large data sets to undertake new analysis and provide more detailed assess- ments of specific policy proposals and management strategies. Multiple estimates defining the national economic contributions of airports are calculated for these different approaches. While estimates are presented for jobs, labor income, value added, and gross output, the core measure to assess the contribution of U.S. airports to productivity in the national economy is through dollars of value added. Value added equals gross domestic product (GDP) when aggregated across all industries.3 The role of airports in the national economy is illustrated in Figure S-1. Airports facilitate services to businesses and personal travelers by providing passenger transportation and rapid long distance cargo movement. For businesses, passenger and cargo transportation services are intermediate purchases used to facilitate production or sales. For example, a company may acquire an electronic component that is part of a larger product. After production, that

2 product may be sent by air to a customer. Similarly, business travel is a means to provide ser- vices or facilitate sales. For personal travel, however, the final product that is being purchased is air transportation. To provide these services, airports need to be constructed, maintained, and managed. For the purposes of businesses located outside of airports, air transportation is an input that enables businesses to provide and receive services and to ship and receive products required for operations, sales, and production processes. Approach Four questions were investigated to trace the role of U.S. airports on the national economy: 1. What is the national economic impact of NPIAS airports? 2. To what extent do improvements in national and inter national connectivity add to the productivity of U.S. industries? 3. What are the interrelationships of increased air cargo to the U.S. industrial base? 4. How do decreased airfares affect the national economy? These four assessments are complementary and do not overlap. The estimate of the national economic contributions of NPIAS airports (Number 1) documents the traditional method of accounting for economic impacts of airports. It is a static estimate that reports the footprint of airports on the national economy and measures the economic contributions of airports at a single point in time. The multifactor productivity (MFP) and consumer surplus (CS) analyses (Numbers 2, 3, and 4) present dynamic appraisals of the impacts of airports on the U.S. economy if conditions change. The analyses estimate how productivity and economic impact in the national economy will be affected if connectivity changes, if air cargo volume changes, or if the costs of personal travel change. These airport factors include connectivity of markets through greater (or lesser) air service, air cargo flows, and the cost of airline tickets. Figure S-1. Airports’ role in the U.S. economy.

3 MFP estimates the growth in value added in reaction to changes of all inputs into produc- tion processes. In this study, the research team estimated growth in net value added from: (1) strengthening non-stop connectivity among airports; and (2) increased use of air cargo by industries. CS is the difference between what consumers are willing to pay for a good or service and what they actually pay. In the context of air service, the difference in willingness to pay for air service and what is actually spent leaves money in households’ “wallets,” and is available to be spent in the general economy on non-aviation goods and services. The following sections provide additional detail on the four approaches evaluated to determine the total role of U.S. airports on the national economy. National Economic Contribution of U.S. Airports The standard approach of estimating the current economic contributions of airports is through a summation of on-airport and visitor spending activities. It is a snapshot of the economic contribution of airports at a given moment based on when data are collected. The prevailing economic analysis of the national airport system was constructed by evaluating and blending national data sets from public agencies, nonprofits, and private companies. In addition, this summation was tested by developing multiple regression analyses based on recently completed economic impact studies of airports and state airport systems.4 The regression analyses estimated the total output of U.S. airports based on about 700 airport economic impact studies of the 3,330 airports in the NPIAS.5 As this study is of the role of the U.S. airport system in the national economy, drivers of the analysis were limited to on-airport transactions, international air cargo, and off-airport spending of international air arrivals (net of U.S. travelers spending on international travel), as shown in Figure S-2. Unlike other national, regional, or local studies, these findings did not include domestic air cargo, spending of domestic visitors who travel from region to region, or aircraft manufacturing [although on-airport fixed-based operator (FBO) services are included]. Moreover, the off-airport spending of international visitors to the United States was compared to visitor spending by U.S. residents abroad, and the net difference is applied to represent the impact of airports in the United States.6 Multiple metrics that estimate the economic role of airports are calculated for the analyses presented in this report, including jobs, labor income, value added, and output. Using the findings of the existing contributions of airports to the national economy, Figure S-3 illus- trates the relationship of these different measures. The total economic contributions of U.S. airports are presented in Table S-1, represent- ing a single year total of about $1.6 trillion (output). The contribution shown specifies Role of U.S. Airports in the National Economy On-Airport Transactions International Air Cargo Net Off-Airport Spending of International Air Arrivals Figure S-2. Drivers of national economic impact.

4Output Value Added (GDP) Labor Income/Profits Output = total value of production (includes business sales/public revenues) Value Added (GDP) = output – cost of materials and transportation JobsSalaries, wages, profits, & benefits to workers Figure S-3. Overview of the economic role of airports. Type of Economic Impact Employment in Thousands Labor Income in $Billions Value Added (GDP) in $Billions Output in $Billions On-Airport Direct + Airport Indirect and Induced Effects = Total Airport Generated + International Visitor Spending + International Air Cargo = Total 939 1,563 2,503 518 4,608 7,629 $64 $81 $145 $19 $288 $453 $98 $144 $242 $32 $4958 $768 $195 $254 $449 $53 $1,096 $1,597 Numbers may not add due to rounding. Dollars are in 2010 value. International visitor spending is a net of spending by international visitors in the U.S. minus U.S. travelers spending abroad. Sources: BEA, Office of Travel and Tourism Industries of the U.S. Department of Commerce, BLS-CES, U.S. Census Bureau, U.S. Budget, FAA Form 127 & NPIAS, ACI-NA, U.S. Department of Commerce data and other federal data assembled by IMPLAN Group LLC. Calculations by EDR Group using 2012 National IMPLAN model. Table S-1. National economic contribution by type of impact.

5 on-airport activities (direct and multiplier effects7), the net impact for international visitor spending, and total contributions (including multipliers) associated with international air cargo shipments. As shown in Figure S-4, the contribution of airports (averaged across the four impacts) account for approximately 5% of the national economy. MFP and CS Analyses The MFP and CS analyses are dynamic analyses, meaning that changes in the aviation sys- tem lead to changes in the economic impact of the U.S. airports (illustrated in Figure S-5). The MFP analyses estimate how changes in air service (defined as improved connectivity among airports) add to industry productivity. Secondly, MFP was applied to explore the interrelationships of air cargo and productivity. While MFP explored the impacts of airports Figure S-4. Total impact of U.S. airports as percent of U.S. economy. Sources: Data calculated by the research team to estimate direct contribution of airports, based on 2009–2013 data. National economy is from U.S. Bureau of Economic Analysis, U.S. Department of Commerce, 2012. MFP - Cargo Air CargoTonnage Change in Industry Productivity GDP Jobs, Labor Income, Economic Output ANALYSIS TYPE ELEMENT EFFECT ECONOMIC IMPACTS Initial from Analysis Subsequent Modeling MFP - Connectivity Airport Network Connectivity Change in Industry Productivity GDP Jobs, Labor Income, Economic Output CS Cost of AirTravel Change in Household Spending Household Spending (Output) GDP, Jobs, Labor Income Figure S-5. Dynamic impact of U.S. airports on the national economy.

6on industry sectors and how airports support industry business impacts, the CS analysis estimated the potential overall economic impact of airfare price changes. For the MFP and CS analyses, 1% changes were assumed in connectivity variables, cargo tonnage, and airfares. Changes in these assumptions will alter the estimates of impact. More- over, impacts could be negative to the economy if connectivity decreases for one or more of the variables tested, air cargo operations lose efficiency, or airfares increase. The Impact of Improvements in National/International Connectivity on Industry Productivity An MFP analysis was used to identify the impacts of national and international connectivity improvements on U.S. industries’ productivity. This analysis estimated how changes in air ser- vice (defined as improved connectivity among airports) add to industry productivity. For this evaluation, a 1% change was applied across 11 different connectivity variables (the connec- tivity improvements are listed in Table S-2) and the modeled results are shown on Table S-3. This analysis provides a useful start to identifying the relative influence of different mea- sures of airline network connectivity. It also shows how the effect of different connectivity measures appears to differ across industry sectors if one or more connectivity characteristics grow by 1%. For example, if the number of domestic airline hubs served across the airline network (represented in this analysis by the sample of 20 regions and their airports) were to increase by 1%, the change in direct value added would be about $374 million. Moreover, if the number of hubs served increased by 10%, the MFP value would be about $3.7 billion.8 In addition (also seen in Table S-3), impacts by industry differ according to each connectivity variable reported. For example, in terms of additional net value added, the manufacturing sector will benefit by the increased number of airlines and the number of domestic nonstop departures, but not by the increased number of domestic airline hubs served. Table S-2. National economic contribution by source of impact. Connectivity Measure Two or More Daily Nonstop Domestic Flights International Nonstop Destinations Domestic Nonstop Destinations Percent of the World GDP Served Daily Five or More Daily Nonstop Domestic Flights Airline Hubs Served-Domestic International Nonstop Departures Percent of the World GDP Served Nonstop Domestic Nonstop Departures Percent of the World GDP Served Twice or More Daily Number of Airlines

Table S-3. Estimated impact in 20 metropolitan statistical areas (mSas) of a 1% change in different connectivity measures on industry value added (in millions of 2010 dollars). Industry Number of Airlines Domesc Nonstop Departures Airline Hubs Served- Domesc Domesc Nonstop Desnaons Two or More Daily Nonstop Domesc Flights Five or More Daily Nonstop Domesc Flights Internaonal Nonstop Departures Internaonal Nonstop Desnaons % World GDP Served Nonstop % World GDP Served Daily 1 Manufacturing $158 $85 $123 $356 $172 2 Wholesale Trade $43 $51 $30 $64 $38 $6 3 Informaon $24 $19 $39 $23 $41 4 Finance & Insurance $151 $226 $99 $42 $34 5 Real Estate, Rental & Leasing $95 $176 $180 $49 $236 6 Professional Scienfic& Technical Services $57 $112 $82 $153 7 Management of Companies & Enterprises $8 $26 $7 $18 $16 8 Administraon & Support Waste Management Services $11 $33 $23 $95 $51 9 Art, Entertainment & Recreaon $3 $4 $7 $14 10 Accommodaon & Food Services $0 $20 $19 11 Other* $3 $272 $100 $95 Total $201 $453 $374 $686 $654 $119 $192 $683 $68 $361 “Other” represents a grouping of the following sectors: Agriculture, Forestry, Fishing, and Hunting; Mining, Quarrying, and Oil and Gas Extraction; Utilities; Retail Trade; Transportation and Warehousing; Educational Services; Health Care and Social Assistance; Other Services (except Public Administration); and Public Administration. Connectivity measures are shown on Row 1.

8The Impact of Increased Air Cargo to the U.S. Industrial Base A second MFP analysis was conducted to gauge the relationship of economic productiv- ity and air cargo. It found that a 1% increase in enplaned air cargo creates a $173 million direct boost in direct value added for the manufacturing and wholesale trade sectors and a contribution of almost $600 million in value added when multiplier effects are factored (illustrated in Figure S-6). The Effect of Changes in Domestic and International Airfare While MFP explored the impacts of airports on industry sectors, the consumer sur- plus analysis estimated the potential overall economic impact of airfare price changes. The change in consumer surplus is defined as the difference between what consumers are willing to pay for a good or service and what they actually pay. This surplus is effectively dollars left in the pockets of consumers that can be used for additional spending for goods and services. The consumer surplus analysis was conducted on a national level based on a 1% airfare decrease. Findings show that the net effect on the national economy would be an additional $249 million in value added (shown in Table S-4) after accounting for: • Induced travel by lower prices encouraging more air travel. This is money taken from the non-aviation portion of household spending for the purchase of air transportation. • The additional money generated by consumer surplus that becomes available for non- aviation household spending. Figure S-6. Direct and total impact in manufacturing and wholesale sectors reflected by a 1% change in air cargo tonnage. Activity Employment Labor Income Value Added Output Changes in Economic Impact Generated by 1% Decrease in Airfares 1,400 $162 $249 $553 All dollars are in $2010 millions. Jobs are rounded to the nearest hundred. Table S-4. Direct economic impacts of a 1% decrease in airfare.

9 Economic Role of U.S. Airports in the National Economy The economic analyses examined in this research include the existing contributions of U.S. airports to the national economy and how that contribution will change given changes in airport connectivity, air cargo, and airfares. While the analyses of existing contributions and consumer surplus were conducted on a national scale, the two MFP analyses were lim- ited to a sample of 20 metropolitan statistical areas (MSAs).9 The combined economies of the 20 MSAs represent about 23% of the national economy when comparing national GDP to the regional total. Stated differently, the national GDP is 4.3 times the combined gross regional products of the 20 MSAs.10 As the two MFP analyses are limited to the sample of 20 metropolitan areas, the national extrapolations are shown for illustrative purposes to show order of magnitude (rough approximation) of effects. Direct Economic Contributions Direct contributions of U.S. airports to the national economy are summarized in Table S-5. The table includes the direct economic impact of NPIAS airports, as well as the direct impact of a 1% change in connectivity variables, air cargo tonnage, and airfares. These numbers do not include multiplier impact. Total Economic Role of U.S. Airports in the National Economy Total national estimates from all analyses, including direct and multiplier impacts (indirect and induced economic effects) are summarized below. • The standard accounting for economic impact shows that the total economic contribu- tion of airports to the national GDP (based on 2011–2013 data) is $768.4 billion in 2010 dollars, shown in Table S-1 and Table S-6. • In addition to the national contribution of the current U.S. airport network to the national economy: – The impact of a 1% increase of nonstop airport connectivity is expected to yield total increased national value added between $700 million and $9 billion in 2010 value, Table S-5. National direct economic impact of U.S. airports to the national economy. Activity Employment Labor Income Value Added Output Economic Impact of NPIAS Airports 2,172,200 $147,642 $247,424 $637,002 Changes in Economic Impact Generated by 1% Improvement of Connectivity Variables 13,000 $795 $1,507 $3,043 1% Increase of Air Cargo Tonnage 5,100 $403 $742 $2,103 1% Decrease in Airfares 1,400 $162 $249 $553 National impacts of connectivity and air cargo are extrapolated from the 20 MSAs for illustrative purposes to show order of magnitude effects. All dollars are in $2010 millions. Jobs are rounded to the nearest hundred.

10 varying by which of the connectivity variables change. (The variables are shown in Table S-2 and Table S-3.) – A 1% increase in air cargo (not including shifts between modes) is expected to reflect increases in industrial productivity equivalent to $2.5 billion in GDP. – A 1% decrease in airfare will generate consumer surplus for personal travelers equiva- lent to a $657 million increase in total national GDP. • Note that the national impacts of connectivity and air cargo are extrapolated from the 20 MSAs for illustrative purposes to show approximate effects. Qualitative Research Structured interviews were conducted with representatives of airports, business associa- tions, and corporations to verify and enrich the results of the quantitative research. In the course of this project, the research team conducted 76 interviews with companies that rely on business travel and air cargo shipments, business organizations, airport administrators, and representatives of alliances of airports, airlines, and general aviation users. The pur- pose of this outreach program was to review observations and conclusions suggested by data research in real world contexts. Moreover, an assessment of non-quantifiable national benefits was conducted to assure that this research reported the full breadth of the national benefits of airports. These impacts span across various industries, communities, and loca- tions and are important to recognize alongside the quantitative impact. Whether aviation supports the research of a university group, the saving of a life, or the protection of national borders, it is critical to our health, safety, and welfare in ways that cannot be appropriately reflected in economic impact calculations. Interviews with business executives and representatives of business organizations (such as chambers of commerce and industry associations) were conducted to provide a practi- cal perspective to the economic impact analysis and the analysis of airport connectivity in terms of the multifactor productivity analysis, and the interrelationship of productivity and air cargo, and the consumer surplus analysis conducted as the main body of research for this report. Interviewees supported the importance of airport connectivity. Priorities identified Activity Employment Labor Income Value Added (GDP) Output Economic Impact of NPIAS Airports 7,628,900 $452,506 $768,402 $1,597,458 Changes in Economic Impact Generated by: 1% Improvement of Connectivity Variables1 38,900 $2,272 $3,979 $7,417 1% Increase of Air Cargo Tonnage 22,700 $1,377 $2,502 $5,402 1% Decrease in Airfares 5,800 $385 $657 $1,281 1Data reflect the mean average of all 11 connectivity variables. All dollars are in $2010 millions. Jobs are rounded to the nearest hundred. Total impact includes estimates of direct, indirect and induced impact. Table S-6. National total economic role of U.S. airports in the national economy.

11 by business travelers are listed below. Note that the first three bullets are directly applicable to connectivity: • Frequent domestic and international service; • A choice of nonstop domestic and international flights; • Concentration of flights to and from particular markets during peak hours; • Reliable schedules with minimal delays; • Ease of rush hour commute to and from the airport; and • Lower relative ticket costs, with competition on popular routes in order to reduce fares. In terms of cargo, air transport is the most expensive mode. In most cases, it is the choice of last resort, except for perishable goods, high value products (notably, but not limited to, technology), just-in-time parts and supplies, other time-sensitive delivery due to long dis- tances or production delays, or explicit requests by customers. Companies make shipping decisions based on cost of transport or scheduled delivery time to a destination. Logistics can steer shipping requests to the lowest cost option that meets delivery requirements. Conclusion The multiple approaches carried out in ACRP Project 03-28 are complementary in under- standing the multiple economic roles of airports to the national economy. While an economic impact analysis is a snapshot of the economic contribution of airports at a given moment, analyses based on multifactor productivity and consumer surplus account for how national economic impact of airports will change if connectivity between airports and regions, air cargo tonnage, and/or the cost of airfare change. The latter class of analyses identifies how airports are able to trigger dynamic economic impact across the national economy. End Notes 1. The National Plan of Integrated Airport Systems (NPIAS) of the Federal Aviation Administration identifies airports significant to national air transportation. 2. Report to Congress: National Plan of Integrated Airport Systems (NPIAS), 2015–2019, p.76; Office of Air- port Planning and Programming, Federal Aviation Administration September 2014. 3. Source: U.S. Bureau of Economic Analysis, http://www.bea.gov/faq/index.cfm?faq_id=1034. 4. The years of available national level data sets range for the years 2011 to 2013, and the economic impact studies used for the regression formulae were conducted from 2006 to 2012. Dollars were adjusted to 2010 value. 5. Over 1,000 economic impact studies were obtained in the course of the research. Roughly 700 contain data that were specific enough to be included in the regression analysis. 6. The data are reported by the Office of Travel and Tourism, International Trade Administration, of the U.S. Department of Commerce. Data are 2012, calculated in 2010 dollars. 7. The terminology for direct and multiplier effects are not uniform across studies. As used in this study: Direct effects take place only in the industry immediately affected, whether it is on or off airport. The multiplier impact is made up of indirect and induced effects. Indirect effects measure the purchase of supplies and services needed to produce directly supplied products and services. Induced effects measure the effects of the changes in house- hold income, meaning the effects from the spending of wages earned by workers of directly and indirectly affected industries. The total impact is the summation of direct and multiplier (indirect and induced) effects. 8. This represents an increase in value added under the assumption that all else, such as technology of produc- tion and market shares, remains the same. Moreover, increased air cargo and value added do not assume that the gross tonnage or value of cargo transported by truck, rail, or ship will change (other than the ground transportation required to transport goods from shippers to airports and from airports to customers). 9. Metropolitan statistical areas are designated by the United States Office of Management and Budget (OMB). 10. Source: BEA National Product Accounts. The national GDP in 2010 was $15 trillion, and the portion in the 20 MSAs was a combined $3.5 trillion, or 23.3% of the national total.