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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2 METHODOLOGY FOR VALUING AVIATION TRAVEL DELAY 2.1 Value of Time Breakdown by Trip Segment As part of this study, the project team conducted surveys of 1,260 passengers traveling on flights between 172 different origin airports and 148 different destination airports throughout the United States. These were “stated preference” surveys; they asked travelers to select among various combinations of alternative scenarios that involved (a) different times to complete various segments of trips, as well as (b) different trip costs. By observing the respondent choices and the trade-offs that are effectively made in those selections, it becomes possible to calculate the effective “willingness to pay” for time savings related to different segments of aviation passenger trips. A detailed description of data collection methods and results can be found in ACRP Web-Only Document 22: Passenger Value of Time, Benefit-Cost Analysis, and Airport Capital Investment Decision, Volume 2: Final Report at www.trb.org/Main/Blurbs/172473.aspx. The passenger survey results enabled calculation of the value of time for ten distinct segments of airport-to-airport travel, which are grouped into four primary classes: • Ground access time (departure) and ground egress time (arrival) • Terminal groundside (departure) - Terminal access time (parking, shuttle bus), check- in and security screening time, time to reach the gate area, gate time • Airside (flight) - Flight time, including boarding time and time to connect between flights at an intermediate airport, unexpected flight delay • Terminal groundside (arrival) – Time to reach baggage claim or exit the terminal (if no checked bags), baggage claim wait time and time to exit the terminal with claimed bags Additional values for ground access and egress time were drawn from those previously set by USDOT for road travel associated with intercity trips. The recommended values are shown in Table 1. In each case, the values have been rounded to the nearest $0.05 to be consistent with previous USDOT value of time guidance and to avoid the appearance of false precision. Besides showing values of time for business and leisure travelers, the table also shows an airport composite. The airport composite was calculated using the distribution of business (40.4 percent) and leisure (59.6 percent) travel reported in the 2001 National Household Travel Survey. This source was used to estimate composite values in the latest USDOT value 2 Page 6

of time guidance. The composite is designed for use only in those situations where information on the trip purpose of traveling passengers is unavailable. In general, this table shows how travel time varies among trip segments in ways that reflect differences in comfort, amenity and ability to conduct other work during that time. For instance, the higher value of time associated with airline check-in and airport security processes reflects the more onerous nature of those trip segments, which require standing and generally preclude more productive uses of that time. The lower value of waiting time at airport gates reflects the usually more comfortable sitting options available, as well as the increased ability of users to talk on cell phones, read or use computers during that time. Table 1: Value of Time Savings per Hour (2013 values in 2013 dollars) Time Category Value per Hour of Time Savings Business Leisure Airport Composite Ground access and egress Ground access time $18.60 $16.95 $17.60 Ground egress time $18.60 $16.95 $17.60 Terminal groundside (Departure) Terminal access time $33.85 $26.00 $29.15 Check-in and security time $37.20 $28.45 $32.00 Time to reach gate area $32.25 $22.85 $26.65 Gate time $20.50 $17.60 $18.75 Airside (Flight) Flight time (incl. connections) $51.00 $34.90 $41.40 Unexpected flight delay* $286.30 $123.30 $189.15 See Note Below Terminal groundside (Arrival) Time to reach bag claim / exit $32.25 $22.85 $26.65 Baggage claim wait time and exit $37.20 $28.45 $32.00 Source: ACRP 03-19 National air passenger survey *The value of time for unexpected flight delay is a function of both the frequency and magnitude of flight delays and is not necessarily equivalent to a ‘per hour of delay’ value. For example, if the percentage of flights that were shown as on-time in a given alternative was 60% (i.e. 40% of flights were delayed) and the corresponding delay shown was 30 minutes, the expected delay was calculated as 0.4 x 30 = 12 minutes. In the flight itinerary survey a 100% certainty for an hour of delay was calculated at $286.30 for business travelers, $123.30 for leisure travelers and as $189.15 as an airport composite. The following is an example of how to use these values to calculate the value of time for unexpected flight delays. Consider an airport where approximately 26% of flights are delayed. (Delay frequencies are available from the Bureau of Transportation Statistics.) Let’s assume a capital investment will reduce the average time of delay by 65 minutes for those delayed flights. The expected value of delayed minutes is 0.26 x 65 = 17 minutes. Using the values for business and leisure travel cited above, a business traveler would be willing to pay 17/60 * $286.32 = $81 for a scenario where there is no chance of being delayed (the expected value of delay is zero minutes) and a leisure traveler would be willing to pay $35. Page 7

For a specific BCA, it is important to limit the analysis to the delayed passengers that might be affected by a proposed investment. For example, a weather-related improvement would not be expected to benefit passengers delayed due to airline mechanical issues. Ground access time values were estimated from the survey data to be $18.60/hour and $16.95/hour for business and leisure trips, respectively, which are lower rates than the value of time guidance published by the USDOT for both local and intercity trips for use in cost-benefit analyses. The values estimated from the survey data, while not identical, are comparable to the USDOT intercity values of $24.60/hour and $17.55/hour (in 2013 dollars) for business and leisure trips, respectively. However, there are a couple of points to note about making such a comparison: a) The USDOT value of time reflects a single value for all components of long-distance intercity travel, while the survey-estimated value of time reflects specifically the airport access component of that travel, unique to air trips. Airport access is clearly a different type of trip component. The survey-estimated values are higher than the USDOT guidance for local travel, which is consistent with past research conducted by RSG and others (ACRP Synthesis 5, “Airport Ground Access Mode Choice Models”). b) The values from the USDOT guidance were estimated as a function of wage rates of survey respondents. While this is a reasonable assumption, there is a large amount of uncertainty related to such an assumption. Past research has found that travelers’ values of time can vary from 20% to 100% or more of household hourly wage rates depending on the region, trip characteristics, and respondent characteristics. NCHRP Report 431, “Valuation of Travel-Time Savings and Predictability in Congestion Conditions for Highway User-Cost Estimation” (TRB, 1999), summarizes research by Small and Waters which suggests that the value of time for work trips is about 50 percent of the wage rate on average and that it varies with income or wage rate but not necessarily proportionally. However, Small (“Urban Transportation Economics,” 1992) observed significant variation around this 50 percent average, explaining that values of time vary among different industrialized cities from perhaps 20 to 100 percent of the gross wage rate, and among population subgroups by even more. The stated preference survey seeks to estimate these values directly from travelers who recently made an airport access trip rather than being inferred from the wage rates of respondents. Secondly, the values of the time to reach baggage claim and/or exit the terminal, baggage claim waiting time, and ground egress time were not estimated directly from the results of the passenger survey, because the survey focused specifically on the outbound departing segment of the air trip and the arriving portion of the trip was not covered in the survey. For these values, it was assumed that the value of the time to reach baggage claim and exit the terminal is the same as the value for the time to reach the gate area after clearing security on the departing segment of the trip, the value for the baggage claim waiting time is the same as for check-in and security time, and that for ground egress time is the same as for ground access time. It could be argued that these values might be less since the Page 8

consequences of missing an outbound flight are more severe than the consequences of taking more time to reach events or meet family, friends and business associates at the arrival end. There may also be time-of-day considerations that may differ between airport access and egress trips. The effect of these factors on the values of time would be useful issue for future research to investigate. A further breakdown of the value of time by the personal income level of air passengers is shown in Table 2. In general, it shows that higher income travelers tend to report a higher value of time than lower income travelers, as would be expected. Table 2: Value of Time Savings per Hour (2013 values in 2013 dollars) Time Category Personal Income Less than $75,000 $75,00 - $199,999 $200,000 and More Business Travelers Ground access time $13.90 $21.32 $38.49 Terminal access time $23.75 $36.35 $65.65 Check-in and security time $27.75 $42.45 $76.70 Time to reach gate area $22.65 $34.60 $62.55 Gate time $14.25 $21.80 $39.35 Flight time $33.65 $58.90 $101.00 Unexpected flight delay $186.35 $326.10 $559.00 Time to reach bag claim / exit $22.65 $34.60 $62.55 Baggage claim wait time and exit $27.75 $42.45 $76.70 Ground egress time $13.90 $21.30 $38.50 Leisure Travelers Ground access time $14.55 $16.65 $22.15 Terminal access time $22.10 $25.20 $33.60 Check-in and security time $24.25 $27.70 $36.90 Time to reach gate area $19.25 $22.00 $29.30 Gate time $14.90 $17.05 $22.65 Flight time $30.05 $41.20 $95.45 Unexpected flight delay* $107.10 $146.75 $340.15 Time to reach bag claim / exit $19.25 $22.00 $29.30 Baggage claim wait time and exit $24.25 $27.70 $36.90 Ground egress time $14.55 $16.65 $22.15 Source: ACRP 03-19 National air passenger survey *See the note under Table 1 for guidance on how to interpret and apply the value of time for unexpected flight delay. Table 2 shows the value of time by personal income. However, it is more common for passenger surveys to request “household income” than “personal income” because requesting household income is considered a less intrusive question, and will receive a greater response rate than inquiries about personal income. In the case when an analyst Page 9

has “household income” data, it becomes necessary to convert these data into “personal income” This guidebook suggests two methods for this type of conversion: 1) The 2012 Statistical Abstract of the United States reports U.S. median household income at $50,221 (Table 706) and per capita personal income at $36,697 (Table 678). Household income can be converted to personal income by applying this ratio ((36697/50221=0.731)* (household income)); or 2) The stated preference survey conducted for this project included questions for both personal and household income. The percentage of survey respondents in each household income range who reported a personal income in the ranges shown in Table 2 is shown in Table 3. Therefore, if the household income of air passengers by income level is known, the analyst can multiply the number of passengers in each household income stratum by the appropriate percentage from Table 3to give the estimated number of passengers in each personal income range. If the household income ranges in the air passenger survey differ from those shown in Table 3, it will be necessary to interpolate the percentages in each household income range used in the survey. Note that if the air passenger survey from which household income data was obtained was performed in a different year from 2013, it will be necessary to adjust the household income ranges in the survey to 2013 dollars and for changes in real incomes between the year of the survey and 2013 for consistency with the data in Table 2 and Table 3. The first approach is considerably easier to apply. However, the second of these two methods is likely to give a more reliable result, since the ratio of personal income to household income varies with the household income level and reflects data for a representative sample of air passenger trips, rather than households in general. Page 10

Table 3: Proportion of Air Passengers in Each Personal Income Range by Reported Household Income (2013 values in 2013 dollars) Household Income Personal Income Less than $75,000 $75,000 - $199,999 $200,000 and More Business Travelers Less than $75,000 100% $75,000 - $99,999 27% 73% $100,000 - $149,999 19% 81% $150,000 - $199,999 6% 94% $200,000 - $249,999 7% 56% 37% Leisure Travelers Less than $75,000 100% $75,000 - $99,999 37% 63% $100,000 - $149,999 31% 69% $150,000 - $199,999 12% 88% $200,000 - $249,999 15% 41% 44% Source: ACRP 03-19 National air passenger survey 2.2 Analysis Elements The pages which follow lay out a five-step screening and planning process that can be used when considering the value of travel time and delay reduction associated with a proposed project. This sequence is illustrated in Figure 1 and explained in the text that follows the figure. The five-step process is designed to minimize the work effort involved in applying the analysis approach, by keeping the analysis required to an absolute minimum. Figure 1: Five-Step Process for Estimating Value of Efficiency Improvements The five steps are: • Step 1: Screen Project for Applicability – Conduct a screening process to determine whether it is even necessary to measure impacts of different types of time savings for a particular project. This will depend largely on the type of airport improvement project and magnitude of difference that it is expected to make in air passenger travel times. Step 1: Screen for Applicability Step 2: Identify Time Categories Step 3: Calculate Change in Travel Times Step 4: Calculate Value of Changes Step 5: Apply to Benefit- Cost Analysis Page 11

• Step 2: Identify Relevant Time Categories - For projects that pass Step 1, identify the specific categories of air, ground and/or terminal delay that are expected to change because of the given type of project. • Step 3: Calculate Change in Travel Times - Determine the difference in travel time or travel delay between “implement improvement” and “base case” scenarios for each of the categories identified in Step 2. • Step 4: Calculate Value of Change in Travel Times - Apply relevant values of time to the travel time/delay changes identified in Step 3 to represent the value of the user time benefit. The values of time come from a combination of past research and new survey results. • Step 5: Apply to Benefit-Cost Analysis – Determine the portions of all passenger trips affected by the proposed improvement, and apply the Step 4 results for that portion of trips, as would be done for any standard benefit-cost analysis. These steps are explained in detail in Chapter 3. The rest of this chapter discusses issues regarding both the measurement of delay and its impact on traveler behavior. 2.3 Analysis Issues Regarding Measurement of Delay Readers using this guide should be aware of several aviation-specific issues that need to be considered in the measurement of travel time and delay and the benefit of reducing these. These issues are discussed below, and ultimately affect the measurement of changes in travel time and delay in step 3. • Buffer Times – Airlines include “buffer” times in published schedules to allow for travel time variability and unpredictable delay circumstances. As a result, some airport improvements reduce delays yet have little or no effect on airline on-time performance (at least in the short run). Likewise, passengers typically also leave extra time to allow for potential delays in reaching the airport, check-in, and security procedures when deciding when to leave for the airport. Travelers may also allow extra time for transfers between connecting flights when selecting among flight options. In the short run, these buffers tend to conceal some or all of the travel time savings resulting from airport improvements. In the longer run, though, airline and passenger decisions regarding schedule padding and expected travel time can change with shifts in the perceived length and variability of ground access and passenger processing times at a given airport • Volume/Capacity Threshold Effects – Aviation operations are regulated by rules that determine the spacing between takeoffs and landings that constrain the number of operations in a particular time period; also airlines use business models that influence routes and airports served. As a result, some airport improvements may not generate enough additional capacity to immediately exceed the threshold needed to allow air service to increase or to change an airline’s business case. Page 12

However, capacity thresholds may be reached at a future year as air traffic grows as a result of the improvements. The analyst must ensure that volume/capacity threshold effects are taken into account, because they can affect the delay calculations and their valuation over the lifecycle of a benefit-cost analysis. • Relationship between Airside and Groundside Activities at an Airport and within the Airport Network– The journey for an air traveler includes the flight, time spent at arriving and departing airports, as well as ground access and egress. The flight and the airport portions of a trip are connected through airport operations and flight control. As an example, congestion at one airport may require incoming flights to be delayed prior to leaving their origin airports, typically through an air traffic control ground delay program or ground halt, and passengers may spend time waiting in the gate area at their origin airport 2.4 Analysis Issues Regarding Impact of Changes in Travel Time and Delay on Passenger Behavior Readers using this guide may also consider the relationship between capital investment in airport improvement and resulting effects on air passenger behavior. These issues are discussed below, as they ultimately affect both the use and interpretation of benefit-cost calculations that rely on value of time factors. • Value of Shifting Use of Time - Capital investments that result in passengers spending less time in one segment of the trip and more time in another (e.g., a people mover allowing passengers to spend more time in the gate area) has value if the passengers find the additional time spent in the downstream activity is a preferable way to spend time (has a lower value of time savings). That is, after all, a major purpose of estimating different values of time savings for different components of the trip. It should be noted that terminal expansions can increase the time needed for passengers to move through the proposed larger facility, excluding time spent in-lines or being processed through security or check-in, although expanding processing facilities can reduce queueing delays. Therefore project-specific analysis will be required to explore the trade-offs involved. This guide enables the issue to be directly considered. • Operations Associated with Capital Investment - Whether capital investments in passenger check-in and screening facilities will affect time delay spent in those facilities of course depends on whether the expanded facilities are adequately staffed. It is self-evident that constructing facilities that are not used does not affect delays (although the time spent waiting may be less unpleasant in more spacious facilities). Conversely, increasing the staffing levels in already constrained facilities has limited ability to reduce delays. Provision of self-check-in equipment can reduce passenger waiting time, but involves a capital investment (although the benefits of this include reduced staffing costs as well as potentially less space for queueing). Page 13

Users of this guide must therefore take care to ensure that BCA of any capital investment accounts for the change in labor (as well as capital) costs involved in reducing airport user time. • Reduction in Overall Trip Time – At one level, there is no doubt that some airports require more time than others for travelers to get through the processes of access, check-in, security and travel to the gate. And there is little doubt that many travelers consider those factors in setting their ground access and air travel schedules. Yet there remains a fundamental question as to how capital investments that reduce the time spent in different segments of air trips ultimately affect passenger schedule and flight choice decisions. In other words, to what extent are savings in specific segments of a trip additive in their impact on total trip times? Current calculation methods effectively assume that time savings associated with different trip segments are indeed additive – i.e., they affect total trip time. However, further research is needed to better understand actual traveler behavior in their decisions regarding this matter. • Variability in Travel Times – The time that an air passenger spends in each segment of an air trip will vary from day to day and from hour to hour on a given day, depending on the level of activity, staffing levels, congestion on the regional highway system, and other factors. In deciding when to leave their trip origin for the airport, and even which flight to take, passengers typically make some allowance for encountering unforeseen delays in different segments of their trip. If those delays do not occur, or are less than allowed for, then passengers will arrive at the airport or their gate earlier than strictly necessary. If delays in one segment of the trip (e.g. airline check-in) are less than allowed for, this provides some additional margin in case delays in another segment (e.g. security screening) are greater than expected. If the variability in the times that are spent in each segment for the trip can be reduced, air passengers can reduce the additional time allowance they make to cope with this variability. This can represent a significant saving of time that may be more valuable to them than reducing the time spent in specific segments of the trip from their origin to the gate, which may only result in them spending more time at the gate before their flight. Therefore if an airport capital investment project reduces the variability of air passenger travel times as well as the average travel times, additional travel time benefits can be delivered, which should be taken into account in assessing the benefits of the project. The research undertaken for ACRP 03-19 did not attempt to estimate different values of time for reductions in travel time variability compared to reductions in average travel times, although this would be a worthwhile topic for future research. Thus, absent future research results and guidance on this aspect, it is recommended that the values of time given in chapter 2 be used for changes in both average travel times and travel time variability. Page 14