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

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14 C H A P T E R 2 In developing this research, four questions were inves­ tigated to trace the role of U.S. airports on the national economy: 1. What are the national economic contributions of NPIAS airports? 2. To what extent do improvements in national and inter­ national connectivity add to national productivity of U.S. industries?2 3. What is the interrelationship of increased air cargo to the U.S. industrial base? 4. How do changes in domestic and international airfares affect the national economy? These four assessments are complementary and do not overlap. The estimate of national economic contributions of NPIAS airports (Number 1) documents the traditional method of accounting for the economic impact of airports. It is a static measure that reports the economic footprint of airports today (or based on data sets that vary from 2011 to 2013) on the national economy. The multifactor produc­ tivity and consumer surplus analyses (Numbers 2, 3, and 4) present dynamic appraisals of the impact of airports on the U.S. economy if conditions change. They estimate how the national economy will be affected if regional and inter­ national connectivity change; and if air cargo volume changes or if costs of personal travel change. These analyses are based on relationships developed to estimate productivity of firms and resulting change in the U.S. economy from changes in airport­related factors. The dynamic changes as modeled for this study are: (1) changes of direct air service between airports and regions; (2) change in the volume of air cargo (change of total cargo and not mode shifts); and (3) a reduction in airfares for per­ sonal travelers. These are catalytic impacts in the sense that economic changes of off­airport industries can be traced to these changes. To illustrate these changes, calculations are based on the following changes.3 • A 1% improvement in airport connectivity factors to account for business impacts • A 1% increase in air cargo tonnage • A 1% airfare reduction for personal travelers 2.1 Contributions of Airports to the U.S. Economy The analysis of national economic contributions of NPIAS airports can be viewed as the economic footprint of airports on the U.S. economy. This analysis is equivalent to most eco­ nomic impact studies developed for airports and airport sys­ tems in that the national levels of on­airport employment and construction activity is measured, along with the scale of visitor spending of air passengers and the contribution of air cargo to industry sales. It differs from the standard economic impact study in that studies for single U.S. airports or airport systems tend to measure impacts based on the geography of a region or state. This analysis covers the footprint of airports in terms of airline and aviation services; on­airport aviation support activities, concessions, and construction; off­airport spending of international visitors; and the contribution that airports make to the national economy as international cargo gateways. As an example of the difference between a national and state approach, a state aviation department is concerned with the flows of visitor spending that support in­state hospitality industries without caring about the spending power trans­ ferred from another state. This study, however, addresses national effects and, therefore, did not count dollars that are redistributed within the United States. In addition, off­airport spending of international air arrivals was calculated by sub­ tracting spending of U.S. residents on international travel from the total spent by foreign travelers. Overview of Analytical Approaches

15 These findings are presented using two different approaches. First, the multiple national level data sets uncovered as part of a literature search were reviewed, evaluated, adjusted to avoid overlaps, and aggregated. Second, the research team completed a regression analysis. The analysis was based on the NPIAS database. The database combines the facility char­ acteristics, aviation performance data, and socio­economic data from counties and MSAs for the 3,330 NPIAS airports4 with results from economic impact studies conducted over the years 2006–2011. Productivity Improvements in the U.S. Economy from Enhanced Airport Connectivity The network of U.S. airports is a key component of trans­ portation infrastructure that allows business travelers to meet current and new customers, expand markets, and generate efficiencies for the benefit of economies. Development of the airport network that connects regions and countries facili­ tates efficiency improvements by providing a broader base of suppliers and access to new production techniques. It fosters greater competitiveness by facilitating investment within the United States and investment of U.S. companies outside U.S. borders, and by enhancing the ability to exploit economies of scale. Moreover, as global trade has expanded and the global­ ization of the supply chain has taken place, there is increasing evidence that connectivity (principally in the air transport network) and the advantage it provides for business, is a sig­ nificant asset that enhances productivity and improves the performance of an economy, firm, or region. The MFP analysis is based on these suppositions. Improv­ ing the efficiency of airport network connections enables businesses to access the best inputs in the world, ranging from high value­adding materials and components to skills and ideas. Improvements in connections widen the available market, which means higher revenues and higher potential returns on investment. Similarly, reducing the cost of travel leads to consumer surplus, which can be spent by households on other goods and services, further enhancing economic growth.5 Interrelationship of Cargo to Industry Productivity The MFP cargo analysis tests the economic impact from increasing the interrelationship of air cargo and national goods producers and wholesalers. For this analysis, the change in tonnage is not a mode shift from surface or marine transport to air transport, rather the change tested is of addi­ tional cargo that is exported by air.6 Consumer Surplus This study also accounts for consumer surplus, which is the difference between what households or businesses are willing to spend for air transportation services and what they actually do spend. In the case of air travel for business purposes, bene­ fits from cost savings in air travel accrue to affected businesses and not to the travelers. The MFP analysis addresses benefits gained by businesses due to more efficient and, therefore, less costly travel. Counting business travel in the consumer sur­ plus analysis would, in effect, be double counting. Therefore, the consumer surplus analysis concerns benefits to personal travelers only. MFP and consumer surplus are responses to changes in the connectivity of U.S. airports (for MFP) or ticket pricing (for consumer surplus). For MFP, increased or decreased air­ port connectivity will lead to changes in national productivity (measured as changes in value added). The value added, in turn, can be used to derive estimates of a full range of eco­ nomic impact measures (e.g., jobs, labor income, and output). Reductions in ticket pricing lead to changes in consumer sur­ plus. Extra dollars are left in households, which can be used to purchase goods and services. Each approach listed above assesses the contribution of airports to the national economy. While multiple measure­ ments of economic impact are presented (jobs, labor income, value added, and output), the core measure to assess the con­ tribution of U.S. airports to the national economy is through dollars of value added, which is the core measure of economic productivity, growth, and contraction. The value added of a firm, an industry sector, or an aggrega­ tion of sectors is the contribution of private industry or gov­ ernment to overall national gross domestic product (GDP) or gross regional product/gross state product at sub­national levels. Value added equals the difference between an industry’s gross output (consisting of sales/receipts and other operat­ ing income, commodity taxes, and inventory change) and the cost of its intermediate inputs (including energy, raw materi­ als, semi­finished goods, and services that are purchased from all sources).7 The components of value added consist of com­ pensation of employees, taxes on production and imports (less subsidies), and gross operating surplus. The static and catalytic analyses (MFP and consumer surplus) are related as follows:8 • The standard (static) accounting for airports’ economic role in the national economy shows that the economic contribution of airports to the national GDP (based on 2011–2013 data) is $768.4 billion in 2010 dollars. • In addition to the national contribution of the current U.S. airport network to the national economy: – When accounting for total indirect and induced multi­ plier effects, a 1% increase associated with each airport

16 connectivity variable is estimated to yield total value added nationally between $700 million and $9 billion in 2010 dollars, varying among the 11 hypothesized changes in airport connectivity. As will be discussed in Chapter 5, national totals were extrapolated from a sample of 20 metropolitan regions served by 26 commercial airports, and are presented as an illustration of the potential national impacts. The cumu­ lative range for the 20 regions is $68 million to $700 mil­ lion in value added for direct impacts and $156 million to $2.1 billion when accounting for total multiplier effects. Table 17 in Chapter 5 lists the air connectivity variables used in this study and Table 20 displays the cumulative economic impacts from the 20 regions, while Table 28 in Chapter 8 shows the illustrative national effects. The wide variation among the 11 variables reflects the relative economic importance of the potential improve­ ments in connectivity. For example, an increase in the number of two or more daily nonstop domestic flights to a single destination is at the high­end of the range, and an increase of the world’s GDP served by nonstop from airports is at the low end. Nationally, the 1% changes represent the totals per variable for all NPIAS airports. – A 1% increase in air cargo (not including shifts between modes) is expected to reflect total national industrial productivity that would yield $2.5 billion in value added. This national estimate is extrapolated from calcula­ tions based on the 20 metropolitan regions that show an expected $173 million in direct value added and $583 million when including full multiplier effects. The cumulative regional estimate is discussed in Chapter 5 and shown in Table 22, while the national illustration is discussed in Chapter 8 and shown in Table 29. – A 1% decrease in airfare will generate a consumer sur­ plus to personal travelers equivalent to $657 million increase in total value added. The consumer surplus analysis is discussed in Chapter 6 and the national eco­ nomic impacts shown in Table 26.