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Measuring and Understanding the Relationship Between Air Service and Regional Economic Development (2022)

Chapter: Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity

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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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Suggested Citation:"Chapter 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity." National Academies of Sciences, Engineering, and Medicine. 2022. Measuring and Understanding the Relationship Between Air Service and Regional Economic Development. Washington, DC: The National Academies Press. doi: 10.17226/26682.
×
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4 C H A P T E R 1 Understanding Changes in and the Relationship Between Commercial Air Service and Regional Economic Activity The economic impact of airports has traditionally been estimated to provide the public with information on how and to what extent the facility contributes to an area’s employment or to justify an expansion of or investment in the airport. It is measured based on employment at the airport (and in nearby related properties such as off-site rental car facilities or parking lots), along with supplier industries. Airport economic impact studies also tend to incorporate the effects of spending by travelers who fly into the region to visit for business or leisure activities. As noted in ACRP Report 132 (2015), it is also evident that air service (both passenger and cargo operations) facilitates businesses in the region served by the airport by providing passenger transportation and rapid long distance cargo movement. For businesses, passenger and cargo transportation services are intermediate purchases used to facilitate production or sales. For example, a company may acquire an electronic component that is part of a larger product. After production, that product may be sent by air to a customer. Similarly, business travel is a means to provide services or facilitate sales. A 2014 ACRP report focused on the economic impact of air cargo. The air cargo industry plays a key and growing role in the globalization and evolution of supply chains. That report noted the possible catalytic economic effects of air freight: how cargo operations at an airport may lower the cost of doing business in a region or increase the quality of life sufficiently to attract new firms. A firm that establishes a warehouse near an airport to capitalize on the air cargo services would also generate such an effect. Changes in air service thus affect business and industry within a region. Air service changes can take many forms. For example, an airport can see changes in the number of airlines that offer scheduled flights. Incumbent service providers can add frequencies to an existing destination or expand the number of domestic destinations served. New service can be added to international destinations. Each of these has the effect of changing the region’s connectivity to domestic and/or international markets. This chapter serves as background to help airports and key stakeholders in the regions served by those airports better understand the connection between commercial air service and regional economic activity - - employment in the area that is not immediately tied to an airport’s operations. Many sectors of a regional economy depend on air service as a critical element of their operations, so changes in air service can help or hinder those businesses. By better understanding the nexus between the two, both airport officials and regional economic interests can assist each other in contributing to a region’s vitality.

5 National Trends in Commercial Air Service As the past few decades have vividly demonstrated, commercial air service and economic development in the U.S. have experienced profound and unanticipated changes. This section provides an overview of the macro level changes in air service and economic activity within the U.S. through 2019. The 2000 through 2019 period can be conceived in terms of multi-year segments: – Post 9/11 Recovery (2002-2007) – Great Recession and industry Rationalization (2007-2010) – Capacity Discipline (2010-2014) – Expansion (2015-2019) Because of the uniqueness of the collapse of air travel associated with the pandemic, this report excludes that era. The section includes reviews of the key metrics used to assess changes in those matters and notes that sources of those data. Background The United States has the most extensive airport system in the world. According to the FAA, in 2020 there were over 19,600 U.S. landing areas, including 14,556 private-use (closed to the public) and 5,080 public-use (open to the public) facilities, such as airports, heliports, and seaplane bases. The FAA has designated 3,304 of the public-use facilities to comprise the National Plan for Integrated Airport Systems. It includes all commercial service airports and selected general aviation (GA) airports that meet requirements. (FAA 2020) The 396 primary commercial service airports accounted for over 99.9 percent of passenger enplanements in 2018. Table 1 summarizes the differences in primary service hubs. It reveals the vast differences in the scope of operations between airports of different hub classifications. Table 1: FAA Hub Sizes and Largest Airport by Category, with 2019 Enplanements Statutory Definition Number Of Airports (2019) Criteria Largest Airport 2019 Enplanements Large 30 Receives 1 percent or more of the annual U.S. commercial enplanements Hartsfield - Jackson Atlanta International 53,505,795 Medium 32 Receives 0.25 to 1.0 percent of the annual U.S. commercial enplanements Nashville International 8,935,654 Small 73 Receives between 0.05 to 0.25 percent of the annual U.S. commercial enplanements Memphis International 2,318,442 Non-hub (primary) 267 Receive less than 0.05 percent but more than 10,000 of the annual U.S. commercial enplanements Trenton Mercer 462,173 Source: FAA 2019 Enplanement Data

6 The FAA classified another 119 non-hub airports as “commercial service” airports. These facilities handled a total of just under 593,000 enplanements, or an average of less than 5,000 annually (or about 14 passengers daily). Of the 119, over half (65) were in Alaska. In 2019, the 402 primary service airports handled over 903 million total passenger enplanements.  The 30 large hubs (7 percent of the primary service airports) handled over 653 million enplanements (72 percent of the total).  The 32 medium hubs (8 percent) handled over 148 million enplanements (16 percent of the total).  The 73 small hubs (18 percent) handled over 74 million enplanements (8 percent of the total).  And the 267 non-hubs (66 percent of the primary service airports in the contiguous states) handled over 148 million enplanements (3 percent of the total). Clearly, the vast majority of passenger traffic is concentrated in the 62 largest airports. And most airports serve far fewer passengers. By itself, San Francisco International Airport in 2019 handled almost as many passengers as all 267 non-hub airports combined. Changes in Passenger Traffic The long-term trend in the U.S. has been one of generally increasing air service activity in terms of available capacity and passenger traffic. Figure 1 illustrates the changes in revenue passenger enplanements from 2000 to 2019. (As defined, “revenue passengers” include those paying for travel and those flying on frequent flier awards.) It shows the overall increase from passenger enplanements in 2000 to million in 2019, along with the two notable decreases: The first in 2001-2002 tied to a recession and the impacts of 9/11 and the second associated with the Global Financial Crisis. Following the events of 9/11, passenger traffic recovered to 2000 levels until 2004, and then grew until the onset of the Great Recession. The impact of the Great Recession on passenger traffic (and the airline industry as a whole) was longer lasting. Traffic fell beginning in 2008 and did not fully rebound for 7 years, in 2015. (See discussion below on the Great Recession, beginning on p. _.) Figure 1: Changes in U.S. Passenger Traffic Since 2000 Source: U.S. Department of Transportation Bureau of Transportation Statistics (BTS). Revenue passengers on U.S. airlines.

7 Figure 2 summarizes the changes in air traffic as captured by the amount of seating capacity offered by airlines and purchased by passengers. Seat capacity is shown in terms of Available Seat Miles (ASMs), a measure of the number of seats available for purchase multiplied by the miles flown. Passenger demand is reflected in Revenue Passenger Miles (RPMs), a measure of the number of miles flown by paying passengers. The figure also reflects the two downturns associated with 9/11 and the Great Recession. ASMs dropped 7 percent from 2000 to 2002 before recovering in 2004 and fell by 8 percent from 2007 to 2009 before recovering in 2014. Figure 2: Changes in Capacity and Passenger Traffic Source: BTS The narrowing gaps between ASMs and RPMs also reveal another notable industry trend: that passenger demand recovered faster than available capacity. The “load factor” (a measure of the percentage of available seats filled with paying passengers) rose from 72 percent in 2000 to 84 percent in 2019. Figure 3 below adds indicators of the load factors to the prior chart that summarized ASMs and RPMs. Doing so highlights the two notable periods in which airlines more aggressively managed capacity to match the supply of seats to passenger demand. From 2001 through 2007, load factors rose from 69 to 79 percent. This occurred during a period in which total passenger demand (expressed in terms of RPMs) was relatively stable. Then from 2008 through 2015 (the era of capacity constraint), load factors rose again from 79 to 83 percent. This occurred while passenger demand was increasing steadily. Since 2015, load factors hovered between 83 and 84 percent.

8 Figure 3: Increasing Load Factors Source: BTS Instability in Fuel Prices Wildly fluctuating fuel prices complicated airline management. As the industry was recovering from the downturn following the Sept. 11 attacks, the price of jet fuel began an unprecedented rise. From 2002 through 2004, average fuel costs rose from $0.72 per gallon to $1.16 (61 percent). In the next two years, costs rose to $1.97/gallon, an increase of another 70 percent. And then from 2006 through 2008, fuel again rose to $3.07 per gallon, another 56 percent increase. Figure 4 shows the changes in jet fuel prices from Jan. 2000 through mid-Oct. 2021. It highlights the broad trends described above along with more recent volatility tied to the pandemic. In the 28 months from Sept. 2017 through the end of 2019, oil prices generally hovered around $2.00 per gallon, spending over 500 days at prices between $1.75 and $2.25 per gallon. Beginning on Jan. 17, 2020, however, prices fell below $1.75 per gallon, reaching a low of $0.41 per gallon on Apr. 27, 2020. Jet fuel prices did not broadly recover to the $1.75-$2.25 per gallon range until May 2021.

9 Figure 4: Change in Jet Fuel Prices (Dollars per Gallon) Jan. 2000 – Oct. 2021 Source: U.S. Energy Information Agency. Spot price U.S. Gulf Coast. Because the industry consumes about 18 billion gallons of fuel annually, every $0.01 increase in average costs raises the industry’s fuel bill by $180 million. This means that a $1.00 increase in fuel raised the industry’s fuel bill by $18 billion. Because of rising prices, the amount that airlines spent on fuel tripled between 2000 and 2008 even as total consumption declined. As shown in Figure 5, from 2004 through 2008, the industry consumed 800 fewer gallons of fuel but its total fuel costs more than doubled, rising from $23 billion to $58 billion. In 2009, fuel costs temporarily crashed, and returned to historically high levels by 2011. In 2012, with fuel costs still around $3.00/barrel, total consumption declined by 2 million gallons, yet total fuel costs remained above $50 million. Since then, fuel costs dropped dramatically and then settled around $2.00/barrel. In 2019, the industry consumed a total of 19.2 million gallons of fuel, which was the most since 2007, when it used 19.9 million.

10 Figure 5: Change in Industry Fuel Consumption and Fuel-Related Costs Source: BTS As a percentage of total airline operating costs, the amount attributable to fuel became the single largest cost for the industry, rising to 35-40 percent in 2009 compared to 15 percent in 2001. This was a result of both the rise in fuel-related costs and a decrease in costs attributable to labor. Across the industry, those costs dropped significantly after most carriers declared bankruptcy and renegotiated contracts with their various organized labor groups (i.e., pilots and flight attendants). For the 30-year period 1990-2019, labor and fuel combined represented basically half -- 48 percent – of airlines’ operating expenses.) Traditionally, airlines’ labor costs represented the largest portion of operating expenses. From 1990 through 2004, salaries and benefits represented 33 percent of airline operating costs, and fuel represented about 13 percent. Because of changes in fuel prices and airline bankruptcies (with their renegotiated labor contracts that lowered related costs), that relationship no longer held. Figure 6 illustrates the changes in the percent of total airline operating costs associated with labor and fuel for 2000 through 2019. It highlights the period from 2006-2014 when the traditional relationship between labor and fuel as a percent of total operating costs was upended. Only in 2015 when the price of fuel dropped significantly was the traditional relationship restored.

11 Figure 6: Labor and Fuel as a Percent of Airline Operating Costs 2000-2019 Source: BTS Airline Profitability Having suffered significant financial losses from both downturns, U.S. airlines made strategic decisions to manage available capacity in ways to more closely track demand. (For the 9-year period 2000-2008, U.S. airlines recorded a cumulative net operating loss of $1.4 billion. See Figure 7). For passengers, this meant that aircraft were more crowded.

12 Figure 7: Airline Operating Profits / Losses 2000-2019 Source: DOT BTS Database P-1.2 (air carriers with $20 million of more of operating income). Industry Response to External Shocks and the Effect on Smaller Communities The industry responded to the decrease in passenger demand (from the recessions) and the rising fuel costs with multiple strategies, all of which affected air service, especially to smaller communities. Consolidation The financial hardships on airlines resulted in the bankruptcies of 49 U.S. passenger and cargo airlines between 2001 and 2013, of which 13 occurred in 2008. Most bankruptcies did not result in a carrier ceasing operations, because the U.S. Bankruptcy Code allows companies to reorganize under Chapter 11. Along with the bankruptcies, the industry experienced a wave of mergers. Most notably, these included • America West Airlines, US Airways, and American Airlines • Delta Air Lines and Northwest Airlines • United Airlines and Continental Airlines • Southwest Airlines and AirTran Airways • Alaska Air Group and Virgin America Following these mergers, a number of smaller airline hubs became somewhat redundant for the newly- merged airline networks. As a result, the airlines closed hub operations at various locations, including • St. Louis Lambert International (American) • Pittsburgh International (US Airways) • Cincinnati Northern Kentucky International (Delta) • Memphis International (Northwest) • Cleveland Hopkins International (United)

13 Hub operations also ceased at several other airports that served as hubs for smaller airlines (e.g., Midwest Express operated a hub at Milwaukee Mitchell International Airport and Midway Airlines operated a hub at Raleigh–Durham International Airport). Era of Capacity Discipline As part of the strategy to better manage capacity and costs, U.S. airlines gradually reduced the number of smaller aircraft in use. Average aircraft size grew, both among regional airlines and mainline carriers. (See Figure 8.) Among regional airlines, the average capacity of aircraft used in domestic operations rose from 40 seats in 2020 to an estimated 64 in 2019 (an increase of 60 percent). For mainline carriers, the average capacity of aircraft used in domestic markets rose from 146 to 166 (14 percent). Figure 8: Average Capacity of Aircraft Used in Domestic Operations Source: FAA Forecasts for FY 2020-2040 and FY 2016-2036, Tables 9, 14, and 24. Note: 2019 E = estimate, 2020 F = forecast. Among the regional airlines, the number and size of aircraft in service declined dramatically since 2010. Data from the FAA demonstrate the change in this fleet. (See Figure 9.) From 2010 through 2020 (estimated), the total number of regional aircraft in service dropped by 760 (-29 percent). On a percentage basis, the change was most notable in aircraft with a capacity of 21-30 seats (down 62 aircraft or -76 percent) and 31-40 seats (down 163 aircraft or -95 percent). The number of large (over 40 seat) turboprops in service in 2020 also fell by about 20 percent, dropping over 350 aircraft. Of the total decrease, most were turboprop aircraft. The total number of turboprops in regional service in 2020 compared to 2010 dropped by more than 50 percent (-438 aircraft).

14 Figure 9: Number of Regional Aircraft in Service in 2020 and Change Since 2010, by Aircraft Capacity Category Source: FAA Aerospace Forecast Fiscal Years 2020-2014, Table 27 ACRP Report 142 highlighted some of the changes in air service that have occurred at smaller communities since 2000. The airports of interest were FAA-defined small hubs and non-hubs. Table 2 summarizes the changes in the amount of available seats and flights from 2001 through 2013 by hub size. In general, the percentage decrease in flights was greater than the percentage decrease in available seating capacity, meaning that carriers tended to substitute larger aircraft making fewer flights in place of smaller aircraft making more flights. Communities that previously might have had four daily flights to a location using 30-seat aircraft would later be served by twice-daily flights using 50-seat regional jets. Table 2: Changes in Flights and Seats by Hub Size 2001-2013 Hub Size Percent Change in Available Seats Percent Change in Flights Large -9 -11 Medium -25 -27 Small -11 -21 Non-hubs -17 -32 Source: ACRP Report 142 One indicator of this change was the growth in the number of communities that relied upon the Essential Air Service (EAS) program, which subsidizes flights to certain small communities. From November 2000 to 2019, the number of non-Alaska airports that received EAS-subsidized flights rose from 86 to 108.

15 Connectivity at Small Airports ACRP Report 142 also noted the impact of a loss of air service at small communities on the extent to which those regions were connected to the national and global economies. Citing analyses from researchers at the Massachusetts Institute of Technology (MIT), the report discussed how flying at small- and non-hub airports changed during recent years, as the number of flights by 37 to 50 seat regional jets declined substantially at small hub airports. Network airlines reduced frequency to their connecting hubs and/or replaced multiple flights with 37–50 seat regional jets with fewer flights by 50–76 seat regional jets. As a result, a “connectivity index” (which measured an airport’s connection to the global system) for smaller airports experienced greater declines than large hub airports. (ACRP 2014, pp. 29-30.) The issue of connectivity and its importance for regional economic activity is discussed in greater depth below, beginning on p. 51. Pilot Shortage and the Effect on Small Communities The issue of whether an adequate supply of commercial pilots exists to meet the growing demand has circulated for years. Aviation stakeholders have voiced concerns because of imminent retirements of current pilots, changes to qualification requirements for pilots acting as first officers, and perceptions that fewer people are entering pilot schools and fewer pilots exiting the military. As far back as 1999, a subcommittee of the U.S. Senate Committee on Commerce, Science, and Transportation, Subcommittee on Aviation held hearings on the issue. The issue took on greater weight following a regulatory rule change instituted by the FAA in 2013. Among other things, the rule requires all second-in- command pilots (first officers) to hold an Airline Transport Pilot certificate and have 1,500 hours total flight time. Prior to the rule, the requirement for a first officer was a commercial certificate with 250 flight hours. The rule was created following the 2009 Colgan Air, Inc. crash, when the Airline Safety and Federal Aviation Administration Extension Act of 2010 (Pub. L. No. 111-216, (2010)) mandated that FAA further limit the hours of pilot flight and duty time to combat problems related to pilot fatigue and increase training requirements and pilot qualifications for first officers. The Department of Transportation’s Working Group 0n Improving Air Service to Small Communities reported in 2017 that the inadequate supply of qualified pilots was one of the most serious threats to the future of air service in small communities. The Working Group recognized that since 2007, over 50 communities have lost all scheduled air service with another 150 communities were then at risk of losing all or nearly all air service. The Regional Airline Association (RAA) and others have noted that a lack of pilots at regional airlines has contributed to a loss of air service especially at small communities. In its 2019 Annual Report, RAA pointed out that – 63 percent of U.S. airports with scheduled passenger air service get their only source of air service from regional airlines. – In the contiguous states, 211 of 418 airports received service only from regional airlines. In Alaska and Hawaii, another 207 airports receive service only from regional airlines. “[I]t's very apparent that we are on the verge of a potentially serious pilot shortage. It's also apparent that the hardest hit economies will be those that are rural in nature and rely on regional service.” – Sen. Conrad Burns, (Montana), Chairman, Senate Subcommittee on Aviation, Committee on Commerce, Science, and Transportation, Sept. 10, 1999

16 Nearly half of today’s Part 121 qualified pilot workforce face federally mandated retirement within 15 years, and 15 percent must retire within five years. Globally, in its 2021 Current Market Outlook, Boeing forecasts that the worldwide need for new pilots will reach 612,000 by 2040, with 130,000 being in North America. Relatedly, Boeing also forecasts a need for 626,000 technicians (e.g., mechanics) globally by 2040, with 132,000 needed in North America. Changes in Air Cargo Figure 10 shows the change in the total tonnage of freight handled (enplaned and deplaned) at U.S. airports for the 20-year period 2004-2019. It clearly shows the drop in tonnage associated with the Great Recession and spike of fuel prices. Cargo tonnage did not recover to 2007 levels until 2017. Figure 10: Changes in Cargo Tonnage Handled 2004-2019 Source: BTS National Trends in Socioeconomic Conditions To understand how air service can influence regional economic development requires a working knowledge of the metrics of socioeconomic activity. For the purposes of most airports and regional economic development organizations, these can be limited to a few basic measures.

17 This section provides an overview of the fundamental metrics of social and economic change that are most relevant to commercial air service. Included are summaries of those data, their definitions, and their sources. In addition, the section discusses how regions have evolved with different economic “specialties” or capabilities that create unique opportunities and challenges for air service development. Changes in Population and Employment Between 2000 and 2019, the total U.S. population slowly rose from 282 million to 328 million, an increase of 46 million (16 percent). That growth reflects a compound annual rate of growth of less than 1 percent. Over the same period, the extent of urbanization – the percentage of the total population that lives in urban areas – rose from 79 to 82 percent. According to the Census Bureau, only four states – Maine, Mississippi, Vermont, and West Virginia – have more people who live in rural areas than urban areas. Population and Metropolitan Statistical Areas To qualify as an urban area, the territory identified must encompass at least 2,500 people, at least 1,500 of which reside outside institutional group quarters (e.g., hospitals or prisons). The Census Bureau identifies two types of urban areas: – Urbanized Areas of 50,000 or more people and – Urban Clusters of at least 2,500 and less than 50,000 people. The Census Bureau defines “rural” as those areas that encompass all population, housing, and territory not included within an urban area. Most U.S. commercial service airports are in or adjacent to areas defined as Metropolitan Statistical Areas (MSAs). The general concept of a MSAs is that of a core area containing a substantial population nucleus, together with adjacent communities having a high degree of economic and social integration with that core. Each MSA must have at least one urbanized area of 50,000 or more inhabitants. “Micropolitan statistical area” have smaller populations; they have total population of less than 50,000 but must have at least one urban cluster of at least 10,000. As of March 2020, there were 384 MSAs and 543 micropolitan statistical areas in the United States. Because the boundaries of MSAs follow county borders, some MSAs cover huge geographies, even if the populations are relatively modest. For example, the Flagstaff (Arizona) MSA had a 2019 population of 143,000 but covered 18,661 square miles, which is more land area than Maryland (12,407 square miles, population 6.2 million), Massachusetts (10,565 square miles, population 7.0 million), or New Jersey (8,723 square miles, population 9.3 million). Where one MSA is adjacent to another and the two (or more) share common social and economic bonds, the region may be defined as a “Combined Statistical Area” or CSA. Figure 11 shows the MSAs and CSAs in the U.S. Socio-economic variables most of relevance to local or regional demand for air service Total population Total employment Employment by industry sector Income variables Per capita income Disposable personal income Gross domestic or regional product Foreign direct investment “Combined Statistical Areas can be characterized as representing larger regions that reflect broader social and economic interactions, such as wholesaling, commodity distribution, and weekend recreation activities, and are likely to be of considerable interest to regional authorities and the private sector.” -- OMB Bulletin 18-03 (April 10, 2018)(emphasis added)

18 Figure 11: U.S. Combined Statistical Areas and MSAs Source: U.S. Bureau of the Census Figure 12 highlights the difference between a region that encompasses a single MSA and one in which multiple MSAs are merged into a larger CSA. The Austin-Round Rock-Georgetown MSAs is a stand-alone five-county region linked by journey-to-work commuting ties with a population of 2.3 million in 2020. The Greensboro–Winston–Salem–High Point CSA is a more dispersed and geographically complex 10-county region linked by journey-to-work commuting ties with a population of 1.7 million in 2020. It includes three MSAs (i.e., the Greensboro–High Point MSA; the Winston–Salem MSA; and the Burlington MSA, plus the Mount Airy Micropolitan Statistical Area). Figure 12: Example of MSA vs. CSA Source: U.S. Census Bureau

19 Employment Total U.S. employment (full and part-time) rose from 137.2 million in 2000 to 155.2 million in 2019 (an increase of 18 million jobs, or 13 percent). (See Figure 13.) From 2000 through 2007, the economy gained almost 7 million jobs (5 percent). However, that growth – and more – was lost in the Great Recession, which began in December 2007 and lasted until June 2009, lasting for 18 months. The recovery from that period was relatively slow. Total full and part-time employment did not recover to the level seen in 2007 until 2014. Altogether, the period from 2010 through 2019 was one of economic expansion, with total employment rising by more than 20 million (15 percent). Figure 13: Changes in Full and Part-Time Employment in the U.S. (thousands) Source: Bureau of Economic Analysis (BEA) data Table 6.4D The National Bureau of Economic Research (NBER) quantifies three business contractions in the 2000s. The first contraction began in March 2001 and ended in November 2001, lasting for 8 months. The second, associated with the Great Recession, began in December 2007 and lasted until June 2009, lasting for 18 months. The third, tied to the Global Pandemic, began in February 2020 and lasted through April 2020. NBER defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” The U.S. economy experienced two recessions since 2000, which negatively affected the demand for air travel. According to the National Bureau of Economic Research, the two recessions in the past 15 years occurred from March 2001 to November 2001 and from December 2007 to June 2009. The recessions caused reductions in purchasing power that reduced the demand for leisure air travel; the slowdown in the economy also reduced business travel demand. The Great Recession of 2008/2009 was characterized by the most severe year-over-year decline in consumption since 1945. The consumption slump was both deep and long lived. It took almost 12 quarters for total real Personal Consumption expenditures (PCE) to go back to its level at the previous peak in 2007. The recovery was considered by some to be uncharacteristically weak. (NBER 2011)

20 Employment by Industry Breakdowns by industry for economic data are a vital component of data granularity because they enable an understanding of the relative size and activity of specific industries in the economy (e.g., air transportation) which, in turn, makes economic impact analysis possible. In the U.S., the most common industrial categorization system is the NAICS. Adopted in 1997, NAICS established a high level of comparability in business statistics among the U.S., Canada, and Mexico. NAICS uses a six-tier industry grouping structure that progressively becomes more granular in definition at each level. For instance, two-digit NAICS codes identify each broad “sector” in the economy (e.g., Code 48 = Transportation), while six-digit NAICS codes signify each specific “national industry” (e.g., Code 481111 = Scheduled Passenger Air Transportation) which collectively make up the given sectors. Appendix II lists all the industries shown at the two- and three-digit NAICS levels. For example, the Management of Companies and Enterprises sector comprises (1) establishments that hold the securities of (or other equity interests in) companies and enterprises for the purpose of owning a controlling interest or influencing management decisions or (2) establishments that administer, oversee, and manage establishments of the company or enterprise and that normally undertake the strategic or organizational planning and decision-making role of the company or enterprise. (Such establishments may also hold the securities of the company or enterprise.) Establishments in this sector perform essential activities that are often undertaken in-house by establishments in many sectors of the economy. By consolidating the performance of these activities of the enterprise at one establishment, economies of scale are achieved. While the NAICS structure includes six different coding levels, most economic data from the key statistics agencies in the U.S. shows industry breakdowns for the broadest tiers only – specifically, by “sector” (two-digit NAICS codes) and a select few “subsectors” (three-digit NAICS codes). Table 3 below summarizes the key potential categories for each of these breakdown types. Table 3: Availability of NAICS Data Time Period Geography U.S. Industry Annual National 2-digit NAICS code (Sector) e.g. 48 – Transportation Quarter State 3-digit NAICS code (Subsector) e.g. 481 – Air Transportation Month MSA 4-digit NAICS code (Industry Group) e.g., 4811 Scheduled Air Transportation County 5-digit NAICS code (NAICS Industry) e.g., 48111 Scheduled Air Transportation 6-digit NAICS code (National Industry) e.g., 481111 Scheduled Passenger Air Transportation The economy underwent notable structural change during the 20-year period 2000 to 2019, as summarized in Figure 14. Many of those changes reflected long-term trends:

21 – Employment in manufacturing (durable and non-durable goods) dropped by 4.5 million (26 percent). In 2000, manufacturing employment represented almost 13 percent of total U.S. employment. By 2019, that share had dopped to 8 percent. – Employment in information (which includes publishing, motion picture and sound recording, broadcasting and telecommunications, and information and data processing services) also dropped 760,000 (21 percent). The sector’s share of national employment fell from 3 percent to 2 percent. – Conversely, employment in several sectors recorded significant growth between 2000 and 2019. These included: – Health care and social assistance, which rose by 7.5 million jobs (57 percent). As a percent of total U.S. employment, the health care sector’s share rose from 9 percent to 13 percent. – Educational services (1.3 million jobs, 52 percent). – Accommodations and food services (4.1 million jobs, 41 percent). – Professional, scientific, and technical services (2.7 million jobs, 39 percent). – Management of companies and enterprises (700,000 jobs, 39 percent). – Transportation and warehousing (1.3 million jobs, 29 percent). Within that sector, employment more specifically related to warehousing – likely associated with the broad movement associated with e-commerce – increased by 730,000 jobs, or 142 percent. Figure 14: Percentage changes in employment by major industry sector: 2019 v 2000 Source: BEA.

22 Change in Income Multiple measures of personal income provide indications of the potential strength of regional demand for air services. The major elements of personal income include wages and salaries, interest and dividends, and transfer payments like Social Security. Personal disposable income – that amount available for spending – is the product of total personal income minus taxes. (See sidebar). When income is expressed in terms of each individual that lives within an area, it is measured as per capita personal income. It is derived by dividing the aggregate income of a particular group by the total population in the group, including every man, woman, and child. Personal income varies widely within the U.S. Figure 15 shows the averages of per capita personal income for the entire country and for metropolitan vs. nonmetropolitan areas for 2019. Across the U.S. in 2019, per capita personal income averaged $56,490, which represented an increase of 3.5 percent from the average $54,606 in 2018. Per capita personal incomes were higher in metropolitan areas compared to nonmetropolitan areas, $58,650 vs. $43.035. To illustrate the differences across the country, Figure 15 also highlights the wide variety of per capita personal incomes in the five MSAs with the highest 2019 personal incomes compared to the five MSAs with the lowest personal incomes. Major components of personal income, disposable personal income, consumption, and savings – Compensation of employees – Wages and salaries – Supplements to wages and salaries (e.g., employer contributions for – pensions and government social insurance) – Proprietors' income (farm and nonfarm) – Rental income – Personal income from interest and dividends – Personal transfer receipts (e.g., Social Security, Medicare, unemployment) – Less: Personal current taxes – Equals: Disposable personal income – Less: Personal outlays (e.g., personal consumption expenditures) – Equals: Personal savings Source: BEA Table 2.1. Personal Income and Its Disposition

23 Figure 15: Differences in Per Capita Personal Income: U.S. vs. Metropolitan Areas Source: BEA Personal Income by County and MSA 2019, Table 2 A related measure is household income, which includes pretax cash income of the householder and all other people 15 years and older in the household, whether or not they are related to the householder. This measure is computed by the Bureau of the Census from data collected in the annual American Community Survey. In 2019, the U.S. median household income was $65,712. In 2019, Maryland ($86,738), Massachusetts ($85,843), and New Jersey ($85,751) had the highest median household income, and Mississippi ($45,792) had the lowest. Median household income was lower than the U.S. median in 30 states and Puerto Rico. There are similar wide variations in household incomes among MSAs. Figure 16 illustrates the wide differences in average household incomes among the 25 largest MSAs based on population, as of 2019. Average household incomes in the San Francisco area are nearly double those in the Tampa, Miami, Orlando, San Antonio, and Detroit MSAs.

24 Figure 16: Variations in Average Household Incomes Among Selected Large MSAs, 2019 Source: Census Bureau, American Community Survey Brief Change in Earnings The Bureau of Labor Statistics (BLS) reports data on earnings of different groups in the labor force. Earnings data reflect total pay before taxes and other deductions and include any overtime pay, commissions, or tips usually received. For individuals who hold multiple jobs, the data reflect earnings at their main job. All self-employed persons are excluded. These data do not include the cash value of benefits such as employer-provided health insurance. According to BLS’s data on earnings of full-time workers, between the beginning of 2000 and the end of 2019, average weekly earnings increased by 64 percent in nominal (current) dollars, rising from $568 to $934 per week. However, once inflation is considered, the increase in earnings for the 20-year period was only 8 percent rising from $334 to $362 per week (expressed in 1982 dollars). See Figure 17.

25 Figure 17: Changes in Median Weekly Earnings of Full-Time Salary and Wage Earners 2000-2019 (Quarterly Averages, Seasonally Adjusted) Source: BLS Current Population Survey Foreign Direct Investment Direct investment is a category of cross-border investment associated with a resident in one economy having control or a significant degree of influence on the management of an enterprise resident in another economy. Ownership or control of 10 percent or more of the voting securities of an entity in another economy is the threshold for separating direct investment from other types of investment. Figure 18 highlights the amount of foreign direct investment in the U.S. by region of the investment’s origin for 2019 and 2020. At the end of 2019, foreign investment in the U.S. totaled $4.4 trillion, with over half from countries in Europe. Among individual countries, Japan is the top investor, followed by the United Kingdom and Germany. Among industry sectors, over 40 percent of all foreign investment is in manufacturing, particularly chemicals. The finance and insurance sector is also a major recipient of foreign investment.

26 Figure 18: Foreign Direct Investment in the U.S. by Region (in $ millions) Source: BEA, Direct Investment by Country and Industry, 2020 This investment supported 7.9 million jobs in 2019, with employment in every state. Almost 850,000 of those jobs were in California, followed by Texas (680,000), New York (530,000), Illinois (380,000), and Florida (370,000). Researchers at Indiana University’s Business Research Center (https://ibrc.kelley.iu.edu) examined greenfield FDI data at the county level and concluded that incoming firms tend to be attracted to locations that have a relatively high absolute concentration of employment in their industry cluster. Further, they also found that high-tech industries have a different FDI attraction profile than non-high-tech industry clusters. Overview of Economic Growth and Air Travel That air service is a fundamental contributor to regional and national economic development is now a commonly accepted truth. For over a decade, the FAA has issued reports that have estimated the total economic impact of civil aviation on the nation. In 2020, FAA reported that civil aviation – including commercial airlines, GA, civil aviation and avionics manufacturing, related research and development, non- military airports, and visitor spending – supported 10.9 million jobs that paid nearly $490 billion, $1.8 trillion in total economic activity, and 5.2 percent of U.S. gross domestic product (GDP). For airport management and regional economic development officials, it is increasingly important for airports to retain and enhance their current levels of service and to improve that service as a means of preserving and increasing regional economic activity. Better understanding the linkage between air service and regional economic activity is a fundamental building block. On a national basis, passenger demand for air service tracks changes in national economic output. As national GDP has increased, passenger demand has increased. Figure 19 illustrates the long-term relationship between GDP and passenger enplanements. Both total passenger enplanements on all U.S. carriers and GDP are indexed to the base year of 2002. As shown, passenger enplanements follow the trends in economic activity reflected in the GDP. The two variables are highly correlated, with a correlation of 0.884.

27 Figure 19: Changes in Passenger Traffic and GDP (indexed to 2002) Source: InterVISTAS analysis of data from BEA and BTS. The Pivotal Issue of Causality For years, researchers commonly believed that the demand for air travel was derived – that is, the demand originates from employment or economic activity in an area. Yet as the industry has evolved since deregulation and as the economy has become more intertwined (i.e., globalized), research began to re- examine that long-held assumption. The most challenging issue facing any analysis of the connections between air service and regional economic development is that of causality. Does new or enhanced air service at an airport attract additional economic activity to a local area and stimulate demand and economic activity, or do growing, larger metropolitan areas with substantive service sectors cause airlines to add new service to the local airport, in response to the elevated real or potential demand? Unraveling this “chicken or the egg” conundrum has been a central theme of academic research in recent years. Based on research that has applied more innovative statistical methodologies linked to improved panel data, a consensus opinion is emerging that air travel can be a positive and causal trigger in generating additional employment and income in each metropolitan economy. On a regional (metropolitan) basis, improved commercial air service leads to greater economic activity and expansions in employment, especially in sectors that are reliant on aviation as an intermediate input of production. Early Research on Air Service and Employment Many academic researchers have written about the relationships between air service and economic activity. For example, Bruekner (2003) found a correlation between air service and total employment in

28 metropolitan areas, reporting that a 10 percent increase in passenger traffic raises total employment by 0.9 percent and service employment (defined as those wholesale and retail trade; finance, insurance; and real estate; services; government transportation; and public utilities employment) by 1.1 percent suggesting employment gains far beyond the airport. McGraw (2015) examined the effects of commercial airports on local economies for the 60-year period 1950–2010. Focused on airports in midsized and smaller cities, the analysis found that the presence of airports in these communities contributed to an average of 3.9 percent growth in total employment (and 3.4 percent growth in population) per decade. Effects on wages and job creation in airport cities were also observed, on the order of 1 to 3 percent per decade. That the conclusion concerns airports serving areas that are not major metropolitan regions is also generally consistent with an earlier finding from Button, Doh, and Yuan (2010), who reported that for a sample of 66 small airports in Virginia, doubling passenger traffic produced up to a 4 percent increase in per capita income. Bilotkach (2015), examining 17 years of data on air service and U.S. MSAs, found that the number of destinations served by nonstop flights has robust positive impact on the total number of jobs, number of business establishments, and average wages. Further, adding flights to a new destination generated more economic effects than adding capacity to an existing destination. At the sample median, connecting an MSA with an extra destination, keeping everything else constant, created 223 jobs and 15 new business establishments. ACRP Report 132 examined how air service improvements between regions and selected international markets could benefit the U.S. economy. Figure 20 illustrates the role of airports in the national economy. Airports facilitate services to businesses and personal travelers by providing passenger transportation and rapid long distance cargo movement. For businesses, passenger and cargo transportation services are intermediate purchases used to facilitate production or sales. For example, a company may acquire an electronic component that is part of a larger product. After production, that product may be sent by air to a customer. For personal travel, however, the final product that is being purchased is air transportation.

29 Figure 20: Airports’ Role in the U.S. Economy Source: Adapted from ACRP Report 132 ACRP Report 218 discussed the contributions of air service to local economic activities specific to small hub and non-hub airports. The research examined the relationship between annual departing seats at the airports in the sample of economic impact studies and the number of regional jobs that could be associated with this activity as one of the airport economic impacts. The report noted:  For areas served by small hub airports, each departing seat was associated with 0.005 jobs. In other words, for every 1,000 departing seats, there were five associated jobs in the area. This would generally mean that the addition of a daily departure with a 100-seat aircraft (36,500 annual seats) would support 182.5 jobs.  Of the non-hubs studied, there was an estimate of 0.0114 jobs per departing seat. “This is an average regional impact or relationship that is over twice as strong as that shown for small hub airports, in that, at a non-hub airport, it takes fewer than half the annual departing seats to “result” in a regional job, compared with the small hub relationship” (p. 35). Thus, at a local or regional level, airport activity is broadly connected to increasing economic activity in the surrounding region.

30 Air Service and Employment in Specific Industry Sectors Building on the initial studies that linked air service and regional economic development, researchers began to refine the analyses to link air transport and particular sectors of the economy. Certain industry sectors have a relatively great reliance on air transport as a part of their business. Over 20 years ago, Button and Taylor (2000) found a nexus between air service and economic development. Examining changes in international air service associated with Open Skies agreements and employment in areas around U.S. airports that were served with nonstop flights to European Union markets, they found that regions that had those flights attracted, retained or generated more “new economy” employment than those without such flight services. “New economy” employment was defined to include industrial categories where there are location choices (e.g., not extractive industries) that could potentially be influenced by the quality of local transportation services. Both the number of international destinations served and the quality of service had impacts on employment. Others have argued that post-industrial cities that have experienced a rapid growth in information- intensive producer services like information technology (IT), professional, scientific, and technical (PST) activities, and finance, insurance and real estate (FIRE) will require more efficient air transport links due to the increased demand for face-to-face contact. An early study from Debbage and Delk (2001) investigated the relationship between air service and total employment in “administrative and auxiliary” fields (i.e., workers engaged in activities such as management, research and development, financial services and supporting services such as accounting and data processing). Alkaabi and Debbage (2007) analyzed the links between passenger enplanements and employment and the number of firms in certain specific sectors: PST; computer and electronic product manufacturing; and computer systems design and related services. They reported a strong linear relationship between air passenger demand and the percent of an MSA’s PST employment, but less clear relationships with employment in the other sectors. This study did not include FAA-defined non-hub airports, and it did not address the question of causality. Bloningen and Cristea (2012) found significant relationships between air service and employment growth in service and trade-related industries. Using data for 263 MSAs over two decades, they estimated the effects of airline traffic on local population, income, and employment growth. Their findings suggested that increases in air service led to statistically and economically significant increases in regional growth. They reported that a 50 percent increase in the air passenger growth rate led to a 3.2 percent increase in the annual rate of per capita income growth, on average. The results were statistically significant regardless of hub size. Air traffic changes also had a positive and significant effect on the growth in the number of local businesses. A 50 percent increase in the air passenger growth rate led to a 5.5 percent increase in the annual rate of employment, on average. Increases in the air traffic growth rate also led to an increase in the growth of the number of firms. Similarly, a study on the economic impact of aviation connectivity published by the United Kingdom’s Airports Commission of the United Kingdom (2013) reported positive benefits of enhanced international connectivity, especially for economic clusters considered “high value.” International connectivity is important in attracting international business headquarters and foreign investment into the U.K. London’s connectivity helps sustain and attract employment in the “high-value” clusters including the finance, legal, IT consulting, business management and chemical sectors. “[G]ood aviation links facilitate trade and investment, enhances communications and business interactions and improve efficiency through time savings, reduced costs and better reliability” (pp. 12-13).

31 Sheard (2014) extended the analysis to cover the relationship between air service and “tradeable services” (i.e., services that could be produced locally but consumed outside the area, such as insurance, financial services; or PST services). The author found that airport size had a positive effect on the employment share of tradeable services, controlling for overall local employment. A 10 percent increase in air traffic would generate 1,650 additional service jobs in MSA with 1 million residents or more but found no measurable effect on employment in manufacturing or most non-tradeable services. The effect of airport size on overall local employment was almost zero, suggesting that airports led to specialization but not growth at the metropolitan scale. Even with the pandemic and recent technological innovations (e.g., Zoom) that may minimize the need for direct face-to-face contact, economic sectors like IT, PST and FIRE will still rely heavily on direct contact long-term with colleagues, suppliers, and other key employees. Furthermore, cities that have many point-to-point routes on different carriers and have local economies that have labor pools with a high propensity to fly tend to be good candidates for air service market growth (Liu et al., 2006). Air Service and Geographic Concentrations of Immigrant Populations and Business Some additional research illuminates the connection between U.S. regions that have relatively large populations from specific regions or countries, related business activity, and air service. The accumulation of high levels of human capital in some regions has been shown to be successful in attracting Richard Florida's "creative class" (Florida, 20002; Florida et al, 2008). Much of this is achieved by economic regions economically and socially assimilating recent immigrants where the fluid exchange of ideas between disparate groups can turn creativity into commercially exploitable knowledge. Elevated airline networks can stimulate this social connectivity which can, in turn, increase the dynamism of the regional economy wrapped around the airport region, resulting in additional employment growth sometimes connected back to overseas culture hearths and diasporas. Some key works include those by Florida but also Storper and Scott (2009) and Audretsch et al (2010). In fact, Audretsch et al (2010), has provided empirical evidence that cultural diversity has a positive impact on entrepreneurship although he did not examine airline service in detail. More loosely, the Silicon Valley phenomenon can be considered as a poster child example, where many of the technological innovations in the region can be linked back to both an elite, highly skilled Asian labor pool and high levels of international air service out of the Bay area. Immigration and social/economic connections to other countries is a fundamental fact of the American experience. The Census Bureau reports that about 44 million people in the United States—around one in seven—were born in another country. However, most residents have immigration in their family history. Some 235 million—or about 75 percent of Americans—can look back to their grandparents’ generation or earlier. The percentage of the total U.S. population that is foreign born is below the historic high (14.9 percent), which occurred in 1850. The Census Bureau projects that the number of immigrants living in the U.S. will rise to 69 million by 2060. These trends will continue to exert significant effects on business and air service.

Next: Chapter 2 Measuring Changes in Air Service and Regional Economic Activity »
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Airport economic impact studies may accurately measure the activity that occurs on airport properties or is tied directly to airport operations (such as off-site parking and hotels that accommodate airline crew who overnight in a location), but they do not capture how air service supports business and employment throughout the region.

The TRB Airport Cooperative Research Program's ACRP Web-Only Document 53: Measuring and Understanding the Relationship Between Air Service and Regional Economic Development provides airports and major regional stakeholders concerned with economic development with the information and tools necessary to understand and communicate the nexus between air service and regional employment.

The Web-Only Document is supplemental to ACRP WebResource 12: Air Service Development and Regional Economic Activity. Supplemental to the Web-Only Document is a Case Study Compilation with the full versions of the 14 case studies performed as part of the project.

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