Research Projects

Measuring the Effect of Changes in Air Service Connectivity on Regional Economic Development In Reserve

The proposed research will extend the findings of previous ACRP research to describe how changes in air service connectivity will effect regional economic development. A spreadsheet model, workbook and user guide will be developed from this research for use by airports, state aviation agencies and, in addition, by regional planning and economic development organizations to allow economic benefits of improved air service connectivity to be tailored to state and regional geographies.

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

Improving inter-city and international connectivity through expanded air service is increasingly being recognized in the airport industry and state and regional economic development agencies as important to the economies of regions served by commercial airports. This recognition is prompting research to develop measures of air service connectivity that could help prioritize airport efforts to attract new or expanded air service and link air-service connectivity to economic development, as well as to justify efforts to retain air service in situations where airports have been losing air service.
Research undertaken for ACPP Project 03-28 (published as ARCP Report 132) examined how changes in air service connectivity between regions and selected international markets could be beneficial to the U.S. economy through an analysis of multifactor productivity (MFP). The study established a statistical relationship between the national aviation system and the national economy, and broke new ground by showing how changes in aviation network connectivity can affect national productivity and the national economy.
Findings from ACRP 03-28 show that improvements in air service connectivity have positive effects on regional economies, although the effects by region (defined in ACRP 03-28 as a metropolitan statistical area or MSA) and airport(s), the size of these effects, and if there are effects at all, vary according to the nature and extent of any new air service. Measures of the extent of new air service included the number of airlines, flights per day, domestic departures to other MSAs in the United States, and international departures to foreign hub airports. The analysis also incorporated measures of the economies of the destinations, as well as the economies (industry mix) of the MSAs that are improving their long-distance air service connectivity, into the framework that measures the impacts of improved connectivity.
However, the MFP research conducted under ACRP Project 03-28 was one element of a broader project and was limited in scope to a sample of 26 commercial airports in 20 metropolitan regions across the U.S. and 15 major international airports. The analysis was performed for four discrete years, 1995, 2000, 2005 and 2010, was limited to 11 industry sectors represented by two-digit North American Industry Classification System (NAICS) codes, and results were reported on a national level. The estimation of the economic benefits of air service connectivity changes at U.S. airports would be more usable for airport decision-making if these relationships were more robust at a regional level and better tailored to potential changes in air service.

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

The research objectives would be accomplished through analysis that incorporates a continuous time series of data and more detailed economic data using at least three-digit NAICS codes (89 sectors, although many sectors may not be sensitive to airport connectivity). A three-digit approach would allow the analysis to better reflect whether improvements in air service connectivity are more relevant for the productivity of different industries, as well as whether different air service connectivity metrics better capture the effects on distinct industries.
Second, the sample of Metropolitan Statistical Areas (MSAs) and associated airports included in the analysis could be expanded to provide a more comprehensive sample of the U.S. economy and the U.S. aviation system. The sample of 26 airports used in ACRP Project 03-28 accounts for 38% of national enplanements and about 22% of landed cargo by weight; a reasonable objective would be account for 70% of enplanements and over 50% of cargo.
Third, more attention can be directed to international connections, including expanding the number of markets addressed in the previous research and separating domestic and foreign flag airlines to explore whether that distinction has different effects on the economic benefits of improved international connectivity at U.S. gateway airports. One challenge in analyzing the effects of international air service connectivity will be to obtain relevant economic time series data in sufficient detail by sector to be consistent with U.S. data.
An approach focused on modeling the productivity benefits of improvements in air service connectivity can begin with the findings of ACRP Project 03-28, and expand the research to address:

  1. Levels of capital investment by private and public sectors
  2. Measures of available capacity or market size
  3. Measures of other modal connectivity
  4. How better connectivity has changed the industrial makeup of a metropolitan region – attracting more transport-intensive industries such as information technology, and financial and insurance services
  5. Non-linearity of connectivity variables
  6. Agglomeration effects
  7. The extent and direction of causality between changes in air service and measures of regional economic activity.
    In a TRB webinar held in September 2018 ("An Understanding of the Economic Impact of Airports and Their Operations"), the issue of causality was discussed. The budget constraints of ACRP 03-28 precluded an investigation of the direction of causality within the models developed – whether it can be demonstrated that changes in air service connectivity in long-distance markets cause regional economic growth or simply result from it. The proposed analysis would investigate causality by examining derived historic economic and aviation data, and undertake subsequent modeling by constructing lag variables for (1) market connectivity; and (2) changes in gross regional product by industry sector and comparing both against observed changes in regional economies and air services.
    Additional dimensions of the analysis could include:
  8. Use of aggregate measures of employment, number of establishments, and average size of establishments to complement the use of MFP as a measure of productivity
  9. Examination of selected industries based on their transportation intensity (this could be endogenous as the causality may run from better connectivity to firms changing their input mix)
  10. Use of time series data to permit an investigation of whether causality is bi-directional or uni-directional, and which way it flows
  11. Use of time series data to permit the estimation of a dynamic model
    The proposed research would consist of the following tasks:
    Phase I
    Task 1 Summarize pertinent literature available since publication of ACRP Report 132 with emphasis on measuring air service connectivity and the regional economic impacts of expanded air service connectivity.
    Task 2 Identify a sample of commercial airports and related MSAs and international markets (these can include the airports/MSAs in ACRP Report 132, but should be more wide-ranging).
    Task 3 Identify required airport air service data and regional economic data (proposed years/ metrics), and assemble a continuous time series of relevant data and air service connectivity measures.
    Task 4 Develop a framework for an expanded analysis of the effects of changes in air service connectivity on the productivity of different economic sectors and regional economies, as well as analysis to explore the direction of causality between changes in air service and changes in regional economic activity.
    Task 5 Prepare Interim Report for Phase I (Tasks 1-5).
    Phase II
    Task 6 Estimate a set of econometric models for different economic sectors relating changes in air service connectivity to changes in MFP and other measures of economic performance based on the analysis framework defined in Task 4.
    Task 7 Perform additional modeling to explore the direction of causality between changes in air service and changes in regional economic activity.
    Task 8 Summarize results of the MFP analysis by industry and MSA
    a. Productivity impacts
    b. Other economic impacts
    Task 9 Produce guidance for airport authorities and state aviation departments on how to interpret (and update) the findings of Tasks 6, 7, and 8 for states and MSAs.
    Task 10 Prepare Final Report and any appendices
Cost Estimate and Backup (Provide a cost estimate and support for how you arrived at the estimate.)

It is estimated that 15 person-months of effort would be required to undertake the proposed tasks at an average loaded hourly rate of $174. Together with costs for data acquisition and travel, the funding required for the research is estimated at $500,000.
It is envisaged that the proposed research could be conducted over a period of 24 months, including allowances for project panel review of draft intermediate and final deliverables.

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.

The debate over airport expansion in the United Kingdom (UK) and whether to authorize a third runway at London Heathrow or Gatwick airports has resulted in a number of studies that have explored the different methodologies for assessing the value of air service connectivity and how it contributes to the UK economy (in this case). This work has led to an expansion in the academic literature as well. The research has asked three linked questions: to what extent does increased connectivity lead to an increase in real economic growth; second, what is the mechanism that provides the increase in real income and does this vary across connectivity mechanisms; and third, how do local and regional impacts differ from net national impacts. This literature that is also relevant to the proposed research approach links connectivity to macro-level variables such as employment, income, industrial structure (numbers and size of establishments) and growth in gross domestic product. In this literature, dynamic models are used to understand the change in equilibrium paths. For example, increased connectivity might lead to increases in service industry employment but decreases in manufacturing employment because of changes in the terms of trade brought about by increased connectivity.
The research is intended to address how airline air service decisions affect local economies, not how airlines make those decisions, which has been addressed by prior ACRP research (ACRP Report 18, ACRP Report 28, and ACRP Report 98). While it is expected that the research findings will influence airport decision making on the highest priority air service improvements to pursue, that is a different issue.
Since publication of ACRP Report 132, additional ACRP problem statements have been submitted that address issues related to air service connectivity. In 2016, problem statements 17-03-01 and 17-03-03 acknowledged ACRP Report 132 and sought to further explore aspects of connectivity. These problem statements were combined and funded as ACRP Project 03-44. However, the objective and scope in the request for proposals for ACRP 03-44 was oriented toward assisting airports in identifying and administering incentives for expanded airline service. It appears unlikely that the project will include significant work to further the understanding of the economic impacts of enhanced air service connectivity.

Annotations
Idea No. 196