Passenger Value of Time, Benefit-Cost Analysis and Airport Capital Investment Decisions, Volume 1: Guidebook for Valuing User Time Savings in Airport Capital Investment Decision Analysis (2015)

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1 INTRODUCTION: VALUE OF TIME DEFINITION AND USE 1.1 What Is the Value of Time and Why Do We Care? The value of time is a dollar amount assigned to value the benefit of a change in expected travel time or unscheduled delay resulting from transportation projects, policies, programs or events. For aircraft and airport operators, time delay can literally mean money lost insofar as they pay staff salaries regardless of whether aircraft are flying or sitting on the ground, and they often also incur overtime costs for late activity. For business travelers, employers may also be paying salaries of travelers, and incurring additional salary time without further benefit when flights are delayed. For travelers making personal trips, there is the value of their personal time, which reflects how much travelers would be willing to pay to reduce their travel time and can be measured by analyzing either their revealed or stated preferences. Revealed preferences can be seen by observing the willingness of travelers to incur extra costs for such time savings as more convenient parking, expedited check-in and security screening or express air services, or their willingness to save money by selecting less quick air service or through their airport choices. Stated preferences can be seen through their responses to surveys about how their behavior would change if confronted with proposed or hypothetical alternative scenarios. The travel times and delays involved in making an air trip, and the relative value of reducing them, matter for a variety of reasons. First and foremost, they play a critical role in benefit- cost analysis, which is a consideration in aviation funding decisions. Specifically, the Federal Aviation Administration (FAA) requires benefit-cost analysis for airport capacity enhancement projects funded through the Airport Improvement Program (AIP). Similarly, the US Department of Transportation (USDOT) considers the result of cost-benefit analysis when selecting projects for discretionary funding programs, such as the recent TIGER (Transportation Investments Generating Economic Recovery) Program grant rounds. The US Office of Management and Budget (OMB) has also long required the USDOT to estimate the incremental costs and benefits during Regulatory Impact Analysis (RIA) for rulemaking, such as occurred for the 2009 Enhanced Airline Passenger Protections (or “Passenger Bill of Rights”). The magnitude and value of reducing the travel times and delays involved in making air trips apply to far more than just funding decisions. These factors are widely considered in aviation facility planning processes, airport design and operations decisions. They play a role in transportation-related decisions made by airlines, aircraft owners and operators, and travelers, as described in section 1.2 below. Yet valuing time becomes complicated, because values can vary for different types of situations. That aspect is discussed in section 1.3. This 1 Page 1

guide is intended to help transportation planners and airport operators better understand both the valuation of travel time and delay and how that valuation can be used. 1.2 How the Value of Time Is Used in Aviation Investment Analysis The value of reducing the travel times and delays involved in making air trips may be relevant for five different types of decisions –project funding, facility planning, terminal design, airline service decisions, airport choice decisions and regulatory evaluations. Each category of decision is described in more detail below. Project funding – Public funds are limited, so the OMB and FAA requires a benefit-cost analysis (BCA) for all major capital grants, which fund runway, taxiway, navigation aid and other airport improvement projects. This process identifies applications for projects that appear to have long-term societal benefits that exceed the long-term project costs. The typical categories of benefit for these projects are time savings for aircraft passengers and crew, and operating cost savings for aircraft. While this handbook will serve to guide airport managers, their consultants, and other stakeholders in valuing passenger time, it is important to also be cognizant of the breadth of benefit-cost analysis (BCA). BCA recognizes that improving capacity for aircraft movements (via runway and taxiway expansion), reliability for takeoffs and landings (via navigation aids, traffic management enhancements, or control tower enhancement), and terminal capacity (via expansion of apron space and gates) can reduce aircraft queues and diversions that waste crew time, aircraft operating costs while flying or moving or standing on the ground, and passenger time.4 The consideration of benefits and costs is also not limited just to the FAA interest in airside improvements. In making funding decisions for investment in terminal and access road improvement projects, airport owners (which may be state or local government agencies, independent authorities or private companies) must also consider trade-offs between cost and user benefits to aircraft owners, passengers, and shippers from reductions in time and expense. Facility Planning – Long-term planning is required for the development of land, buildings and equipment required to support aviation services. Planners recognize that evolving aviation demand (driven by shifting population, as well as changing social, technological and economic patterns) will require plans to be made for future investment in airports. These plans may include expansion or reconfiguration of groundside facilities (access roads, parking), terminals, and airside facilities (aprons, taxiways, runways, etc.). The value of time 4 Due to the extremely low incidence but extremely high consequences of aviation crashes, safety standards are typically a regulatory requirement rather than being established through airport-level BCA in the U.S. Similarly, security standards are a regulatory requirement than subject to airport-level benefit-cost consideration in the U.S. Page 2

is implicit (if not explicit) in the development of future airport facility plans, as planners recognize the value of reducing the time that the public has to spend time in such activities as circling within parking areas to find a vacant parking spot, waiting in queues for terminal check-in and security, or sitting in an aircraft that is either waiting to take off or waiting on the ground for an arrival gate to open up. At the same time, planners also recognize that use of aviation facilities is cyclical and varies over time, and it is financially unrealistic to provide sufficient capacity to totally eliminate all waiting and delays at peak hours, particularly on peak days of peak seasons. So they typically draw up plans to provide sufficient facility capacity to process passengers and aircraft in a “reasonable” period of time for the vast majority of the days and hours in a year. This is not merely a matter of peak demand at the nation’s largest airports, for there also can be delays flying into small airports due to limitations of local navigation aids when inclement weather occurs. The value of time is implicit in the determination of what constitutes reasonable time delay. Air Terminal Design – Local airport owners and operators try to adopt physical designs and operational configurations for processing passengers, crew, aircraft and supporting services in an effective manner. They commonly recognize that the time spent by airport users is ultimately determined by the “weakest link” in the flow process. So, whether a delay is associated with the access route or airport parking or airline check-in or security screening or getting to gates, in the end the occurrence of bottlenecks or delays anywhere in the passenger process can be viewed as an added time cost of using that airport. In areas where there is a choice of airports that can be used, the occurrence of delays can also make a difference in passenger decisions about which airports to fly through. Airline Service Decisions – In a competitive market, airlines are acutely aware that reliability and on-time performance matter to customers. That is why on-time performance metrics are compiled and published monthly, and that is why airlines generally build some buffer time into their schedules. They are aware that any delay in airport terminal, aircraft gate, or runway activities can affect their schedule performance and ultimately customer choices of both airline and airport. Airlines also recognize that crew delay and aircraft delay beyond that allowed for in their schedules also becomes money spent and lost since they do not get any additional revenue to cover this. In the long run, this can become a factor in the air service offerings and schedule decisions of operators. Airport Choice – In some areas, there is competition among airlines serving multiple airports in a region. In those cases, commercial airline passengers may have a choice of airport as well as airline, and may consider overall terminal access and processing time along with price as factors in their choice decisions. General aviation aircraft owners and a range of other air service providers (as well as aviation-related businesses, such as freight consolidators) may similarly view delays associated with airport access, aircraft handling, and takeoff or landing processes as a factor in their decisions regarding the airport at which to base their aircraft or use for their activities. This study focuses specifically on value of time factors relating to passenger delays at commercial airports, though many of the same factors may apply for general aviation (including corporate jets) and air cargo. Page 3

Regulatory Evaluations – All proposed major regulations are subject to BCA analysis by the FAA. 1.3 Why the Value of Time Varies The value of time represents what people are willing to pay to save time, or added time that they are willing to incur to save some expense. It is known to differ by trip purpose and mode. For instance, the USDOT official guidance recognizes that business travelers tend to assign a greater value to travel time savings than do people making personal trips. Moreover, the USDOT guidance assigns a higher value of time to those who travel between cities by air than those who rely on buses or cars for those journeys, reflecting the fact that air travelers are paying a premium for faster travel. In addition, transit planners often recognize that travelers give a higher value to reducing time spent waiting at a bus stop (particularly in inclement weather) than to saving time while riding a bus. These differences are not small; for instance, the value of an hour spent in business travel is typically double that for personal travel. While these differences fundamentally make sense, they do give rise to further complexities. For instance, when a person drives to an airport and then flies to another city, the value of time attributed to that same person is different for the airport ground access leg of the journey than for the airline part of the journey. In other words, these differences value travel time improvements in ground access to an airport differently than travel time improvements while flying from that airport. The differences also leave ambiguities about where to draw the line between the valuation of savings in different segments of the trip, such as parking at the airport and checking in at the airline counter inside the terminal. Is it worthwhile to keep or expand the use of different values of time for different types of travel? Despite the challenges that they present, the answer is unequivocally yes. Travelers tend to have good reason for differences in their value of time, which reflect not only differences in trip purpose, but also systematic variations in the level of comfort, reliability and usefulness of time spent during various parts of a trip. For instance, an air passenger who is delayed while sitting at a gate waiting for a flight may spend that time working on a computer, reading or talking on the phone – all more useful to the individual than standing in a security line where none of those activities are possible. 1.4 How this Guide Can Help This guidebook utilizes information from a national survey of air travelers to show how the value of time for airline passengers varies between different segments of an air journey, and to further show how that information can be used to better prioritize and optimize proposed airport improvements. It also provides a workbook for benefit-cost studies which allows for different types (or packages) of proposed capital investments to incur different Page 4

values of time for passengers, depending on where in the travel process those passengers are expected to save time. Lastly, it shows how the updated air travel values of time can be reconciled with values for ground transportation modes. The guidebook is designed to enable more accurate application of benefit-cost studies for proposed airport improvement projects by expanding and enhancing passenger value of time calculations. It is designed to be applicable for conducting benefit-cost analysis compliant with FAA grant requirements. However, it may also be used by airport operators and airlines for their own planning and funding decisions. This guidance focuses exclusively on the valuation of time savings for passengers who use commercial airports. It does not cover the value of time savings for airport or airline staff, vendors located in airports, cargo shippers, ground transportation providers, or others who work at the airports. Air cargo shippers also benefit from improvements in travel times and reliability, but that valuation varies widely depending on the perishability and delivery time sensitivity of specific types of cargo – a matter that is beyond the scope of this study. The remaining pages of this document provide guidance for the use of value of time measures in aviation project analysis. The next chapter explains the logic of a five-step analysis process and issues to be confronted in developing time savings measures for its use. The five steps are described in the chapters that follow, followed by illustrative examples showing how they work differently for three types of projects – runway, ground access and navigation aid improvements. A final chapter discusses issues that arise in applying the recommended values of time and how they can be updated as needed in the future. Page 5