Research Projects

Benefit/Cost of Air Cargo Service Liberalization on Airport Investments

A multilateral instrument granting, among other rights, up to and including the 7th freedom traffic right for all-cargo services would provide air carriers the flexibility to develop more profitable routes that serve a larger variety of airports. This could provide significant investment opportunities for airports and enable them to better position themselves for integration into the global supply chain.

Background (Describe the current situation or problem in the industry, and how your idea would address it.)

The air cargo industry has become an integral part of contributor to the global supply chain is crucial to the needs of shippers, both businesses and consumers. The global surge in e-commerce—led by the United States and China—is a key driver in this evolution.
According to the report "The 21st Century Spice Trade", the e-commerce share of International Mail Tonnes Kilometres (MTKs) grew from 16% to 87% between 2010 and 2017 and is estimated to grow to 96% by 2025.

Today, the air transport aspect of air cargo services is governed predominantly by bilateral aviation agreements prevailing in all countries. These agreements limit air carriers' ability to respond to market developments and to exploit the market potential by basing their operations on service demand at a global level. This high level of restrictions prevents air service providers from planning international route structures and developing services in full competition with each other on the basis of technological and commercial considerations.

A multilateral instrument including 7th freedom traffic right, as well as provisions deregulating pricing and capacity decisions, facilitating multiple designations, and other elements common to "open skies" agreements that have effectively addressed operational restrictions in other cases could be the best way to remove these impediments to growth on a global scale.

Liberalizing air cargo with such an instrument could create opportunities for airport investment in infrastructure that would enhance airports' role in the supply chain and the logistics industry, both collectively and individually. Further, it could serve as a pathfinder for broader liberalization that could include passenger services.

The Allegheny County Airport Authority provides an example through its economic impact study that found that cargo flights from one foreign carrier alone could produce nearly $43 million of economic output ($23 million direct) through increased trucking revenue from the additional activity in and out of the airport, increased demand for the warehousing/distribution center, and reduced transportation costs for businesses using the service, which they can then reinvest. Further, additional cargo revenue and global connectivity can only encourage further investment, like the Pittsburgh Airport Innovation Campus, which broke ground in 2018.

The effectiveness of a liberalized air cargo environment rely on infrastructure to support it, such as:

  1. air cargo terminals
  2. multi-modal and/or intermodal access
  3. customs facilities
  4. commercial development (on and off-airport)

A benefit/cost analysis for airports would provide the stakeholder community an assessment of what it stands to gain by supporting policies that will liberalize air cargo services on a global scale.

Objective (What is the desired product or result that will help the airport industry?)

"One objective is to explore policy changes pertaining to air carrier market access by providing an analysis of the potential benefits and costs to airports of air cargo service liberalization for all-cargo flights, with a focus on generating infrastructure investments that would support increased air cargo operations at airports.

Another objective is to provide the airport industry--and other stakeholders--clarity on what would have to happen to change policy.

Ultimately, this research would provide data-driven, evidence-based analysis upon which stakeholders base their decisions, rather than serve as an advocacy piece."

Approach (Describe in general terms the steps you think are needed to achieve the objective.)

The analysis should show the benefits airports will get from different perspectives and at different levels:

  1. Global benefits of civil aviation
    a) Benefits of air cargo
    b) E-commerce impact and forecasted growth
    c) Opportunity to advance intermodal/multi-modal initiatives through new air cargo infrastructure investment

  2. Historical review
    a) History of liberalization
    b) How air cargo services are distinct from passenger services
    c) Analysis of how open skies agreements have impacted air cargo operations and airports
    d) Implementation Challenges

  3. Contrast of future benefits with liberalization vs. without
    a) Why the time is right (e.g., increasing global GDP and disposable income, e-commerce)
    b) Technological advancement (e.g., digitization, unmanned aircraft systems, artificial intelligence, big data) as a concurrent enabler for air cargo development
    c) Analysis of how the envisioned multilateral instrument could impact air cargo supply and demand
    d) Analysis of air cargo supply and demand could impact airport infrastructure development
    e) How stakeholders can address implementation challenges

  4. Potential airport investment opportunities
    a) Survey of opportunities (e.g., logistics clusters, terminals)
    b) Specific benefits air cargo liberalization could bring airports
    c) International impacts

  5. The bigger picture
    a) Improved financial performance through sound investments in air cargo development
    b) Enhanced role for airports in the global supply chain
    c) Enhanced role for airports in the local community through greater economic impact

Cost Estimate and Backup (Provide a cost estimate and support for how you arrived at the estimate.)

$600,000 for a comprehensive analysis that would include travel for a team of experts. The team would have to develop a robust stakeholder engagement plan that includes:
- Airports
- Airlines
- Freight forwarders
- Cargo terminal operators
- Land developers
- Intermodal infrastructure providers
- Financial experts
- Investment analysts
- Economists

Experts from these and other disciplines should offer input that will make the final assessment comprehensive and reliable. Given that this research is inherently international, the cost estimate considers the potential for international travel to engage stakeholders outside the U.S. as they might provide different perspective.

Related Research - List related ACRP and other industry research; describe gaps (see link to Research Roadmaps above), and describe how your idea would address these gaps. This is a critical element of a synthesis topic submission.

Two efforts have undertaken research in this area and provided valuable perspective through engaging government and industry stakeholders:

- Organization for Economic Cooperation and Development Workshop on Principles for the Liberalisation of Air Cargo Transportation, Paris, 4-5 October 2000 – Principles for the Liberalisation of Air Cargo
- Organization for Economic Cooperation and Development Workshop on Regulatory Reform in International Air Cargo Transportation Paris, 5-6 July 1999 – Background Document

In the intervening two decades, open skies agreements and other progressive policies have shown the benefits of even limited air cargo liberalization. This research would fill multiple gaps, including:
- Two decades of air cargo and e-commerce growth
- The broader impact of open skies agreements
- More detailed quantitative analysis of the benefits of air cargo
- Focus on how liberalization can benefit airports

Providing thorough quantitative analysis of the realized benefits they have delivered over this time will allow a reliable estimation of what a multilateral instrument can achieve in the coming years for airports, as well as other stakeholders.

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Idea No. 151