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

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

22 C H A P T E R 4 The first step for the research team in estimating the con- tribution of the U.S. airport system to the national economy was to evaluate the multiple national data sources (summa- rized in Table 3). Six data sources are available for air trans- portation services employment, with job totals ranging from 426,000 to 478,000.15 The same six data sources provide total annual labor compensation ranging from $25.3 billion to $39.9 billion. Three of these data sources provide value added and two provide output. Data sets and sources for on-airport airside and terminal employment, airport construction, visi- tor spending, and the value of air cargo were discussed and evaluated by the research team and with the project panel. Table 5 provides a summary of the research team and panel’s consensus of the data sources by segment and metric that are used for this analysis. These data sources represent direct economic impacts for seven distinct segments of airport economic activity. However, four measures (jobs, labor income, output, and value added) are generally used in economic impact studies to convey direct contributions for each segment, and the core data account for just one to three of these measures per sector. Based on core data, the IMPLAN modeling pack- age was used to estimate the missing direct data by activity segment. Findings derived from the approaches described above are found in Chapters 4, 5, and 6. Chapter 4 describes the contributions of U.S. airports to the national economy. Chapter 5 explains findings of the multifactor produc- tivity analysis, reporting: (1) research findings from improv- ing air connectivity among regions and between the United States to international destinations can increase national productivity; and (2) the interrelationship of air cargo and national productivity. Chapter 6 describes how changes in the cost of passenger air travel affect the national economy. 4.1 Role in the National Economy The static measurement of economic impacts of on-airport activities, visitor spending, and air cargo, and the total national economic impact of U.S. airports is calculated to be: • $1.6 trillion in output (the summation of the value of goods and services produced) • $768 billion in value added (airports’ overall contri- bution to the national GDP and to national economic productivity) • 7.6 million jobs across the nation that pay workers a com- bined total of $453 billion These total contributions of airports to the U.S. economy account for 5.8% of national output and 4.9% of national GDP. Airports generate 4.3% of all jobs in the United States which, in turn, pays 4.8% of labor income earned nationally. Total impact accounts for economic activities generated on- airport, by international visitor spending and by the value of air cargo exported to international markets. The totals include the direct, as well as indirect and induced multiplier effects of each activity (Table 6). On-Airport and Off-Airport Effects To understand in more detail how airports support the national economy, the services and activities that occur on- airports can be isolated from off-airport supplier purchases (indirect effects) and the off-airport spending of wages by air- port based workers (induced effects), as well as visitor spending and cargo. In terms of value added, on-airport activities account for almost $100 billion (Table 7) of the total of $768 billion. The economic role of U.S. airports is mostly outside of airport fences and in the general economy of the United States. As shown in Table 8, airports generate $1.4 trillion National Economic Impact of Airports in the NPIAS

23 Economic Segment Primary Metric Jobs and Value Year Source Air Transportation Services Jobs 458,000 2011 BEA Labor Income $39,908 (mill) 2011 Value Added $69,600 (mill) 2011 Support Services for Air Transportation Jobs 159,000 2011 BLS-CES Labor Income $6,094 (mill) 2011 Public Sector On- Airport/Airport Security Jobs 151,000 2011 and 2012 U.S. Census Bureau, U.S. Budget Construction Expenditures $13,264 (mill) 2009-2013 (average) FAA Form 127 & NPIAS Concessions* Expenditures $7,506 (mill) 2011 ACI-NA Visitor Spending Expenditures $22,337 (mill) 2010-2012 U.S. Department of Commerce Air Cargo Value of Cargo $430,908 (mill) 2013 U.S. Census FTD * Includes car rental, parking and ground transportation, retail, food and beverage, in-terminal services, on-airport hotels, and land rents and non-terminal concessions. Table 5. Direct economic contributions of airports based on national data sets. Activity Employment Labor Income Value Added Output Air Transportation 458,000 $39,139,222,000 $66,986,205,000 $147,403,033,000 Support Activities for Air Transportation 159,000 $5,976,600,000 $6,419,540,000 $11,198,659,000 State, Local, and Federal Employment including TSA 150,700 $11,380,311,000 $14,175,671,000 $16,746,516,000 Non-Aeronautical Revenues 87,300 $2,995,511,000 $4,932,607,000 $6,907,625,000 On-Airport Construction 84,200 $4,898,218,000 $5,297,665,000 $12,762,214,000 Total 939,200 $64,389,862,000 $97,811,688,000 $195,018,047,000 Note: Employment is rounded to the nearest 100, and dollars to the nearest $1,000. Dollars are in 2010 values. Sources: BEA, 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 LLC. Calculations by EDR Group. Table 7. Direct impact of on-airport activities in the U.S. economy. Impact Type Employment Labor Income Value Added Output Direct Effect 2,172,200 $147,641,741,000 $247,424,063,000 $637,002,396,000 Indirect Effect 2,422,000 $160,934,429,000 $266,403,253,000 $535,376,204,000 Induced Effect 3,034,600 $143,929,511,000 $254,574,998,000 $425,079,660,000 Total Effect 7,628,900 $452,505,681,000 $768,402,314,000 $1,597,458,260,000 Note: Employment is rounded to the nearest 100, and dollars to the nearest $1,000. Dollars are in 2010 values. 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 LLC. Calculations by EDR Group using 2012 National IMPLAN model. Table 6. Total economic contribution of airports to the U.S. economy.

24 Table 8. Off-airport contribution to the national economy generated by U.S. airports in $2010 dollars. Activity Employment Labor Income Value Added Output Direct Impacts International Visitor Spending 314,100 8,877,566,000 13,720,831,000 22,002,778,000 Air Cargo 918,900 $74,374,314,000 $135,891,544,000 $419,981,571,000 Subtotal Direct Off-Airport Impact 1,233,000 $83,251,880,000 $149,612,375,000 $441,984,349,000 Indirect Suppliers of Goods & Services Air Transportation 457,700 $26,711,470,000 $49,744,533,000 $93,874,615,000 Support Activities for Air Transportation 51,100 $2,674,087,000 $3,923,265,000 $6,370,341,000 State, Local, and Federal Employment including TSA 16,900 $979,523,000 $1,590,756,000 $2,678,204,000 Non-Aeronautical Revenues 17,300 $997,537,000 $1,670,171,000 $2,893,725,000 On-Airport Construction 60,200 $3,750,481,000 $6,012,475,000 $11,409,886,000 International Visitor Spending 79,200 $4,370,449,000 $7,276,746,000 $12,799,908,000 Air Cargo 1,739,500 $121,450,882,000 $196,185,306,000 $405,349,524,000 Subtotal Indirect Suppliers of Goods & Services 2,421,900 $160,934,429,000 $266,403,252,000 $535,376,203,000 Induced Impact–Spending Workers’ Wages Air Transportation 642,100 $30,385,013,000 $54,336,692,000 $91,350,165,000 Support Activities for Air Transportation 82,000 $3,879,341,000 $6,936,748,000 $11,662,653,000 State, Local, and Federal Employment including TSA 116,900 $5,531,830,000 $9,892,118,000 $16,631,496,000 Non-Aeronautical Revenues 37,600 $1,778,801,000 $3,179,144,000 $5,345,239,000 On-Airport Construction 81,600 $3,858,890,000 $6,897,526,000 $11,597,032,000 International Visitor Spending 125,200 $5,921,940,000 $10,587,534,000 $17,800,903,000 Air Cargo 1,949,300 $92,573,695,000 $162,745,236,000 $270,692,172,000 Subtotal Induced Impact–Spending Workers’ Wages 3,034,600 $143,929,510,000 $254,574,998,000 $425,079,660,000 TOTAL NATIONAL IMPACT GENERATED OFF-AIRPORT 6,689,500 $388,115,819,000 $670,590,625,000 $1,402,440,212,000 Note: Employment is rounded to the nearest 100, and dollars to the nearest $1,000. Dollars are in 2010 value. 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 LLC. Calculations by EDR Group using 2012 National IMPLAN model. of output outside of the airports in the general economy of the U.S., and contribute $671 billion to the national GDP in 2010 dollars. The impact of international visitor spend- ing is accounted for here, as is the off-airport production value of air cargo.16 Indirect economic effects are triggered when directly affected industries use their earned business revenues (or budgets, in the case of public agencies) to purchase supplies and services which, by definition, occurs primarily off-airport. Similarly, induced effects occur when workers spend wages earned by virtue of revenues gener- ated by directly or indirectly affected businesses. Examples of induced effects are when employees of directly and indi- rectly affected businesses purchase groceries, smart phones, and clothing, or hire family lawyers.17 As shown in Table 9, activities on-airport are responsible for about one-third of the total contribution of U.S. airports to the national economy. The contribution of air cargo repre- sents about 60% of all effects and international visitor spend- ing contributes the balance.18 Note that hospitality industries are generally low-wage and labor intensive compared to cargo producing industries. Thus, direct employment pays workers an average of $28,000 per job and accounts for an average of $44,000 per job in value added. In contrast, many of the man- ufacturing sectors that export commodities not only pay high wages but also use significant automation processes. There- fore, international exports generate $81,000 in labor income and $148,000 in value added per job. 4.2 Regression Analysis The research team conducted a regression analysis based on findings of airport economic impact studies conducted between 2006 and 2012 and according to the classifications of airports in the national NPIAS. This exercise validated the method of piecing together data sets and using the modeling tools described above. The advantages of the regression analysis are that economic impacts can be attributed to different NPIAS airport classi- fications and variables that predict economic impacts can be isolated. The disadvantages concern the wide number of years

25 Economic Impact Source Employment Labor Income Value Added Output On-Airport Direct 939,200 $64,389,862,000 $97,811,688,000 $195,018,047,000 Airport Indirect and Induced Effects 1,563,400 $80,546,973,000 $144,183,429,000 $253,813,356,000 Total Airport Generated 2,502,600 $144,936,835,000 $241,995,117,000 $448,831,403,000 International Visitor Spending 518,400 $19,169,955,000 $31,585,111,000 $52,603,589,000 International Air Cargo 4,607,800 $288,398,892,000 $494,822,086,000 $1,096,023,267,000 Total 7,628,800 $452,505,682,000 $768,402,314,000 $1,597,458,259,000 Percent of Impact Airport Facilities 33% 32% 31% 28% International Visitor Spending 7% 4% 4% 3% International Air Cargo 60% 64% 64% 69% Note: Employment is rounded to the nearest 100, and dollars to the nearest $1,000. Dollars are in 2010 value. 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. LLC. Calculations by EDR Group using 2012 National IMPLAN model. Table 9. National economic contribution by source of impact. Air Cargo Air cargo represents a significant proportion of the economic contribution of airports to the national economy. The $431 million in value of commodities produced in the United States and shipped by air to international destinations introduced in Table 5 is the aggregate of sales prices (or costs if not sold) by U.S. shippers to the foreign parties. This represents the value of production in the U.S. economy, includ- ing labor income, taxes paid, profits, and the expen- ditures for materials and services that are inputs to these commodities. The sales of these commodities to international markets are enabled by airports and air transportation. Exports to Canada and Mexico account for about 6% of the total air cargo exported by U.S. industries and air cargo is less than 5% of the total value of cargo exported from the U.S. by all modes to these two nations (according to the U.S. Census Bureau Foreign Trade Database, as assembled by WISER- Trade). As the Canada–Mexico markets account for a relatively small amount of total air cargo, and air cargo accounts for a small portion of U.S. exports to these destinations, the research team decided not to make guesses about the levels of current air cargo that could be shipped by truck or rail, and included air cargo value to Canada and Mexico among the total. The $430.9 million in air exports shown in Table 5 is in 2013 value. Using industry-specific output defla- tors from the U.S. Bureau of Economic Analysis (through the 2012 IMPAN model) results in a 2010 value of almost $420 billion, shown as direct impacts of output in Table 8, Row 2. The value added to the U.S. economy from these shipments, $135.9 billion, is also shown on Table 8.

26 Table 10. Classifications of NPIAS airport groups from regression analysis. Airport Classifications NPIAS Airports in Regression Analysis Percent of Total Class in Database Large Hub Airports 29 6 21% Medium Hub Airports & Small Hub Airports 110 27 25% Non-hub Primary Airports 239 65 27% Non-primary Commercial Service Airports, Reliever Airports, & General Aviation Airports 2,952 546 18% Totals 3,330 644 19% Sources: Task 5 NPIAS Database. Calculations by EDR Group. over which the studies were completed19 and the disparate data collected and reported, data collection methodologies, and geographies (counties, multi-county regions, and states) that were delineated for economic impacts. Though usable economic impact results were available for more than 600 of the 3,330 NPIAS airports [drawn from the 1,013 airports reviewed and stored in the NPIAS database (Appendix 3A)], the differences in the economic impact studies limited the functionality of the regressions and required consolidation of Classification Explanatory Variables Results Large Hub* Total enplanements All else constant, an additional 10,000 total enplanements per year are correlated with an estimated 3.3 million dollars of direct airport revenue. Medium and Small Hub Square root of total enplanements For both medium and small hubs, all else constant, an additional 10,000 total enplanements are correlated with approximately $1.8 million of revenue. Non-hub Primary Airports Square root of domestic enplanements; Maximum runway length (in feet); Military operations All else constant, an additional 10,000 total enplanements at a non-hub primary airport are correlated with a $1.66 million increase in direct revenue. Additionally, a 1,000-foot increase in runway length is correlated with $0.13 million in direct revenue, and 1,000 military operations at $.05 million in direct revenue. Non-primary Commercial Service Airports, Relievers, and GA Airports Maximum runway length converted to 1000s of feet and squared (by Airport Classification); Total GA operations (Not Classification Specific) For lack of better predictors, the research team relied on the interaction of airport classifications and maximum runway length as a proxy estimator of the type of activity enabled by different length runways, and the scale of operations. The simple interpretation for this regression is that a 1,000-foot runway length explains $0.01 million in direct revenues for relievers, $.002 million for non- primary commercial service airports, and $.001 million for GA airports. This interpretation can be followed when looking at the reliever airports and commercial services airports (by swapping out the parameter estimates). Additionally, 1,000 GA operations (itinerant plus local) each of the three classifications correlate to $882 in revenue. Findings for all four regression equations are significant at least at the 95th percentile confidence level with P values below .05. * Modeling is limited because there were so few populated airports regarding direct revenue for large hub airports, but findings are significant. Table 11. Summary of regression results. classifications. In addition, there are just 29 large hub NPIAS airports, and the database was limited to six observations. Table 10 shows airports by classification in the regression analysis. The 644 airports with usable economic metrics were drawn from 675 studies that provided output analysis and 714 studies that provided employment totals. Table 11 summarizes the findings of each regression model. Although the regressions are limited, all explanatory variables are highly significant and show the expected relationship.

27 To derive meaningful findings, medium hub airports and small hub airports were combined, and non-primary commer- cial service airports and reliever airports were combined with general aviation airports. Large hub airports were not com- bined because the size of these airports overwhelms any other classification. The regressions used the aviation characteristics of each air- port, socio-economic data for relevant counties and MSAs, and the findings of the 1,013 economic impact studies to estimate national output. The significant explanatory variables that were found (differing by airport classification) include connecting enplanements, O&D enplanements, commercial operations, general aviation (GA) operations, and maximum runway length. Comparing Regression Estimates to Analysis of National Data Sets Total on-airport direct economic output is estimated at $198 billion across the NPIAS airports from the four regression models in 2010 dollars, which is similar to the $195 billion (2010 value) on-airport direct output that is calculated by aggregating national databases (displayed in Table 9). As shown in Table 12, the total economic impacts (including direct, indirect, and induced effects) derived from the regression analyses are slightly higher, but are comparable to the total impacts based on the national level data sets.20 Analysis Jobs Labor income Value added Output Aggregated Data Bases 2.5 million $145 billion $242 billion $449 billion Regression Analyses 2.9 million $164 billion $261 billion $471 billion Sources: Task 5 NPIAS Database, 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. LLC. Calculations by EDR Group conducting using 2012 National IMPLAN model. Direct output was $198 billion for the regression analysis and $195 billion from the data sets. The data bases, as displayed in Table 7, are available by business types on airports (e.g., concessions, airlines, and others) and often by employment as well as output. In the Task 5 NPIAS Data Base, however, the economic impact studies did not uniformly break out different segments of on-airport activity. This introduced some modeling differences and the comparative total results. Table 12. Total on-airport economic contribution from aggregated national data sets and regression analysis.