JPDO Presentation Master Template

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Socioeconomic Drivers for Transformation of
the Nations Air Transportation System 30th
Annual FAA Aviation Forecast Conference Industry
Restructuring and the Future of Global
Aviation National Airspace Systems
PlanningGovernment Panel March 18, 2005
Richard Golaszewski GRA, Incorporated 115 West
Avenue Jenkintown, PA 19046 USA '
215-884-7500 7 215-884-1385 richg_at_gra-inc.com
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Overview

• Policy framework
• Air travel and the economy
• Economics of production/consumption
• SEDF evaluation framework
• Measurement
• Results
• Implications

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Specific Policy Questions

• How does JPDO interact with airport and ATM
  infrastructure policies?
• Status quo
• Potential changes
• Time horizons (short/medium term vs. longer term)
• Will private sector accomplish transformation
  alone?
• Why should government be involved?
• How should government role be structured?
• Incentives for private sector participation
• OMB/OSTP assessment criteria
• Public goods and services
• Evaluation and Analysis Division (EAD) of JPDO
  conducting multidimensional assessment
• What are costs if transformation does not take
  place?

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Air Travel and the Economy
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Air Transportation and Travel Sectors
Air-Based Travel and Tourism

• Factors of
• Production
• Labor
• Capital
• Other

• Travel Services
• Hotels
• Meals
• Local Transportation
• Entertainment

International Trade/ Trade Balance
Air Transportation
Air Operators
Airports
Air Traffic Management
Aircraft and Aerospace Manufacturing
Source John Cavolowsky and Lee Olson, Socio
Economic Demand Forecast Study, presented to
Joint Planning and Development Office (JPDO)
January 2004.
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Broad Measures of Air Transports Share in
National Economy

• Air transportation represents around one percent
  of total GDP
• Revenues to U.S. air carriers total just under
  100 billion annually
• Air transport services contribute positively to
  net exports
• Less than one percent of merchandise, but 40
  percent of U.S. merchandise imports and exports
  by value shipped by air
• The Economic Impact of Civil Aviation on the U.S.
  Economy
• 172 billion direct impact from civil aviation
• 514 billion total GDP impact (5 of GDP)
• 11.5 million jobs supported by U.S. civil
  aviation
• Conducted for FAA in 2002 using year 2000 data

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Some Fundamentals

• Air transportation integral to our way of life
• Business (e.g., day trip WAS-ATL-WAS, two career
  families, etc.)
• Leisure (Las Vegas, Orlando and rest of world)
• Family and friends
• Growth fueled by increased productivity, safety,
  accessibility, environmental compatibility
• Economic impact measures resources consumed
• Reduced impact per unit of output is good
• Economic value measures well-being
• Resources to consume other goods and services
• Changes in quality of life (free time, security,
  environment, health and safety, among others)

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As Real Prices Fall, The Market Expands
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Commercial Aviation Growth is Linked to Economic
Growth
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Real Domestic Passenger Yields and Costs Have
Fallen Steadily
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Domestic Revenue Enplanements Per Capita
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Economics of Production and Consumption
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Airline Production/Demand
Frequency
Distance
CASM
ASM
Production
Aircraft Size
RASM
Load Factor
Travel Time
Yield (Fare/RPM)
RPM
Fare
Demand
Schedule
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Travel Choices Underlie Demand
Airport A Origin
Airport C Hub
Airport D Destination
Passenger Destination
Passenger Origin
Auto
Airport B Origin
Example Choice Set 2 Origin
airports Non-stop air Connect air Auto

• Choice Variables
• Fares and access cost
• Travel time
• Access
• Intercity
• Service frequency/schedule
• On vehicle and other amenities
• Flexibility and reliability

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Economic Analysis Methods
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Socioeconomic Demand Framework

• Value of Air Transportation
• Derived demand
• Location specific
• Imperfect substitutes

Start

• Future Air Transportation Demand
• Economic growth
• Population growth
• Airfares
• Service quality

Stop

• Capacity/Demand Assessment
• Social costs
• Willingness to pay
• Productivity

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The Shortfall What Happens if Supply Doesnt
Keep Up with Demand

• Decreased real wealth of travelers and shippers
  leaving fewer resources that can be spent on
  other goods and services
• Reverse trends of lower cost travel and increased
  mobility made possible by deregulation,
  innovation and technological advances
• Some who rely on affordable air transportation
  may be priced out of the market when average
  fares rise (higher prices)
• Travelers forced to less desirable times or
  locations because flights are added in less
  attractive time blocks (reduced product quality)
• Increased transportation and shipping costs
• Economy less competitive in global markets

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Capacity Shortfalls Have Real Economic Costs
Economic Value of Air Transport ()
The Wedge
Cumulative loss in economic value if capacity is
unable to serve growing demand over time (144
billion for baseline demand)
Annual loss in economic value for 2015 (6.5
billion for baseline demand)
Annual loss in economic value for 2025 (19.6
billion for baseline demand)
SEDF Study, op cit.
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Notional Depiction of NAS Delay/Throughput
Tradeoff
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Valuing Capacity Shortfall
Tolerable Delays?
Demand Served at Expected Yields
Unconstrained Demand
Y
N
Shed Demand

• Price Changes
• Quality Changes
• Schedules
• Delays

Price Increase to Clear Market
Loss of Consumer Surplus Increased Costs
Move Up Demand Curve
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Prior Results
Values are in constant, undiscounted 2002 dollars
SEDF Study, op cit.
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Implications
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The Value Proposition for NAS Transformation

• An ATM system capable of meeting projected
  demands for NAS capacity has value for the nation
  in terms of
• Improved safety and security
• Enhanced quality of life
• Contribution to the economy
• Aviation has substantial impacts on national life
  in the areas of
• Mobility and Accessibility
• The Environment
• Safety, Security and National Defense
• Post-transformation service attributes and prices
  represent economic cost
• Consumer costs
• Service quality (delays, schedules, travel time,
  airport access, etc.

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Implications

• A system unable to accommodate expected growth in
  demand, while maintaining quality, will impose
  tangible costs on those who rely on the NAS
• Increased air fares
• Decreased passenger trips
• Commercial aviation
• General aviation
• Less productive use of time
• Less frequent service
• Increased time in and around airport
• Increased costs for goods that are moved by air
• EAD developing multiple measures using NAS
  stimulators and related models
• Safety and environment
• Security

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Slides available atwww.GRA-INC.comRich
Golaszewski richg_at_GRA-INC.com 215-884-7500
Questions?