Passenger Value of Time, Benefit-Cost Analysis and Airport Capital Investment Decisions, Volume 2: Final Report (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.

LIST OF FIGURES Figure 1. Flow of Research for the Project ..................................................................................... 6 Figure 2. Flow of Interaction between Project Panel and Research Team on Data Collection ....................................................................................................................... 9 Figure 3. Disutilities Associated with Connecting Time ............................................................... 33 Figure 4. Ticket Acquisition Method by Market Segment ........................................................... 52 Figure 5. Payment Source by Market Segment ........................................................................... 52 Figure 6. Distribution of Reported Airfare ................................................................................... 53 Figure 7. Location of Origin Airports by Number of Reported Trips ........................................... 54 Figure 8. Location of Destination Airports by Number of Reported Trips ................................... 54 Figure 9. Party Size by Market Segment ...................................................................................... 55 Figure 10. Length of Stay by Market Segment ............................................................................. 56 Figure 11. Distribution of Reported Terminal Access Time ......................................................... 57 Figure 12. Distribution of Reported Time to Security Screening from Entering the Terminal ....................................................................................................................... 58 Figure 13. Distribution of Reported Time to Clear Security ........................................................ 58 Figure 14. Distribution of Reported Time to Reach the Gate Area from Security ....................... 59 Figure 15. Distribution of Reported Gate Time ........................................................................... 59 Figure 16. Flight Delay at Origin and Destination ........................................................................ 60 Figure 17. Flight Departure Time by Market Segment ................................................................ 60 Figure 18. Distribution of Preferred Arrival Time with Respect to Actual Arrival Time .............. 61 Figure 19. Number of Connections by Market Segment ............................................................. 61 Figure 20. Air Journey Attitudes Statements ............................................................................... 63 Figure 21. Number of Round Trips in the Past Year by Trip Purpose .......................................... 63 Figure 22. Age by Market Segment .............................................................................................. 64 Figure 23. Annual Individual Income by Market Segment .......................................................... 65 Figure 24. Relationship of Passenger Time Value to Broader Capital Planning Assessment................................................................................................................... 95 iv

1 INTRODUCTION Airport sponsors and airport managers are often called upon to weigh the costs and benefits of capital investment decisions. Alternatives considered may be different designs of a single improvement or alternative projects. For example, one set of alternatives could include deciding among runway extensions of varying lengths of the same runway, as well as new runways of varied configurations. Often these projects are also packaged with different mixes of complementary investments, which could range from land acquisition to new or improved aprons. Decisions such as these regularly involve prioritizing resources among different types of investments, such as evaluating trade-offs between a runway extension and improved passenger access from parking lots to a terminal. These decisions become even more complicated if state or regional agencies are deliberating over investment decisions across multiple airports. A series of analytical tools and techniques are available to airport sponsors, managers and state officials to help them make decisions for funding capital investments. Many of these tools assess a financial feasibility—determining which project (or which alternative) can be afforded. Other tools/techniques are used to estimate the economic impacts of projects. Economic impact studies may be used to educate the public about the significant economic contributions of a project and to build public support for it. Techniques often used for decision making include Benefit-Cost Analysis (BCA) and calculation of Net Present Value (NPV). Fundamentally, these computations are used to determine whether an investment will generate benefits that will exceed its costs. This analysis is accomplished by expressing all current and future benefits and costs on an equivalent basis, which is their “present value” (PV). A project is considered economically justified if it has a positive “Net Present Value” (calculated as the PV of benefits minus the PV of costs). In a BCA, a project is considered economically justified if the benefit/cost (B/C) ratio exceeds one (calculated by dividing benefits by costs). 1 1 While a NPV and BCA analysis is a valuable tool for analyzing proposed projects or comparing alternatives that will have costs and benefits realized across multiple years, a BCA is mandatory for applications for more than $10 million in discretionary funds from the Federal Aviation Administration’s (FAA) Airport Improvement Program (AIP). The FAA also reserves the right to ask for a BCA for less costly projects. See http://www.faa.gov/airports/aip/bc_analysis/ 1 page 1

1.1 Value of Time The passenger value of time is a major component of benefit analyses in capital improvement considerations at commercial airports. This broad category of analyses may include evaluation of projects that will provide the benefits of travel speed improvements or travel delay reductions. It may also apply to projects that will enable airlines to offer improved air service that will allow travelers to use a closer airport, a faster or more frequent service, or a service with fewer connections or less time spent in changing modes (e.g., from surface transportation to air travel). Or, it may apply to projects that will provide faster circulation within an airport, including improved efficiency of security screening, reduced time required for proceeding from security screening to gates, or less time spent between connecting flights. Historically, Federal Aviation Administration (FAA) guidance for the passenger value of time to be used in an airport BCA has conformed to the U.S. Department of Transportation (DOT) guidance that provides single values for business travelers and personal travelers—and a third value (“all purposes”), which is a hybrid of business and personal travelers. The guidance distinguishes between surface travel and air or high speed rail travel. The most recent values for air and high speed rail travel are $32.60 for personal travelers, $60.00 for business travelers, and $43.70 for all purposes. These values are also expressed as plausible ranges, shown in Table 1 (U.S. DOT, 2014). Table 1. U.S. DOT Guidance on Passenger Value of Time for Air and High Speed Rail Travel by Trip Purpose Trip Purpose Recommended Values Plausible Range Low High Business $60.00 $48.00 $72.00 Personal $32.60 $28.00 $41.90 All Purposes $43.70 $36.10 $54.10 Source: U.S. Department of Transportation, Revised Departmental Guidance on Valuation of Travel Time in Economic Analysis, July 9, 2014. Whether by ranges or as single rates, these values do not take into account differences in travelers’ willingness to pay (WTP) for segments of an air trip that are more or less onerous than others. For example, time spent waiting at the gate and waiting in a security line may be valued differently by an air traveler. While not to dismiss any potential discomfort involved, time waiting at a gate for a flight or in nearby concessions can be spent productively (working) or enjoyably (listening to music, reading, watching a movie, or eating and drinking). As technology has evolved from pay phones to smartphones and tablets, options for passengers have increased in both the number of possible activities and potential efficiency. However, there are very limited other activities available to passengers while spending time in a security line. page 2

This research is intended to improve the application of benefit-cost analysis for airport investment decision-making. This research project takes a first step in improving the breadth of “value of time” measures. In addition, a guidebook on applying the research findings was developed for the aviation community, which could be of immediate use in evaluating capital investments at airports. In practice, some (but not all) airport capital investments are made specifically to increase capacity and reduce delays occurring in the air or on the ground. The valuation of air passenger time is one part of a broader set of delay-related costs, and even those delay costs differ depending on when and where they occur. However, improving the valuation of passenger travel time and delay, which is the key focus of the data collection conducted for this project, also enables a much broader set of improvements to be made in the entire practice of capital planning assessment. This is further addressed in the Guidebook for Valuing User Time Savings in Airport Capital Investment Decision Analysis, prepared as part of this project. The value of time in air travel involves many distinct travel segments, each involving time that might be made shorter or longer by actions taken by air carriers or terminal operators. In research for the project, the Research Team identified some likely differences across these components in the values of time and reliability, and—equally important—in the factors that affect those values. This approach led to dividing and valuing the time components of an air trip into separate categories2, including: • Ground-side access time to the airport • Time spent in flight check-in and security • Time walking to gate • Time Spent in the gate area before boarding the flight • In-Aircraft Time, distinguished between scheduled flight time and in-flight delay • Transfer time to make flight connections • Baggage pickup and terminal egress time • Ground-side egress time from the airport The research explored how air travelers perceive differences in the value of time spent in each of these components. This was conducted through a survey that included multiple stated preference (SP) experiments in which respondents made choices between alternative hypothetical travel options that differed in the time spent in each of these 2 In order to keep the survey instrument later developed and used in the research to a reasonable level of complexity for respondents to handle, several trip components of this list were consolidated, as discussed in text in subsequent chapters of this report. page 3

components, as well as other characteristics of the trip. Due to practical limits on the size of the survey, the SP experiments did not directly address the arrival end of an air trip, including: time to baggage claim or terminal exit; wait time at baggage claim and exiting the terminal; and airport ground egress time. These travel time components are addressed below. • Time to Baggage Claim or Terminal Exit: It was assumed that the disutility associated with this is the same as that involved in getting to the gate area after clearing security on departure. • Wait Time at Baggage Claim and Exit Terminal: It was assumed that the disutility associated with waiting at baggage claim, claiming bags, and then exiting the terminal is the same as that waiting at check-in, checking in, and walking to security screening. • Airport Ground Egress Time: It was assumed that the value of egress time is similar to that for ground access. The overarching purpose of this ACRP research project is to develop measures of air passenger value of time for benefit-cost analyses that relate the segmentation of passengers’ air trips to the different types of capital improvements that affect the value of time consumed at each segment. In this way, airport sponsors, managers, and funding agencies can incorporate an appropriate passenger value of time for specific facility investments when deciding between projects. Table 2 cross-references categories of capital investments with the type of passenger activity that consumes time during an air trip. page 4

Table 2. Capital Facilities that Affect the Time Spent in Specific Air Passenger Activities Passenger Air Trip Related Activity Terminal Landside (Departures) Terminal Landside (Arrivals) Airside Passenger Check-in Passenger Screening (TSA) People Mover to Gate Aircraft Gates People Mover from Gate Baggage Handling Air Traffic Control Runway Taxiways Apron Area, Taxilanes and Aircraft Gate Positions Ground Access Terminal Access Check-in & Security   Reach Gate  At Gate   Flight Time      Flight Delay      To Baggage Claim or Exit*  Baggage Claim*  Ground Egress*  Table 2. Capital Facilities that Affect the Time Spent in Specific Air Passenger Activities (Continued) Passenger Air Trip Related Activity Groundside Access Road to Airport People Mover Access to Airport Terminal (from Transit, Rental Car or Parking Facilities) Parking Lot/Garage Central Bus or Train Transfer Facility to/from Airport Terminal Airport Circulation Improvements for Taxis Drop-off & Pickup Areas by Terminal Curbfront Ground Access  Terminal Access      Check-in & Security Reach Gate At Gate Flight Time Flight Delay To Baggage Claim or Exit* Baggage Claim* Ground Egress*   Page 5

1.2 Research Approach The Research Team performed an extensive review of airport project evaluation activities and techniques. From the larger set of activities and techniques identified in the review, the Research Team chose to pursue a smaller set of more focused aspects. Figure 1 illustrates the flow of research tasks that led to the development of the guidebook. Figure 1. Flow of Research for the Project Flow of Research Tasks 1 and 2 comprise the foundation of the research described in this report. In Task 1A, the Research Team identified published guidance concerning passenger value of time, Page 6

benefit-cost analysis and airport capital investment decisions. The literature review is provided in Appendix A.1 of this report. Literature was reviewed on the following topics: • U.S. airport capital investments. These references were helpful in identifying the different types of airport capital investment projects and the types of analysis that may be required for different types of projects, depending upon funding sources. • Benefit-cost analysis and other methods for evaluating capital investment decisions. The references on methodology are grouped according to the following sub-topics: (1) BCA and (2) other methods of evaluating capital investment decisions. • Benefit-cost analysis transportation applications. References on actual BCA applications to airports and other transportation modes provide illustrations of the application of BCA and other approaches to economic valuation of different types of benefits and costs associated with airport capital investments. • Economic valuation. These references cover both theory and empirical estimation of the following economic values relevant to the evaluation of airport capital investments: o Value of travel time o Value of statistical life o Valuation of noise effects o Valuation of climate and air quality effects Although the focus of the research project was not on evaluating the safety contribution or environmental consequences of capital investment projects, because these aspects do have to be considered in project evaluation, they were included in the literature review for completeness. In Task 1B, four methodologies and associated techniques for evaluating airport capital investment decisions were researched. These methodologies are: (1) economic analysis, (2) financial analysis - investment decision rules, (3) financial analysis - airport financial planning techniques, and (4) economic impact analysis. Analysts can use one or all of these methodologies, each involving different analytical techniques, depending upon the nature and objective of the airport capital investment, the source of funding, and the parties involved in decision making, among other factors. Appendix A.1 documents the findings of this review and also discusses approaches to addressing uncertainty in any of the methodologies for evaluating capital investment decisions. The purpose of Task 2 was to summarize the key information identified in Task 1B. Task 2 provided a synopsis (in the form of the five reference tables included in Appendix A,2) that summarizes methodologies and techniques for use in evaluating airport capital investment decisions. This synopsis provides guidance for identifying, measuring and valuing benefits in airport benefit-cost analysis. The first two tables provide quick references on the use of each of the four methodologies and associated techniques reviewed in Task 1 of the Page 7

research: (1) economic analysis, (2) financial analysis – investment decision rules, (3) financial planning – airport financial planning, and (4) economic impact analysis. The last three tables present relevant information from the FAA BCA Guidance – with updates to certain source references – on the types, measurement and valuation of benefits for airport capital projects in benefit-cost analyses submitted to the FAA to support requests for Airport Improvement Program (AIP) discretionary grants and Letters of Intent (LOIs). Case studies and Identification of Analytical Gaps In Task 3 and Task 4, the Research Team reviewed the tools and techniques profiled in the preceding tasks by: (1) conducting five case studies of capital investments at airports to illustrate the practical aspects of how tools are currently used; and (2) examining the extent to which gaps exist in the available guidance, as well as the steps required to fill those gaps. The case studies undertaken in Task 3 profile (a) the analytical tools used in decision- making, (b) how tool selection varies based on the project motivation and funding sources being sought, and, in particular, (c) how the value of passenger time factors into the investment decision.3 The case study projects encompass both capacity enhancement projects and non-capacity related investments. Projects described by the cases include terminal modernization projects intended to improve passenger flow and airport safety, and accommodate more aircraft at the terminal buildings. Other projects focus on runway improvements and taxiways intended to add capacity for more flights, reduce delays, and increase safety. The airports that undertook the case study projects include one small hub, two medium hubs and two large hubs. The case studies are documented in Appendix A.3 of this report. In Task 4, the Research Team looked at the analytical needs that are not addressed by the established techniques documented in Tasks 1 and 2. These gaps take one of two forms. The first is a lack of adequate guidance on how to address particular aspects of benefit-cost or other capital investment analysis. The second is a lack of data or other information needed to effectively address particular issues in applying analytical techniques to airport capital investment decisions. Moreover, some issues involve both types of gap, where there is not only a lack of guidance on how to address the issue but also a lack of the underlying data needed to adequately address the issue. The findings of Task 4 are presented in Appendix A.4 of this report. 3 The case studies did not assess how well the evaluation techniques were applied or if these are worthwhile projects. Page 8

Deconstructing Passenger Value of Time Starting in Task 5, the research conducted for the project moved from looking at the role of passenger value of time in how airports make capital investment decision, to how to improve the technique of applying passenger value of time to benefit-cost analysis. The first step in this phase of the project was to summarize the most prominent current theories that explain how value of time and value of reliability in air travel are determined, with attention to how they vary with specific factors. Such travel involves many distinct travel segments, each involving time that might be made shorter or longer by actions taken at airports. In turn, this leads to likely differences across these components in the values of time and reliability and in the factors that affect those values. Lastly, strategies to empirically measure the values of time and reliability of these components were identified and described. The findings and recommended approach identified in Task 5 are described in the next chapter. Data Collection to Assess Passenger Value of Time Based on Trip Segments of Air Travelers Data collection was conducted as Task 8. However, planning for data collection, as well as the actual collection and analysis of the primary data, have taken place at multiple points in the entire research effort, and have been the subject of an ongoing conversation with the ACRP Project Panel starting with Task 1. The flow of interaction on data collection between the Research Team and the Panel is illustrated by Figure 2. Figure 2. Flow of Interaction between Project Panel and Research Team on Data Collection Task 1C involved Panel input on the survey component of the project from the beginning of the development of the primary data collection effort. Task 1C provided the Research Team’s initial thoughts on the design of a survey instrument. An early task memorandum provided the Panel with an overview of the proposed steps in designing, administering, and analyzing a survey of air travelers. It began the discussion on assembling information on how the perceived value of changes in travel time varies with: (a) traveler characteristics; and (b) circumstances in the different components of the airport and air trip. In Task 6, the Research Team combined the framework developed in Task 1C and comments received from the Panel, with gaps identified in Task 4 as they pertain to value of time and findings from the case studies conducted in Task 3. The ensuing data collection plan had the objective of identifying the values of time associated with each of the different travel Task 1C: Preliminary Design of Survey Instrument Task 6: Data Collection Plan Task 7: Phase 1 Interim Report/Panel Meeting Task 8: Data Collection and Model Estimation Task 10: Guidebook Page 9

time components. The approach adopted for the data collection involved a web-based survey of respondents who had taken an air trip within the U.S. in the prior six months, the details of which they could recall. The primary purpose of the survey was to collect suitable data to estimate values of the willingness to pay for reductions in the various time components that are part of air travel (defined in Task 5). The proposed survey instrument involved collecting a wide range of information about each respondent’s most recent trip, including the times spent in the various components of the trip and the costs involved. Based on the reported details of their trip, the respondents were then presented with a set of stated preference choice experiments that varied the times and costs involved and asked them to choose between these hypothetical alternatives for their trip. Analysis of these choices would allow the implied values of time to be inferred. The data collection plan included a proposed sampling plan, together with a draft survey instrument. The Research Team submitted the data collection plan developed under Task 6 to the Project Panel in addition to the Interim Report (Task 7). The data collection plan formed the major discussion focus of the Panel meeting on the Interim Report. Subsequent to the Interim Report meeting, in responding to comments from Panel members, the data collection plan was revised. The actual data collection was conducted in Task 8. The major revisions concerned two primary focuses of comments from the Panel: • The SP survey experiments initially proposed were too complex and the length of the survey would discourage responses due to the time required to complete the survey. The Research Team agreed with these concerns and reduced the length and complexity of the survey by consolidating some trip segments and also by reducing the number of questions related to the respondents’ most recent air trip and simplifying the SP experiments. The final stated preference scenarios included 16 observations for each respondent (eight observations from a set of flight itinerary SP choice experiments and eight from a set of time component SP choice experiments – see Appendix B.1). • The planned sample was too small. In response, the Research Team increased the target sample size from 800 to 1200. Table 3 shows the number of respondents and the breakdown by the purpose of the respondents’ most recent domestic air trip. Survey Implementation The Research Team developed and implemented a web-based stated preference survey questionnaire that gathered information from a sample of air travelers who had traveled recently by air within the U.S. and were able to recall the details of their trip. The questionnaire collected data on their recent air travel experience and administered the stated preference experiments to collect data that were used to estimate the respondents’ willingness to pay for travel time savings for the various time components of their trip. The survey respondents were obtained from a commercial vendor that maintains nationwide panels of individuals willing to participate in online surveys. Screening questions were used to exclude respondents who had not made a domestic air trip within the previous six months, or met a number of other disqualifying criteria. Page 10

The survey was conducted in two waves. The first 105 surveys were a “soft launch,” with surveying suspended after these initial responses were received. The responses were then analyzed to assure the Research Team that questions were being understood and that the response rates included reasonable numbers of business and personal travelers. After this review, the survey questionnaire was adjusted and the full launch was implemented, which resulted in 1,155 additional responses (see Table 3). Table 3. Data Collection Summary Purpose of Recent Trip Business Non-business Total Soft Launch 32 73 105 Full Launch 291 864 1,155 Total 323 937 1,260 The “soft-launch” was to evaluate the median and mean survey duration times, as well as whether people were dropping out before completing the survey, in addition to other data quality/integrity checks. This enabled the Research Team to refine the survey to maximize the amount of quality data collected while minimizing the burden placed on respondents. The stated preference survey experiments were customized for each respondent by presenting values for the travel time components and costs of the airfare or ground access trip and modifying wording based on respondents’ previous answers. The Research Team used the stated preference choice experiment data to estimate discrete choice models that explained the choices made in the SP experiments between alternatives in terms of the times and costs used in the experiments and other aspects of the hypothetical trip options (such as the number of flight connections involved). The SP experiments led to a “willingness-to-pay” analysis. The willingness to pay for travel time savings, or value of time, is defined as the marginal rate of substitution between time and money (i.e. the amount of money that a person would be willing to exchange for a reduction in travel time, or some specific component of travel time, while maintaining the same level of utility, or satisfaction), and can be determined from the estimated time and cost coefficients of the discrete choice models. A detailed discussion of the data collection and modeling is provided in Chapter 3 below. 1.3 Guidebook The Research Team prepared the Guidebook for Valuing User Time Savings in Airport Capital Investment Decision Analysis for use by airport sponsors, managers and consultants based on the findings of the research undertaken in Tasks 1 through 8. The Guidebook provides updated travel time values that are specific to ten different segments of airport trips, differentiating between business and leisure travelers, and allowing income levels to be taken into consideration. It describes a process for using travel time valuations in Page 11

estimating the relative benefit or cost effectiveness of proposed airport capital investments. The process allows for decision makers to screen whether particular airport projects warrant the use of the more detailed values of time presented in the Guidebook and to identify the types of travel time savings that are likely to occur for particular types of projects. The Guidebook is a separate document from this report, which documents the research required for its preparation, and may be found at www.trb.org/Main/Blurbs/172472.aspx. 1.4 Future Research Practical considerations of scope and budget limited the aspects that could be addressed in this project. As a result, a number of issues identified in the research would benefit from more intensive data collection and modeling than was possible under this project. In order to increase the understanding of how the values assigned by air passengers to savings of travel time and reduced delay vary across the different components of air trips, future research is needed to supplement and extend the findings of this project. Just as the resources of this project were maximized by leveraging previous research, future research should be expected to leverage the data collection techniques and findings from this project and subsequent or ongoing research. Chapter 4 below provides a discussion of the future research needs identified in the course of the research. 1.5 Organization of the Final Report This report is organized as chapters that emphasize the final outcomes of the value of time research that was conducted in the course of the research. Accordingly, the chapters below are not organized in order of task. Table 4 shows the correspondence between the chapter titles and report appendices to the original research tasks and technical memoranda that formed the basis of each segment of the research. Page 12

Table 4. Correspondence of Report Chapters and Appendices and Research Tasks Chapter Task 1. Introduction N/A 2. Components of Air Trip Travel Time Task 5 3. Data Collection and Modeling Task 8, including discussion of the data collection plan in Tasks1C, 6 and the Interim Report (Task 7). Chapter 3 also includes additional analysis requested from Panel members when these Tasks were reviewed. 4. Future Research Needs Task 9 5. Conclusions N/A Appendices Task A. Background Research 1. Literature Review Task1A 2. Tools and Techniques for Evaluating Capital Investments Tasks 1B and 2 3. Case Studies Tasks 3A and 3B 4. Research Gaps Task 6 B. Stated Preference Survey 1. Survey Screen Captures Task 8, (Appendix 1 to the Task 8 technical memo) 2. Survey Tabulations Task 8, (Appendix 2 to the Task 8 technical memo) 3. Additional Analysis The additional analysis was undertaken in response to (a) issues raised in the Task 8 technical memo for further analysis, and (b) response to Panel comments on the draft Task 8 technical memo. Page 13