Addressing Uncertainty about Future Airport Activity Levels in Airport Decision Making (2012)

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P a r t I I I Applying the Methodology Using Real Life Case Studies not realistic to expect that a decision maker could foresee the financial crisis and severe recession that occurred in 2008 and 2009. However, it is reasonable to assume that a recession of the type experienced in previous decades would be possible at some time in the future. The purpose of this exercise is not to suggest deficiencies in the planning or management of these airports but rather to determine whether the devised methodology is applicable to the circumstances at the airports and the extent of the benefit it provides. Draft versions of the case studies were provided to the air- port management of the two airports, and their feedback was incorporated into the final case studies. In Part III, the methodology described in Part II is applied to two historical examples to demonstrate how it may be applied in practice. The two examples are Bellingham Inter- national Airport and Baltimore/Washington International Thurgood Marshall Airport. As described in the following sections, the two airports differ in size, market conditions, and traffic mix, and the methodology is adapted to each air- port accordingly. In each case, the methodology is applied to a period in the past and as such, the ACRP 03-22 project team has the benefit of hindsight. To the extent possible, the project team has tried to work with the information that would have been avail- able to the airport management at the time. For example, it is

79 12.1 Background The circumstances of BLI were described in Section 3.4. BLI is operated by the Port of Bellingham and is located in Whatcom County, Washington, 3 miles northwest of Bellingham, a city with a population of approximately 200,000. The airport is approximately 21 miles south of the Canadian border and 90 miles north of Seattle, as shown in Figure 30. From a relatively low base, the airport experienced rapid traffic growth due to the entry and expansion of LCC Alle- giant Air starting in 2004. (Prior to Allegiant’s entry, the main scheduled service at BLI was turboprop service to Seattle operated by Horizon Air.) As a result of Allegiant’s entry, traf- fic at BLI increased dramatically, by an average growth rate of nearly 30% per annum over the next 6 years, or by 373% in total (from 2004 to 2010). The methodology was applied to the airport’s circumstances as of 2003–2004, about the time the Port of Bellingham released its master plan for the airport (URS et al., 2004; the master plan was developed between 2002 and 2004). The 2004 master plan evaluated in detail the facility requirements and planning footprint for the airport over a 20-year period to 2022. It also provided a broad overview of the require- ments up to 2050. A major component of this evaluation was the air traffic forecast produced as part of the master plan. Figure 31 shows the passenger traffic forecasts for BLI from that master plan and the actual traffic that did occur. Mod- est growth of 1.3% per annum was forecasted for between 2000 and 2022, resulting in passenger traffic forecasted to reach 151,627 enplanements by 2022. (The start year for the air traffic forecasts was 2000.) After 2022, passenger traffic was forecasted to grow by an average of 2.1% per annum up to 2050. Based in part on the air traffic forecasts, the 2004 master plan identified approximately $34 million (in 2004 dollars) of capital improvements to BLI to be phased in in three parts between 2003 and 2022. The master plan document did raise the issue that the phasing in and capital improvements could be subject to change due to changing traffic conditions or other factors (URS et al., 2004, Chapter 9: Implementation Plan). As Figure 31 illustrates, traffic volumes at BLI have greatly exceeded the predictions in the master plan document. 12.2 Application of the Methodology As described in Part II, users are free to select the degree of complexity and resources required to apply the systems analysis methodology. Guidelines are provided on the basis of airport and project size, as shown in Figure 32, but ultimately the track selected is at the discretion of the user in order to best meet their needs and match their resources. In this case, Track A (largely qualitative) was selected as most applicable to BLI. The key elements of the methodology can be summarized as follows: 1. Risk identification and quantification, using a risk register and other visual aids; 2. Assessment of cumulative risk impacts, using qualitative and scenario-based approaches; 3. Identification of risk response strategies, based on infor- mation from the previous tasks and informal elicitation; 4. Assessment of the response strategies, largely qualitative and basic quantitative; and 5. Risk tracking and plan evaluation program—ongoing monitoring. 12.2.1 Risk Identification and Quantification The risk identification and quantification process used a combination of information on common airport risks provided in Part II of the guidebook, nominal group sessions within the ACRP 03-22 project team, and information obtained from the C h a p t e r 1 2 Bellingham International Airport

80 138 242 280 329 401 114 110 123 152 275 0 50 100 150 200 250 300 350 400 450 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Pa ss en ge r E np la ne m en ts (T ho us an ds ) Actual Traffic Master Plan Forecast 2004 Master Plan Development 68 Source: Bellingham International Airport Master Plan Update (URS et al., 2004) and BLI airport statistics. Figure 31. Forecasted passenger traffic at BLI. Figure 30. Location of Bellingham, Washington.

81 Therefore, the scenario applied adjustments to the forecasted growth rates to allow for different assumptions regarding economic growth and other factors. An alternative approach would be to use the Airport Forecasting Risk Assessment Pro- gram model produced as part of ACRP Report 48: Impact of Jet Fuel Price Uncertainty on Airport Planning and Develop- ment, available at http://www.trb.org/Main/Blurbs/165241. aspx. The model allows the user to estimate the impact of different GDP and fuel price assumptions to the FAA’s TAFs for individual airports. (The model includes data and param- eters for BLI.) However, the model covers the period of 2010 to 2014 and so could not be used in this instance since an earlier period was being examined (2004 onwards). The scenarios considered were as follows: Extreme Upside Scenario • Strong economic growth, averaging an additional 1% per annum GDP growth. In line with previous research, it was assumed that economic growth would produce a more than proportional increase in traffic. (Typically, air traffic has growth at 2 to 3 times the rate of the economy). Thus, a conservative elasticity of 1.4 was applied so that traffic at BLI grew at a rate 1.4 percentage points above the 2004 forecast. • Canadian dollar strengthens from its early 2000s level of around U.S.$0.66 to around U.S.$0.80 by 2012. This has the effect of making fares at BLI cheaper for Canadians and fares at YVR more expensive for U.S. residents. A fare elasticity of –1.5 was applied so that each 1% decline in relative fares resulted in 1.5% increase in traffic at BLI. It was further assumed that only 20% of traffic at BLI would be affected by the change in the exchange rate (i.e., 20% of passengers are geographically located so that trade-offs between YVR and BLI are practical). • A new carrier starts operation at BLI within 5 years. The carrier operates 150-seat aircraft and starts in the first year with twice-weekly service to a U.S. destination (e.g., Las Vegas or another sunspot destination). Service builds up so that within 5 years, the carrier is operating 21 flights a week (3x daily) to various destinations, with further growth in the years following. It is assumed the carrier achieves 75% load factors, and that 60% of its traffic is stimulation (40% is taken from other services at BLI). Extreme Upside Scenario with New Carrier Exit The entry of a new carrier raises concerns about its perma- nence and the extent to which an airport should base plans on such a carrier. Therefore, this scenario is the same as the extreme upside scenario; however, the new carrier exits the market after 2 years, with the loss of all the traffic stimulated by that carrier. 2004 master plan and other sources on Bellingham Interna- tional Airport. The findings are summarized in the risk register in Table 9. It is anticipated that, in practice, populating the risk register would involve interactive discussions with various mem- bers of the airport management team and other stakehold- ers. Reflecting the qualitative nature of Track A, the risks are evaluated in terms of their approximate percentage probability/likelihood and impact, the latter on an arbitrary scale of 1 to 5. The risk register can be represented graphically using the chart shown in Figure 33. This type of chart can be developed using the X-Y scatter charts provided in Microsoft Excel and other spreadsheet and statistical software packages. From this chart, it is possible to identify the risk factors with the larg- est impacts or likelihood (or both), including negative fac- tors such as the exit of Horizon Air, fuel price spikes, and competition from other airports, and positive factors such as increases in the Canadian dollar, an economic boom, and the entry of a new carrier. 12.2.2 Assessment of Cumulative Impacts Having identified and quantified the impact of individual risks and uncertainties, the next step is to consider the cumu- lative impact of these uncertainties and the likely implica- tions for traffic at BLI. To avoid the need for complex and expensive modeling techniques, the approach taken was to develop a small num- ber of scenarios to estimate the impact of key risk factors. The scenarios used the 2004 master plan forecasts as a base and applied adjustments to allow for various risk factors, which ultimately resulted in higher or lower passenger volumes. The 2004 master plan forecasts were developed using trend and market share models and so did not estimate parameters related to economic growth or possible explanatory variables. Figure 32. Identification of the analysis track for BLI.

Risk Identification Risk Evaluation Comments Risk ID Risk Category Threat or Opportunity Event Probability/ Likelihood Description of Impact Magnitude of Impacts Direction Scale (1 = Low, 5 = High) Duration/ Permanence E1 Macro- economic Fuel price spikes/ volatility 20% Rising fuel prices result in increased operating costs, which are either passed on to consumers through higher fares, which will lower demand, or result in carriers cutting back services (or a combination of the two). ACRP Report 48: Impact of Jet Fuel Price Uncertainty on Airport Planning and Development found that each 1% increase in fuel prices led to a 0.062% decline in departing seats (non-hub airports). Negative 3 Generally short-term Probability of a spike assumed to be once every 5 years. Although duration is short-term, long-term impacts can result. For example, fuel spikes in 2008 led to US Airways pulling out of its night hub at Las Vegas. E2 Macro- economic Economic slowdown/ recession 10% Economic recession can lead to declining passenger volumes and service reductions by airlines. ACRP Report 48 found that each 1% decline in per capita local income led to a 0.14% decline in departing seats (non-hub). Negative 3–4 Short- to medium-term Probability reflects recessions occurring roughly once a decade. E3 Macro- economic Economic boom 20% Strong economic growth generally boosts passenger demand and can lead airlines to expand existing services and introduce new ones. ACRP Report 48 found that each 1% increase in per capita local income led to a 0.14% increase in departing seats (non-hub). Positive 3–4 Short- to medium-term The U.S. economy has experienced more growth periods than recession periods, so probability is higher than E2. E4 Macro- economic Significant increase in the Canadian dollar relative to the U.S. dollar 15% A rising Canadian dollar would make services at BLI cheaper for Canadians and services at YVR more expensive for catchment area residents. Positive 1–2 Depends on exchange rates The 2004 master plan identifies the risk of leakage to YVR and the fact that some Canadians use BLI. Since the master plan, the strengthening of the Canadian dollar, along with other cost advantages and improved service offerings, has resulted in increased passenger volumes from Canada. E5 Macro- economic Weakening in the Canadian dollar 10% A weaker Canadian dollar makes YVR a more attractive alternative to BLI. Negative 1–2 Depends on exchange The Canada dollar was fairly undervalued at the time of the master plan, so probability of further declines relative to the U.S. dollar rates is lower than increases. Table 9. Bellingham International Airport risk register.

M1 Market Loss or failure of Horizon Air 10% The exit of Horizon Air due to economic conditions or other factors. Negative 5 Long-term Horizon Air was the largest carrier at BLI in the 2002–2004 period, accounting for over 80% of traffic. Many carriers were suffering financial difficulties after the 9/11 terrorist attacks, although Horizon itself did not enter bankruptcy protection. M2 Market Diversion increases to YVR or Seattle- Tacoma 20% The 2004 master plan identified the potential for YVR to draw traffic from BLI given its close location to Bellingham and larger range of service offerings. Another possibility is commercial services starting from Everett Paine Field. Negative 1–2 Long-term M3 Market Entry of a major new carrier (possibly an LCC) 20% Starts operating out of BLI and develops additional frequencies and destinations over time. Positive 3–5 Long-term if sustained (see M4) Unlikely to be Southwest since market is too small. However, there are cases of LCCs that have entered small markets. Some examples are Ryanair in Europe and WestJet in Canada. In the U.S., Allegiant began operations in 2007. Frontier began Frontier Express operations with smaller aircraft. Spirit operates to Plattsburg, NY, a market similar in some ways to BLI. M4 Market Exit of new carrier after entry (only temporary rising traffic level) 10% Linked to factor M3. Having entered the market for a period of time, the carrier then exits due to financial distress, low demand, or some other reason. Negative 3–5 Short- and long-term Example is Hamilton. WestJet entered Hamilton in 2000. Over 2 years, traffic increased from less than 25,000 pax/year to 1 million pax/year. Then WestJet shifted half its capacity from Hamilton to Toronto, and Hamilton traffic dropped significantly (although some services remain). BLI has already experienced other carrier entries and exits (e.g., Alaska Air, US Airways). M5 Market High GA or military growth 5% Strong growth in GA or military aircraft operations leading to pressure on airfield capacity and land requirements. Positive and negative 1 Medium- to long-term GA and military make up a small portion of aircraft operations, so even high growth will have a limited impact. M6 Market Changes in average aircraft size 10% Changes in aircraft may result in changes to utilization levels or revenues based on weight-based landing fees (e.g., use of smaller aircraft leading to more operations but lower revenues). Change to larger aircraft could increase facility requirements. Positive or negative 2–3 Medium- to long-term This is linked to other risk factors—fuel prices, change in demand levels (economic conditions), and new carrier entry can all affect aircraft size. (continued on next page)

M7 Market High growth in international traffic 5% High growth in international traffic (e.g., services to Canada or the Caribbean). Positive 1 Medium- to long-term BLI had no significant international traffic at the time the master plan was produced. The forecasts in the master plan anticipate less than 1,500 enplaned passengers by 2050. R1 Regulatory/ policy Open Skies liberalization 15% The U.S. is (and was) pursuing Open Skies agreements with countries around the world. This could stimulate traffic at BLI through increased feeder traffic to SEA (and possibly other airports) or (less likely) direct international service. Positive 1 Long-term R2 Regulatory/ policy New additional security requirements by the TSA 20% Additional security requirements by the TSA due to potential security risk, resulting in increased space requirements for security operations. May also result in longer airport dwell time, which may be unattractive to passengers. Possibly negative 1–2 Long-term Impact may not be entirely negative: new measures may increase confidence in flying and may affect larger airports more severely, making small airports like BLI more attractive to travelers. R3 Regulatory/ policy New U.S. taxes on aviation 10% New taxes on the aviation sector (e.g., security taxes), increasing the cost of air travel and reducing demand. Negative 2 Long-term R4 Regulatory/ policy Increased Canadian airport fees or taxes, and/or increase in U.S. international taxes that are applied at YVR. 10% Increased taxes on Canadian airports, reducing leakage to YVR. Positive 1–2 Long-term T1 Technology New aircraft technology 5% in next 10 years; 20% after 10 years New aircraft technology reducing the cost of air travel and making new routes economically viable. General positive 1–2 Long-term New aircraft technology tends to arise fairly infrequently— less than once a decade. S1 Shock event Terrorism attack 5% An aviation-related terrorist event leading to a decline in traffic volumes and possible service cuts. Negative 3–4 Short- to medium-term 9/11 contributed to the loss of the United Express/SkyWest service at BLI. S2 Shock event Natural disaster 5% Natural disaster in or around Bellingham, resulting in a temporary decline in traffic. Negative 2–3 Short- to medium-term BLI could face earthquake or tsunami event. S3 Shock event Pandemic 5% Pandemic, similar to SARS. Negative 1–2 Short-term Note: pax = passengers; SEA = Seattle–Tacoma International Airport; TSA = Transportation Security Administration. Risk Identification Risk Evaluation Comments Risk ID Risk Category Threat or Opportunity Event Probability/ Likelihood Description of Impact Magnitude of Impacts Direction Scale (1 = Low, 5 = High) Duration/ Permanence Table 9. (Continued).

85 forecasts are critical to evaluating facility requirements under the scenarios. It should be made clear that the scenario forecasts are not designed to be better (more accurate) forecasts than those used in the 2004 master plan. In actuality, traffic at BLI grew at a faster rate than even the extreme upside forecast, as shown in Figure 34. Nevertheless, the scenario forecasts are a useful thought exercise to illustrate the magnitude of traffic outcomes facing BLI, using realistic scenarios. Their purpose is to encourage decision makers to consider how the airport plans can be made more robust in the face of such an uncer- tain future. 12.2.3 Identification of Risk Response Strategies Another elicitation exercise with the ACRP 03-22 project team was undertaken to determine strategies that could miti- gate risks or take advantage of the traffic outcomes from the scenario forecasts previously discussed. These strategies are summarized in Table 10. Extreme Downside Scenario • A combination of competition from YVR, fuel price spikes, and slow economic growth results in traffic growth half that projected in the 2004 forecasts. • Horizon exits the BLI market within the next 5 years, with the loss of most of its traffic. A quarter of the traffic carried by Horizon is recaptured by existing or new carriers. The forecasts produced by these scenarios, alongside the 2004 master plan forecasts, are shown in Figure 34. The scenarios produce a wide range of traffic forecasts— the extreme upside is 2.3 times the master plan forecast by 2022, while the extreme downside is only 40% of the master plan forecast by 2022. The scenario forecasts can be taken fur- ther to produce forecasts of aircraft operations, aircraft mix, and peak hour passengers and operations. Aircraft operations and mix forecasts based on the scenarios will be useful since they may identify additional requirements related to larger or smaller aircraft. For example, the new carrier in the extreme upside scenario could use larger aircraft that may require runway reinforcement or extension. In addition, peak hour Note: No relevant social/cultural risks were identified for BLI (based on the outlook in 2003–2004); CAD = Canadian dollar; USD = U.S. dollar. Pandemic New aircraft technology Economic recession Fuel price spikes New U.S. aviation taxes Terrorist attack Natural disaster Exit of Horizon Entry of new carrier (e.g., LCC) Open Skies liberalization Increased airport diversion (Vancouver, Seattle) High GA/ Military growth Exit of LCC (after entry) Large increase in the CAD (vs USD) Large decline in the CAD (vs USD) Change in average aircraft size (impact mixed) Additional airport security High international traffic growth Economic boom Increased Canadian air taxes 5% 10% 15% 20% 25% -5 -4 -3 -2 -1 0 1 2 3 4 5 Pr ob ab ilt y Impact Opportunity >< Threat Carrier exit following earlier entry Macroeconomic Market Regulatory/Policy Technology Key: Shock Event Figure 33. Likelihood and severity of uncertainty at BLI.

86 • Ensure that any related terminal design documents incor- porate the features listed previously and that maximum flexibility is maintained by, for example, the use of non- load-bearing walls. • Recommend pursuing an air service development program. 12.2.4 Assessment of the Mitigation Strategies In order to minimize resource requirements and complex- ity, the assessment approach was largely qualitative, providing a comparison of the augmented plan with the original master plan over a range of potential traffic outcomes. However, if the airport management chose, it would be entirely possible to undertake a more quantitative approach, as described in the case study in Chapter 13. The assessment is provided in Table 11. Also provided are the estimated capital improvement costs associated with each possible scenario, based around the $34 million costs estimated for the 2003–2022 time period in the 2004 master plan. These estimates are based on judgment rather than any detailed analysis of the plans and are designed to be indicative. Based on these mitigation strategies, it is proposed that the master plan be augmented in the following way: • Expand the facility requirement assessment to take into con- sideration the additional facility requirements under the extreme upside scenario, at least at a basic level. As noted previously, the 2004 master plan did include an assessment for 2050 that was based on much higher traffic levels, so the additional resource requirements would be modest. • The master plan should ensure that, where possible, the requirements of the upside scenario should not be unduly infringed on by other aspects of the master plan—for example, ensuring that possible plans for expansion of GA or cargo do not impede the ability to accommodate high passenger volumes, should they arise. • Incorporate the use of a modular design to allow the facil- ity to be developed in a cost-effective, incremental manner. • Establish trigger points for the expansion of airport facilities. Trigger points can also be specified for lower levels of traffic to slow down or postpone certain capital improvements. • Allow for additional space to be used for future security requirements. This space can be used for other purposes in the meantime but with the ability to be converted when needed. Figure 34. Scenario forecasts for BLI. Source: Bellingham International Airport Master Plan Update (URS et al., 2004), BLI airport statistics, and analysis by the project team. 68 242 280 329 401 110 123 152 114 151 255 354 162 136 150 195 25 28 40 61 0 50 100 150 200 250 300 350 400 450 19 85 19 87 19 89 19 91 19 93 19 95 19 97 19 99 20 01 20 03 20 05 20 07 20 09 20 11 20 13 20 15 20 17 20 19 20 21 Pa ss en ge r E np la ne m en ts (T ho us an ds ) Actual Traffic 1980-2000 Post-Master Plan Traffic (2000-2010) Master Plan Forecast Extreme Upside Scenario Extreme Upside with New Carrier Exit Extreme Downside Scenario

87 Scenario Mitigation Strategies Master plan forecast If traffic develops in line with 2004 master plan forecast, then implement master plan as defined. Extreme upside Develop High-Level Requirements Plan Develop high-level plan that identifies the facility requirements should high traffic growth occur. For example, identify land on the airport that can be used for additional terminal space, car parking, taxiways, runway extensions (or strengthening), and so forth. Within the terminal, identify the space necessary for passenger processing, security requirements, and gate requirements, and identify potential solutions for expanding the terminal as necessary. The plan would identify short- and long-term measures to accommodate demand. The 2004 master plan contains an appendix identifying the facility requirements in 2050 (i.e., very long-term)—this would provide a starting point for development of this aspect of the plan since it identifies facility requirements at much higher traffic levels than previously experienced (URS et al., 2004, Appendix F). Modular/Simple Facility Design Within the master plan, ensure that the plan for terminal space, taxiways, and other facilities allows for gradual and relatively quick expansion of the airport as demand grows while still allowing a full build-out of the airport capacity. The use of simple, cheap, and incremental designs will also reduce the impact if air service subsequently drops away. Establish Trigger Points Establish trigger points in the master plan, in terms of annual and peak hour movements, where expansion would occur. For example: ▪ Add an additional boarding bridge when peak traffic reaches or exceeds 95% of 150 enplanements per hour and annual traffic reaches 95% of 150,000 enplanements on a sustained and regular basis. ▪ Expand terminal space by 15,000 sq ft and undertake apron expansion when traffic reaches 90% of 225 peak passengers and 90% of 250,000 annual enplanements. Note: Both triggers have been expressed as a percentage of overall capacity to allow for the lead time necessary to bring on additional capacity. Terminal and apron space is expected to take longer to develop than an additional bridge— hence the lower percentage applied to the terminal space/apron expansion. Extreme upside with new carrier exit A number of the previous strategies would also mitigate risks in this scenario, in particular: ▪ Modular design: lowers the risk of severe overbuild. ▪ Trigger points: build to demand. However, recognizing the risk that new traffic may ultimately result in carrier exit, the trigger point should incorporate some delay in action to allow demand to prove some degree of permanence. Plans for interim, temporary capacity should be established. For example, some airports have used moveable or temporary structures for certain airport functions, freeing up existing terminal space for passenger operations. ▪ Outside of the planning process, the airport can also undertake an air service development program to attract additional carriers, thereby reducing the impact from one carrier failing. The entry of a new carrier to BLI may attract the interest of other carriers and so provide a useful marketing opportunity for the airport. The air service development strategy would need to be carefully balanced to ensure that it does not unnecessarily undermine the positions of carriers already serving BLI. Guidance on air service development can be found in ACRP Report 18: Passenger Air Service Development Techniques (Martin, 2009). Table 10. Mitigation strategies for Bellingham International Airport. (continued on next page)

88 Scenario Mitigation Strategies The plan would also ensure that whatever cutbacks or postponements are made do not jeopardize the airport’s ability to accommodate additional traffic if and when it arises. As with the previous scenario, an air service development program can also potentially mitigate the impacts of this scenario. New TSA security requirements Although not addressed in the scenarios, concern about future security requirements was viewed as sufficiently important to be directly addressed in the planning process. The 2004 master plan itself raises the issue of new security requirements affecting space requirements as well as drop-off points and vehicle parking. Mitigation measures include: ▪ Reservation of terminal space to allow for future expansion of passenger screening or holdroom space requirements. This space could be initially allocated to other purposes (e.g., retail, office space) until it is required for security purposes (or in case it is never required) to improve utilization. When required, the space can be easily converted to security. ▪ Use of non-load-bearing walls so that areas of the terminal can be easily reconfigured. Extreme downside Again, the use of modular design and trigger points will reduce the possibility of facility overbuild if traffic levels decline. Further, the planning process could also identify actions that can be taken in case of severe traffic declines—for example, postponing any expansion plans but maintaining aspects of the plans related to maintenance. The 2004 master plan identifies capacity-related and maintenance-related improvements, so it would be a straightforward task to add this to the readiness plan. Essentially, the plan would identify trigger points for traffic declines that initiate slowdown or postponement actions. Table 10. (Continued). Approach Traffic Development Master Plan Forecast Extreme Upside Scenario Extreme Upside Scenario with Carrier Exit Extreme Downside Scenario 2004 master plan Airport facility developed in an effective manner to accommodate traffic. Costs/benefits: Generally minimizes capital costs. Estimated project costs: $34 million Master plan unsuitable for traffic developments and is scrapped. A completely revised plan has to be developed and implemented fairly rapidly. Costs/benefits: Additional costs associated with scrapping the old plan and developing a new plan. Additional costs may be incurred due to the need for a rapid response. Estimated project costs: $50 million Master plan unsuitable for initial rise in traffic and is revised. Traffic then drops, and the airport plans have to be revised again. Costs/benefits: Additional costs associated with various revisions to the plans and some investment in capacity not needed after carrier exit. Estimated project costs: $42 million Some overbuild of capacity but the capital program is still slowed down. Costs/benefits: Some cost savings due to program slowdown. Estimated project costs: $30 million Augmented plan Airport facility developed in an effective manner to accommodate traffic. Costs/benefits: Additional costs associated with the more modular design and additional planning work. Estimated project costs: $36 million Plan provides a road map to accelerate development to meet rising traffic levels. Costs/benefits: The increased traffic can be managed in a more considered manner, reducing unnecessary costs. Estimated project costs: $45 million The use of modular design and trigger points minimizes overbuild after the exit of the carrier. Costs/benefits: Some additional costs associated with planning work and partial capacity expansion. Estimated project costs: $40 million The use of modular design and trigger points identifies areas for slowdown and postponement of the capital program. Costs/benefits: Some cost savings. Estimated project costs: $26 million Table 11. Assessment of the mitigation strategies for BLI.

89 mitigation with potential revenue and cost benefits. (The 2004 master plan does not address air service development— in line with most master plans—and it is not known what air service development was planned or undertaken by BLI at the time.) 12.2.5 Risk Tracking and Evaluation The final step in the methodology involves risk tracking. It is anticipated that traffic and events will be routinely moni- tored and will feed into a process of referencing against the plan and, where necessary, updating the plan. This involves the following: 1. Trigger points: Traffic levels are regularly tracked against the specified trigger points. Where a trigger point has been met or exceeded, the first task is to evaluate the traffic level to assess whether this traffic level is reasonably permanent and likely to be sustained in the future. This would involve discussion with relevant airport management knowledge- able about the cause of this traffic growth (or decline), such as marketing and operations. Once there is a reason- able consensus that the trigger point has been met, the capital development specified by the augmented master plan can be initiated. 2. Annual review: It is recommended that, approximately once a year, a review be conducted to evaluate the risk factors affecting BLI. This would involve a review of the risk regis- ter by relevant airport management to assess the following: a. Have any of the risk factors changed in terms of mag- nitude or likelihood? b. Are there any additional risk factors that need to be added or that can be removed? c. Based on this review, is there a need to revisit the traffic scenarios or re-evaluate possible traffic outcomes? d. Based on the previous points, is there a need to adjust or update the augmented master plan? The purpose of this annual review is not to rewrite the master plan every year, but to allow the airport to respond to evolving situations and events and to maintain the focus on risk robustness within the airport. If some broad assumptions are made about the probabil- ity of the traffic outcomes (which are in line with the earlier risk register), a basic quantitative element can be added to the assessment by estimating expected values, as follows: • Master plan forecast: 60% probability, • Extreme upside: 15%, • Extreme upside with carrier exit: 10%, and • Extreme downside: 15%. The expected value associated with the 2004 master plan is as follows: (34 million × 60%) + (50 million × 15%) + (42 million × 10%) + (30 million × 15%) = 36.6 million while the augmented plan’s expected value is: (36 million × 60%) + (45 million × 15%) + (40 million × 10%) + (26 million × 15%) = 36.3 million As can be seen, the augmented plan has a marginally lower expected project cost. Clearly, the difference is small and could be tipped in favor of the original master plan by assum- ing slightly different project costs and probabilities. However, this basic analysis does not take account of other factors that may favor the augmented plan: • Finance costs: The more modular basis of the augmented plan can reduce finance costs because the financial require- ments are made more incremental. Rather than borrow in large lumps, airports can obtain financing in smaller amounts nearer the time they are needed. Furthermore, in the event traffic is lower than expected, a more modular plan helps avoid the building of an underutilized facility whose financing cost must still be met. • Revenue impacts: The expected value calculations are based on project costs only. The augmented plan may also have revenue benefits since it allows the airport to more fully accommodate rapid traffic growth, reduce overcrowding (which may put off passengers and airlines), and increase opportunities for non-aeronautical revenues. • The use of an air service development program as recom- mended in the augmented plan may offer additional risk

90 13.1 Background BWI is owned and operated by the State of Maryland, which purchased the airport from the City of Baltimore in 1972. Located about 30 miles north of Washington, D.C., it competes within the same catchment area as both Washing- ton Dulles International Airport and Ronald Reagan Wash- ington National Airport. Some background on BWI was provided in Section 3.2. The systems analysis methodology was applied, retrospectively, to the conditions of the airport in the mid-1980s to early 1990s, during which time the Maryland Aviation Administration ini- tiated a master plan update and began development of a new international terminal. Figure 35 shows total passenger enplanements at BWI between 1972 and 2010. As can be seen, the airport went through two extended periods of rapid growth. Significant growth began in 1983, when Piedmont Airlines selected the airport as a hub and expanded the number of flights it offered. The airline was absorbed into US Airways in 1989, but hubbing activities were maintained. In September 1993, Southwest Airlines launched services from BWI to Chicago and Cleveland. Over the next several years, the number of destinations served by Southwest from BWI grew steadily. The carrier added three cities in 1994, another four in 1995, and four more in 1996. By 2001, South- west was serving 32 destinations. Along with this expansion, BWI’s total passenger traffic grew significantly. The competitive pressure from Southwest Airlines, as well as other industry factors, led US Airways to gradually scale down its operations at the airport, effectively closing its hub. Many operations were moved to Philadelphia. 13.1.1 1987 Master Plan Update The master plan update was initiated in April 1985 as a result of rapid changes in the airline industry since the com- pletion of the previous plan (in 1977). The update evaluated facility requirements over a 20-year horizon (up to 2005). The air traffic forecasts developed in support of the mas- ter plan update were based on event-driven indicators as opposed to econometric forecasting techniques. The master plan indicated that this was necessary because the airport had been experiencing very high—and unprecedented—rates of growth with the development of the Piedmont hub. Tracking and annual updates, presumably to re-examine those indica- tors, were contemplated in the plan. Based on the air traffic forecasts, the master plan identified a capital improvement program of approximately $566 million (in 1987 dollars) made up of several projects in the categories of airside and landside development as well as roadways and environmental/noise abatement improvements. A key feature of the capital improvement program was the expansion of existing terminals and the construction of new ones, as shown in Figure 36. The capital improvement program was structured in three phases as follows: • Phase I: 1986–1988, with an estimated cost of $55.2 million; • Phase II: 1989–1992, with an estimated cost of $178.7 mil- lion; and • Phase III: 1993 and beyond, with an estimated cost of $332.5 million. 13.1.2 Development of the International Terminal In the early 1990s, BWI experienced rapid growth in inter- national traffic volumes (as documented in Section 3.2). International enplanements doubled between 1989 and 1991 to 323,000, and market research by the airport indicated that international enplanements at BWI could reach as high as 500,000 by 2000 and 700,000 by 2010 (Maryland Depart- ment of Transportation, 1993). This projection was in fact lower than earlier forecasts in the 1987 master plan, which projected 750,000 international enplanements by 2000 and 900,000 by 2005. C h a p t e r 1 3 Baltimore/Washington International Thurgood Marshall Airport

91 In anticipation of future international traffic growth, it was decided to construct an international terminal, which was completed in 1997 at a cost of $140 million. The airport also extended Runway 10/28 to 10,500 ft (increased from 7,800 ft), enabling the airport to handle long-haul air traffic in most weather conditions. The new terminal, which was built in place of the proposed Pier F in Figure 36, added six inter- national gates (more than originally planned in the master plan update) and more ticket counter space, and expanded the U.S. federal inspection service facilities. As illustrated in Figure 37, international passenger traffic at BWI failed to develop to the levels anticipated in the 1987 master plan and the 1993 projections. Due in large part to the withdrawal of US Airways, international traffic has since declined to 189,855 enplanements in 2010. 13.1.3 Renovation of Piers A and B The rapid growth of Southwest, starting in 1993, led to increased demand for domestic facilities that had not been anticipated in the 1987 master plan. As a result of South- west’s operations, more passengers were using BWI to con- nect between flights. However, BWI’s physical layout at the time was not conducive to passengers connecting between concourses since each concourse was behind its own security checkpoint, resulting in passengers having to be rescreened. In response to this situation, BWI started a renovation plan in 1999 (completed in 2005 at a cost of $85 million) to pro- vide more gates for Southwest Airlines in piers A and B and to improve the connectivity between them. 13.2 Application of the Methodology The methodology set out in Part II provides four tracks, which offer different types of output and require different resources. In this case, Track D (quantitative with formal elici- tation) was selected as the most applicable to BWI, as shown in Figure 38. The key elements of the methodology can be summarized as follows: 1. Risk identification and quantification using a risk register and quantitative analysis, where possible. 2. Assessment of cumulative risk impacts, using quantita- tive approaches such as structure and logic diagrams and Monte Carlo simulation. Source: U.S. DOT Data and the Ralph M. Parsons Company (1987). 0 2 4 6 8 10 12 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 20 06 20 08 20 10 Pa ss en ge r E np la ne m en ts (M illi on s) Piedmont announces hub First Gulf War and recession Southwest Airlines launches services 9/11 and recession Recession US Airways "de-hubs"1987 Master Plan Development Figure 35. Total passenger enplanements at BWI, 1972–2010.

92 3. Identification of risk response strategies based on infor- mation from the previous tasks, and formal and informal elicitation methods. 4. Assessment of the response strategies using quantitative analysis. 5. Risk tracking and plan evaluation program—ongoing monitoring. 13.2.1 Risk Identification and Quantification The risk identification and quantification process used a combination of information on common airport risks provided in Part II of the guidebook, Delphi sessions within the ACRP 03-22 project team, and information obtained from the 1987 master plan and other planning documents. In real practice, the Delphi process would have been conducted with the airport management team and other stakeholders. The findings are summarized by the risk register in Table 12. In contrast to the Bellingham case study, the risk register for Baltimore contains more quantitative information. For exam- ple, the impact of risk factors is presented as a low-medium- high range, expressed in terms of the anticipated absolute or percentage change in traffic levels, rather than the five-point scale used for Bellingham. 13.2.2 Assessment of Cumulative Impacts While the previous step identified and attempted to quan- tify the impacts of individual risk factors, the purpose of this step is to consider the cumulative impact of these factors and the likely implications on traffic at BWI. The approach taken used a combination of structure and logic diagrams and Monte Carlo simulation using a simple spreadsheet-based traffic simulation tool, which replicated the forecasting approach used in the 1987 master plan update. The primary purpose of the S&L diagrams was to set out the relationships between the key variables affecting air traffic and thus the underlying structure of the traffic model. An example of the diagrams generated for BWI is shown in Figure 39. Based on the S&L diagrams, the Monte Carlo simulations were conducted. The risk factors set out in the risk register were input into the model as ranges or distributions drawn from the values contained in the risk register. For example, variability in economic growth (risk IDs E2 and E3) were Source: Ralph M. Parsons Company (1987) and BWI’s website. Figure 36. Proposed terminal expansion at BWI in the 1987 master plan update.

93 modeled as deviations from the expected long-term eco- nomic growth trend. So, in some years economic growth will be 1% higher than expected in the 1987 master plan fore- cast, in other years 2% lower, and so on as randomly deter- mined by the model. Modeling deviation from the trend was necessary because the 1987 master plan did not specify the assumed economic growth rate. If it had, the modeling could have been done on the basis of the specified growth rate, but the results would have been more or less the same. The distribution assumed for this deviation from trend was based on analysis of historical GDP growth rates and approximated a normal distribution with a 10% to 90% range of -3% to +3%, as illustrated in Figure 40. The impact of this economic variability on traffic growth required the use of an elasticity parameter. The parameter used was taken from ACRP Report 48: Impact of Jet Fuel Price Uncertainty on Airport Planning and Development, which found that each 1% decline in per capita local income led to a 0.39% decline in domestic departing seats (Spitz and Berardino, 2011). The parameter itself was also randomized based on the standard error reported for this estimate in ACRP Report 48. The impact of a major carrier failing (M1) was input with a probability of failure of 30% (i.e., 30% of iterations would involve the carrier failure, determined on a random basis). The impact of failure (loss of traffic) was also randomly determined assuming a PERT distribution with a 10%–90% range of -0.5 million to -1.5 million (based on the risk regis- ter), as shown in Figure 41. Source: U.S. DOT Data (data from 1985 to 1989 could not be obtained), Ralph M. Parsons Company (1987), and Maryland Department of Transportation (1993). 0 100 200 300 400 500 600 700 800 900 1,000 19 72 19 74 19 76 19 78 19 80 19 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 20 06 20 08 20 10 Pa ss en ge r E np la ne m en ts (T ho us an ds ) Actual Traffic 1993 Projection 1987 Master Plan Forecast (Baseline) 1987 Master Plan Development Planning for International Terminal Figure 37. Actual and forecast international traffic at BWI. Figure 38. Identification of the uncertainty analysis track for BWI.

Risk Identification Risk Evaluation Comments Risk ID Risk Category Threat or Opportunity Event Probability/ Likelihood Description of Impact Impact On Magnitude of Impacts (on Traffic) Low Medium High Duration/ Permanence E1 Macro- economic Fuel price spikes/ volatility 20% Rising fuel prices result in increased operating costs, which are either passed on to consumers through higher fares, which will lower demand, or result in carriers cutting back services (or a combination of the two). ACRP Report 48 found that each 1% increase in fuel prices led to a 0.099% decline in domestic departing seats (other large-medium hubs). Aircraft ops, passengers (domestic & international) -7.4% -3.9% -0.8% Generally short-term Probability of a spike assumed to be once every 5 years. Although duration is short-term, long- term impacts can result. For example, fuel spikes in 2008 led to US Airways pulling out of its night hub at Las Vegas. E2 Macro- economic Economic slowdown/ recession 10% Economic recession can lead to declining passenger volumes and service reductions by airlines. ACRP Report 48 found that each 1% decline in per capita local income led to a 0.39% decline in domestic departing seats (other large- medium hubs). Aircraft ops, passengers (domestic & international) -2.2% -1.2% -0.3% Short- to medium-term Probability reflects recessions occurring roughly once a decade. E3 Macro- economic Economic boom 20% Strong economic growth generally boosts passenger demand and can lead airlines to expand existing services and introduce new ones. Aircraft ops, passengers (domestic & international) 0.4% 1.2% 1.7% Short- to medium-term The U.S. economy has experienced more growth periods than recession periods, so the probability of growth is higher than E2. M1 Market Loss or failure of major carrier 30% The exit of Piedmont Airlines due to economic conditions or other factors. Aircraft ops, passengers (domestic & international) -2.0 million -1.0 million -0.5 million Long-term M2 Market Entry of a major new carrier (possibly LCC) 25% Impacts in terms of additional passengers. Lasts as long as market risk M4 does not materialize. Aircraft ops, passengers (domestic) +0.5 million +1 million +1.5 million Long-term if sustained Table 12. Baltimore/Washington International Thurgood Marshall Airport risk register.

M3 Market Exit of new carrier after entry (only temporary increase in traffic level) 5% Linked to factor M2. Having entered the market for a period of time, the carrier then exits, due to financial distress, low demand, or some other reason. Realization of this risk depends on realization of M2. Aircraft ops, passengers (domestic) Reversal of M2 Short- and long-term M4 Market High GA or military growth 5% Strong growth in GA or military aircraft operations leads to pressure on airfield capacity and land requirements. This risk is not quantified in the case study. General aviation, military operations N/A N/A N/A Medium- to long-term GA and military make up a small portion of aircraft operations so even high growth will have a limited impact. M5 Market Changes in average aircraft size 40% Changes in aircraft may result in changes to utilization levels and facility requirements (e.g., use of smaller aircraft leading to more operations). Impacts are expressed as % change relative to the master plan (baseline) forecast. Secondary impacts on demand, through operating cost effects, were not modeled. Aircraft ops (domestic & international) -10.0% 0.0% 10.0% Medium- to long-term Changes in aircraft linked to other risk factors. Fuel prices, change in demand levels (economic conditions), and new carrier entry can all affect aircraft size. M6 Market High or low growth in international traffic 5% This risk captures unexpected deviations in international traffic growth relative to the master plan (baseline) forecast. In this case study, it was assumed that the impacts of this risk are captured elsewhere (i.e., M1, M2). Aircraft ops, passengers (international) N/A N/A N/A Medium- to long-term M7 Market Changes in average load factors (all carriers) 40% Impacts are expressed in percentage point changes relative to the master plan (baseline) projections. Aircraft ops (domestic & international) -5.0% 0.0% 5.0% Short- to medium-term M8 Market Changes in peak hour traffic 20% Impacts are expressed in percentage point changes relative to the master plan (baseline) forecasts. Traffic peaking 0.0% 2.0% 4.0% Medium- to long-term R1 Regulatory/ policy Open Skies liberalization 10% The United States is (and was) pursuing Open Skies Aircraft ops, passengers 10.0% 20.0% 30.0% Long-term (continued on next page)

agreements with countries around the world. This could stimulate traffic at BWI through increased feeder traffic or direct international service. (international) R2 Regulatory/ policy New additional security requirements by the TSA 20% Additional requirements due to potential security risks, resulting in increased space requirements for security operations. May also result in longer airport dwell time, which may be unattractive to passengers. Aircraft ops, passengers (domestic & international) -10.0% -5.0% 0.0% Long-term R3 Regulatory/ policy New U.S. taxes on aviation 10% New aviation taxes (e.g., security taxes), which increase the cost of air travel and reduce demand. Aircraft ops, passengers (domestic & international) -7.5% -5.0% -2.5% Long-term T1 Technology New aircraft technology 5% in next 10 years; 20% after 10 years New aircraft technology that reduces the cost of air travel and makes new routes economically viable. Aircraft ops, passengers (domestic & international) 5.0% 5.0% 5.0% Long-term S1 Shock event Terrorism attack 5% An aviation-related terrorist event leading to a decline in traffic volumes and possible service cuts. Aircraft ops, passengers (domestic & international) -20.0% -10.0% -5.0% Short- to medium-term S2 Shock event Natural disaster 5% Natural disaster on or around BWI, resulting in a temporary decline in traffic. Aircraft ops, passengers (domestic & international) -10.0% -5.0% -2.5% Short- to medium-term S3 Shock event Pandemic 1% Pandemic, similar to SARS. Aircraft ops, passengers (domestic & international) -20.0% -10.0% -5.0% Short-term Risk Identification Risk Evaluation Comments Risk ID Risk Category Threat or Opportunity Event Probability/ Likelihood Description of Impact Impact On Magnitude of Impacts (on Traffic) Low Medium High Duration/ Permanence Table 12. (Continued).

97 model developed, there is 90% probability that future traffic will be between those two lines. Figure 43 shows the probability distribution of total traffic in a single year (2005). Similar distributions were generated by the model for each year within the planning horizon. Figure 44 shows the Monte Carlo output for international passenger traffic. The analysis is based on the forecasts of international passenger enplanements in the 1987 master plan update (rather than the 1993 projections). Even the 5th percentile suggests traffic growth higher than actually occurred. The Monte Carlo simulation did produce forecasts of international traffic that pointed to declining or very low growth. However, the probability estimate for such an out- come was around 0.5%. (The 0.5 percentile is shown in the chart.) The difficulty for the decision maker is that with such a low probability, it is likely that little consideration will be All of the other risk factors were defined in this same way, and Monte Carlo simulation was undertaken using spreadsheet-based software of the type described in Sec- tion 8.2.2. Clearly, such software was not readily available in the late 1980s. However, the purpose of this case study is not to test whether the methodology would have been workable in the past, only whether it may work on current situations similar to those in the past. The results of the Monte Carlo simulation are provided in Figure 42. The median (average) forecast from the Monte Carlo simulation is close to the forecast from the 1987 mas- ter plan, largely because most risk variables were specified as deviations from the 1987 forecast. Also shown are the 10th/90th and 5th/95th percentile ranges from the Monte Carlo analysis. For example, the 5th/95th lines indicate that 90% of all forecasts generated in the Monte Carlo simulation were between those two lines. In other words, based on the DSC Passenger Enplanements in Base Year Annual Growth in DSC Passenger Enplanements Total DSC Passenger Enplanements in Year t Percent Connecting in Total DSC Passenger Enplanements (%) DSC Connecting Passenger Enplanements in Year t DSC Originating Passenger Enplanements in Year t A1 A2 A3 Ratio of Charter (domestic & international) to Domestic Scheduled Originations A4 Total Charter Passenger Enplanements in Year t Figure 39. Structure and logic diagram for domestic scheduled (DSC) and charter passenger enplanements at BWI.

98 –8% –7% –6% –1%–5% –4% –3% –2% 0% 1% 2% 4%3% 5% 6% 7% 8% Pr ob ab ili ty Deviation from Long Term Economic Growth Rate 10% to 90% Range Figure 40. Assumed distribution for economic growth, BWI case study. 005,2000,2005,1000,10050 Pr ob ab ili ty Loss of Enplaned Passengers (Thousands) 10% to 90% Range Figure 41. Assumed distribution for loss of traffic from carrier exit, BWI case study.

99 associated probability of occurrence). For simplification, three representative growth paths were selected for each market: • Low growth: low traffic growth based on the level of traf- fic where there is an 80% probability that level will be exceeded, • Midrange: traffic growth in line with the median forecast, and • High growth: high traffic growth based on the level of traffic where there is a 20% probability that level will be exceeded. The selection of the probability bands is a management choice, and each airport should set its own thresholds. A traffic scenario can then be defined for each combination of market-specific growth paths, as illustrated in Table 13. Scenario E corresponds to the realization of the master plan forecast, whereas scenarios A, C, G, and I correspond to extreme traffic levels and/or traffic mixes (shaded in Table 13): • A: low to very low total airport traffic relative to the master plan forecast; given to such an outcome. Nevertheless, given that such out- comes are within the bounds of the model, there is value in exploring the far tails of the forecast distribution and giving consideration to the implications of such outcomes. 13.2.3 Identification of Risk Response Strategies The 1987 master plan for BWI did include some flexibility in its implementation. The disaggregation of the plan into three different phases allowed for periodical revisions and updates—at least before the implementation of each new phase. This general level of flexibility was used to increase the number of gates built in the international terminal (from three in the 1987 master plan to six actually completed) and to extend the 10/28 runway from 7,800 ft to 10,500 ft. Based on the analysis described in the previous section and circumstances at the airport, additional risk response strategies have been identified and were assessed under alternative proba- bilistic growth paths in the domestic and international markets (each path representing a particular traffic forecast with an Source: U.S. DOT Data, Ralph M. Parsons Company (1987), and analysis by the project team. 0 4 8 12 16 20 19 75 19 77 19 79 19 81 19 83 19 85 19 87 19 89 19 91 19 93 19 95 19 97 19 99 20 01 20 03 20 05 Pa ss en ge r E np la ne m en ts (M illi on s) Actual Traffic 1987 Masterplan (Baseline) Median Forecast from the Monte Carlo 10th/90th Percentile 5th/95th Percentile Figure 42. Summary of Monte Carlo analysis retroactively applied to total passenger enplanements at BWI.

100 • C: large to very large shift in traffic mix toward international traffic and, depending on the initial mix of traffic, either lower than expected or higher than expected total traffic; • G: large to very large shift in traffic mix toward domestic traf- fic and, depending on the initial mix of traffic, either lower than expected or higher than expected total traffic; and • I: high to very high total airport traffic relative to the mas- ter plan forecast. A situation similar to Scenario G actually occurred when US Airways moved its international operations to Phila- delphia and Southwest Airlines increased its operations at BWI. The analysis focuses on these four extreme scenar- ios since they are likely to cause the greatest challenges, although scenarios B and D or scenarios H and F may also be problematic. A list of possible mitigation strategies, related primarily to the design and construction of the international termi- nal, is provided in Table 14 for each of the four scenarios. For ease of understanding, mitigation strategies related to the design and construction of other facilities and infra- structure (e.g., runways) are not to be considered as part of this case study. In summary, the main mitigation strategies identified for BWI are: • Introduction of flexible spaces in the design of the inter- national terminal, allowing use of international gates for domestic flights; • Introduction of modularity in the design of the interna- tional terminal to allow relatively quick expansions or reductions of planned capacity; • Establishing trigger points to determine the appropriate timing for the implementation of flexibility measures (e.g., swing gates) or to start expansion or slow down or postpone certain capital improvements. 13.2.4 Assessment of the Mitigation Strategies Using data for actual investment costs and assumptions on how spending would have changed across different traf- fic growth scenarios, an ex-post evaluation was conducted of the mitigation strategies developed in the previous step. The analysis was conducted by evaluating two courses of action: Source: U.S. DOT Data, Ralph M. Parsons Company (1987), and analysis by the project team. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 0% 2% 4% 6% 8% 10% 12% 2, 38 8 4, 05 9 5, 72 9 7, 40 0 9, 07 1 10 ,7 42 12 ,4 13 14 ,0 84 15 ,7 55 17 ,4 26 19 ,0 97 20 ,7 68 22 ,4 39 24 ,1 10 25 ,7 81 27 ,4 52 29 ,1 23 Cu m ul at iv e P ro ba bi lit y Pr ob ab ili ty D en si ty Passenger Enplanements in 2005 (Thousands) Probability Density Cumulative Probability Figure 43. Histogram and cumulative probability distribution for forecast total passenger enplanements in 2005 at BWI.

101 traffic, but allowing for the potential use of the swing gates available in the international terminal. For simplification, the two planning options are assessed on the basis of total capital expenditures. Total expenditures were evaluated under the traffic scenarios introduced in Table 15 (scenarios A through I). The total construction cost of the international terminal that was eventually built was reported as $140 million (in 1994 dollars). As explained earlier, the facility and the new gates were designed under a single-use standard and were physically sepa- 1. Traditional (semi-flexible) planning option. The inter- national terminal is designed and scaled according to the baseline forecast of international traffic prevalent at the time, with six single-use gates. Subsequent renovations of piers A and B are scaled on the basis of domestic traffic developments, with 0 to 11 additional domestic gates. 2. Flexible planning option. The international terminal is designed modularly, with either three or six multi-use swing gates (depending on how traffic develops). As in the traditional planning option, subsequent renovations of piers A and B are scaled to observed growth in domestic International Traffic Domestic Traffic Low Growth Midrange High Growth Low growth A D G Midrange B E H High growth C F I Table 13. Definition of traffic mix scenarios for risk mitigation. Figure 44. Summary of Monte Carlo analysis retroactively applied to international enplanements at BWI. Source: U.S. DOT Data (data from 1985 to 1989 could not be obtained), Ralph M. Parsons Company (1987), Maryland Department of Transportation (1993), and analysis by the project team. 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 19 75 19 77 19 79 19 81 19 83 19 85 19 87 19 89 19 91 19 93 19 95 19 97 19 99 20 01 20 03 20 05 Pa ss en ge r E np la ne m en ts (T ho us an ds ) Actual Traffic 1987 Masterplan (Baseline) Median 10th/90th Percentile 5th/95th Percentile 0.5% Percentile

102 Scenarios Proposed Mitigation Strategies A Lower end of the distribution for domestic traffic and lower end of the distribution for international traffic Modularity in design: introduce modularity in the design of the international terminal, to allow scaling down, slowing down, or postponing improvements. C Lower end of the distribution for domestic traffic and upper end of the distribution for international traffic Modularity in design and shared use: introduce modularity in the design of the international terminal to allow scaling up or accelerating improvements. Additionally, consider shifting investments in the domestic terminals to increase flexibility in the use of domestic space and gates (such as swing gates that can be used for international flights). High-level requirements plan: develop a high-level plan that identifies facility requirements should high international traffic growth occur. For example, identify the number of gates that would be required to service higher than expected international traffic. The plan should identify short- and long-term measures to accommodate this demand, including possible future expansion of the terminal. Trigger points: establish trigger points in the plan, in terms of annual and peak hour international movements, to initiate facility development, including expansion of the international terminal. Trigger points may also be defined in terms of the size of the anticipated shift in the traffic mix and the probability that it will occur. Thus, additional swing gates or shared-use facilities may be planned for when the probability of a large shift in traffic mix exceeds a given threshold. G Upper end of the distribution for domestic traffic and lower end of the distribution for international traffic Shared use: within the design of the international terminal, include flexible facilities such as swing gates that ensure international gates can be switched to domestic gates when demand warrants, allowing for temporary and rapid expansion of the number of domestic gates. High-level requirements plan: develop a high-level plan that identifies the facility requirements should high domestic traffic growth occur. For example, identify the number of gates that would be required to service high-growth traffic, the estimated levels of passenger flows between terminals (for connecting purposes), and the required security checkpoints and their locations. The plan should identify short- and long-term measures to accommodate this demand, including possible expansion of domestic terminals. Trigger points: establish trigger points in the plan, in terms of annual and peak hour domestic movements. I Upper end of the distribution for domestic traffic and upper end of the distribution for international traffic Modularity in design: introduce modularity in the design of the international terminal to allow scaling up or accelerating improvements. Additionally, continue to update the plan based on new projections and available information. Table 14. Mitigation strategies for BWI. International Traffic Domestic Traffic Low Growth Midrange High Growth Traditional Planning Low growth 6, 0 6, 5 6, 11 Midrange 6, 0 6, 5 6, 11 High growth 6, 0 6, 5 6, 11 Flexible Planning Low growth 3, 0 3, 5 3, 8 Midrange 3, 0 3, 5 3, 8 High growth 6, 0 6, 5 6, 8 Note: The first number in each cell is the number of gates in the international terminal; the second is the number of new domestic gates built as part of the renovations of piers A and B. Table 15. Assumed number of gates built under different traffic developments at BWI.

103 • Domestic Traffic – Low growth: no new gates needed; – Midrange: five new gates; – High growth: 11 new gates. Table 15 summarizes the assumed number of domestic and international gates required under each of the nine traffic growth scenarios (A through I) and two planning approaches (traditional planning and flexible planning). Combining the previous assumptions on the number of gates with the costing assumptions presented earlier leads to the total cost estimates summarized in Table 16. All estimates are in millions of 1987 dollars. The two planning approaches (traditional and flexible) were evaluated against a range of traffic outcomes, as sum- marized in Figure 45. The chart shows the capital costs for the traditional and flexible planning approaches over the range of forecast outcomes produced by the Monte Carlo simula- tion. This is a similar approach to the NPV analysis described in Section 10.3, although this focuses only on capital costs and does not apply discounting. The y axis (vertical axis) shows the cumulative probability that traffic is lower [i.e., the bottom represents low forecast traf- fic (thus the probability is small that traffic is lower), and the top represents high traffic]. As can be seen, the flexible planning approach offers lower capital costs over a wide *+ of traffic outcomes (i.e., the dashed line for the flexible plan is to the left of the solid line for the traditional plan). However, the flexible option incurs higher costs in situations where both domestic and international traffic experience very significant growth, and the more expensive flexible gates built in the international terminal are always swung to international use. The two planning approaches can also be assessed in terms of expected value. A simplified approach was used where the estimated probabilities of all nine scenarios (A to I) were rated from the other airport piers. The total cost of reno- vating piers A and B was estimated at $85 million (1999 dollars). This renovation created 11 new gates, all designed for domestic use. Combining both investments, a total of $165.3 million was spent (converted to 1987 dollars) in capital improvements between 1994 and 2005. (The Consumer Price Index, U.S. City Average, All Urban Consumers was used to convert 1994 and 1999 dollars into 1987 dollars.) A number of assumptions were made to derive the esti- mates of capital costs considered in our assessment: • International Terminal – 50% of total capital costs are fixed and do not vary with the number of gates; the other 50% vary proportion- ately with the number of gates; – Designing and building swing gates, under the flexible planning option, increases total capital costs by 10%; – Additional improvements would be required, under the flexible planning option, to link the international termi- nal to other piers and minimize hassle for connecting passengers (of having to go through a security check- point on their way to a connecting gate). • Subsequent Renovations of Piers A and B – 40% of total capital costs are fixed and do not vary with the number of gates; the other 60% vary proportion- ately with the number of gates. It was further assumed that a minimum number of gates, for international and/or domestic use, would be required to accommodate different levels of traffic, as follows: • International Traffic – Low growth: no new gates needed; – Midrange: three new gates; – High growth: six new gates. International Traffic Domestic Traffic Low Growth Midrange High Growth Traditional Planning Low growth $107.3 $146.3 $165.3 Midrange $107.3 $146.3 $165.3 High growth $107.3 $146.3 $165.3 Flexible Planning Low growth $98.5 $137.5 $147.0 Midrange $98.5 $137.5 $147.0 High growth $128.0 $167.0 $176.5 Note: Figures are in millions of 1987 dollars; all estimates for illustration only. Table 16. Total capital cost estimates for BWI.

104 multiplied by the estimated capital cost in each scenario. The probability of occurrence of each traffic scenario is shown in Table 17 and is based on output from the Monte Carlo simu- lations. Each probability reflects a large number of assump- tions, including the manner in which the risks identified in the risk register affect domestic and/or international traffic. Multiplying these probabilities against the capital costs for traditional and flexible planning (from Table 16), produced the following expected values: • Traditional: $143 million, and • Flexible: $137 million. Thus, these calculations demonstrate that the flexible approach is expected to result in lower capital costs. Caveats and Limitations The assessment presented in this section is limited in some respects: • The options are compared with each other under a lim- ited number of traffic scenarios, the definition of which is largely arbitrary; 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 80 90 100 110 120 130 140 150 160 170 180 190 Cu m ul at iv e Tr af fic Pr o ba bi lit y (P ro ba bi lit y Tr af fic is Lo w er ) Capital Expenditures (Millions of 1987 Dollars) Tradional Flexible Figure 45. Cumulative probability distribution of total capital expenditures under alternative planning options. International Traffic Domestic Traffic Low Growth Midrange High Growth Low growth 10.4% 9.4% 0.2% Midrange 9.6% 41.9% 8.5% High growth 0.1% 8.7% 11.2% Note: for illustration only. Table 17. Simulated probabilities of occurrence of traffic mix scenarios.

105 13.2.5 Risk Tracking and Evaluation The final step in the methodology involves risk track- ing. It is anticipated that traffic and events will be routinely monitored and will feed into a process of referencing against the plan and, where necessary, updating the plan. Similar to the Bellingham case study, the tracking and evaluation may involve the following: • Trigger points: tracking traffic against the specified trig- ger points and, when the trigger has been met, assessing its permanence and determining from planning documents the next step (e.g., facility expansion). • Periodic updates, memos, or reports: updating manage- ment (e.g., every quarter) on any significant developments related to the risks identified in the risk register and other relevant information (e.g., possible new risk factors). • Annual review: to assess and re-evaluate the risk fac- tors facing BWI. The review will also determine whether there have been any significant changes and develop pos- sible action plans. This could take the form of an all-day management/planning workshop, similar to that used by Toronto Pearson International Airport (see Section 5.2). • The analysis ignores differences in the timing of invest- ments, and reports cost estimates in constant dollars—as opposed to present discounted value terms; • Uncertainty in capital cost estimates is ignored; and • The impacts of alternative design options (e.g., use of swing gates) on the operating and maintenance costs of the airport (and its airline customers) are not addressed. In addition, as in the Bellingham case study, the analysis does not take into account a number of other factors that may favor or penalize the flexible option, including: • Finance costs: The more modular basis of the flexible approach can reduce finance costs. When the financial requirements are more incremental, airports can obtain financing in smaller amounts nearer the time it is needed rather than borrow in large increments. • Revenue impacts: The expected value calculations are based on project costs only. The flexible option may also have rev- enue implications if, for example, the transit time between the swung gates of the international terminal and the rest of the airport is perceived negatively by domestic passengers.