oxford economics report

Economic benefits of improvements to Middle East air traffic control

August 2015

A report for NATS

Kareen El Beyrouty

Andrew Tessler

Contents

Executive Summary

1 Introduction ..................................................................................... 3

1.1 Purpose of this report ................................................................................. 3

1.2 Trends in aviation in the Middle East ......................................................... 3

1.3 Structure of the report ................................................................................ 6

2 Benefits of air traffic improvements to the Middle East ............... 8

2.1 Geography and products ............................................................................ 8

2.2 Model construction ..................................................................................... 8

2.3 Model inputs ............................................................................................... 9

2.3.1 Average tactical delay per flight ......................................................... 9

2.3.2 Passenger values of time................................................................. 10

2.3.3 Proportion of regional passengers ................................................... 10

2.3.4 Delay costs to airlines ...................................................................... 10

2.3.5 Air traffic movements ....................................................................... 11

2.3.6 Distribution of increased delays through to 2015 ............................ 11

2.3.7 Discount rate .................................................................................... 11

2.4 Model results ............................................................................................ 12

3 Benefits of air traffic improvements to Oman ............................. 13

3.1 Aviation in Oman ...................................................................................... 13

3.2 Products ................................................................................................... 14

3.3 Model construction ................................................................................... 14

3.4 Model inputs ............................................................................................. 15

3.4.1 Average tactical delay per flight ....................................................... 15


3.4.3 Proportion of local passengers ........................................................ 16




3.4.7 Discount rate .................................................................................... 17

3.5 Model results ............................................................................................ 17

4 Benefits of air traffic improvements to Qatar .............................. 19

4.1 Aviation in Qatar ....................................................................................... 19

4.2 Products ................................................................................................... 19

4.3 Model construction ................................................................................... 20

4.4 Model inputs ............................................................................................. 21

4.4.1 Average tactical delay per flight ....................................................... 21


4.4.3 Proportion of local passengers ........................................................ 22




4.4.7 Discount rate .................................................................................... 23

4.5 Model results ............................................................................................ 23

1

Executive Summary

Oxford Economics was commissioned by NATS to develop estimates of the

economic efficiency gains from potential improvements to air traffic control in the

Middle East, with separate figures also being developed for Oman and Qatar.

For the purposes of this report “the Middle East” includes the GCC countries

(Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) as

well as Iran and Iraq.

The model constructed for this analysis is based on an economic efficiency

framework and is aimed at assessing the economic welfare benefits of

improvements to air traffic control in the Middle East. This type of approach is

favoured by economists who wish to understand the net economic gains of an

initiative – or, equivalently, losses from the absence of an initiative - to

consumers, producers and the economy as a whole.

Under this framework, gains to air passengers from an improvement in air traffic

control in the Middle East (e.g. from faster travel times) are considered

“consumer surplus”, while gains to airports, airlines, and air navigation service

providers (ANSPs) (e.g. from reduced fuel costs or increased revenues)

constitute “producer surplus”. The sum of producer and consumer surplus

represents the economic gain to the Middle East as a whole.

Two types of potential responses to improvements in air traffic control were

initially considered, namely:

a decrease in average delay minutes for passenger flights arriving and departing and

overflights flying over Middle East airspace; and

an increase in the number of flights, either arrivals/departures and/or overflights.

The first potential response, a decrease in average delay minutes for passenger

flights (arrivals/departures/overflights) was included in the model. Discussions

with Middle East aviation experts resulted in the conclusion that it is likely there

would be an increase in the number of east/west overflights as a result of air

traffic improvements (thereby generating additional income for ANSPs).

However there is no agreement about the significance of such a factor and

accordingly, we have not quantified this factor in this report.

The base case (do-nothing) is the current state of aviation traffic in 2015. The

option case represents the economic benefits of avoiding a hypothetical

doubling of delay minutes by 2025 by implementing air traffic control

improvements. The time horizon considered in this analysis spans a ten year

period, starting at 2015 and ending at 2025. Using the inputs detailed above, a

welfare-based model was built to estimate the passenger benefits and the airline

benefits.

The net present value of these gross benefits was estimated as USD 16.3

billion for the Middle East as a whole for the period 2015-2025. In terms of the

distribution of benefits, 44 percent of this surplus would go to passengers and 56

percent to airlines.

2

A similar approach was also adopted to assess the economic benefits of air

traffic control improvements in Oman. The net present value of these gross

benefits sum to USD 595 million for Oman for the period 2015-2025. In terms of

the distribution of benefits, 41 percent of this surplus would go to passengers

and 59 percent to airlines.

A third model was also constructed for Qatar. In Qatar, the gross economic

benefits of air traffic control improvements in net present value terms sum to

USD 1,536 million for the period 2015-2025. In Qatar, 60 percent of this surplus

would go to passengers and 40 percent would go to airlines.

Tables and charts illustrating model inputs and outputs are provided below.

Table 1: Model inputs

Table 2: Model outputs

Chart 1: Air Traffic Control (ATC) net delay costs in the Middle East, Oman

and Qatar from 2015-2025

Net benefits sum ($,

Million)

Passengers' surplus

(%)

Airlines' surplus

(%)

Middle East 16,337 44 56

Oman 595 41 59

Qatar 1,536 60 40

Model Outputs

Average tactical delay

per flight (Minutes)

Average tactical delay

per flight attributed to

ATC (Minutes)

Average VoT ($)Proportion of local

passengers (%)

Middle East 36 29 0.47 50

Oman 27 22 0.62 33

Qatar 37 30 2.52 14

Model Inputs

7.22

9.12

0.24 0.35 0.91 0.62

0

1

2

3

4

5

6

7

8

9

10

ATC delay cost to passengers ATC delay cost to airlines

Middle East Oman Qatar

USD Billions

3

1 Introduction

1.1 Purpose of this report

Oxford Economics was commissioned by NATS to develop estimates of the

efficiency gains from potential improvements to air traffic control in the Middle

East, with separate figures also for Oman and Qatar.

For the purposes of this report “the Middle East” includes the GCC countries

(Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) as

well as Iran and Iraq.

There is a plethora of prior work on the economic contribution of aviation to the

Middle East. However, the scope of much past work focuses on the

unconstrained impacts of aviation investment at the present time. In contrast this

report focusses on examining the effects of potential constraints which could

arise from an absence of investment in regional air traffic control. The economic

benefit of relieving such constraints is estimated for the region, Oman and Qatar.

1.2 Trends in aviation in the Middle East

At the present time, the Middle East region carries a 5 percent share of global

passenger traffic and over the past decade the region has become one of the

world’s most important aviation hubs.1 Recent work by ATAG on the economic

contribution of air transport in the Middle East shows that it supports two million

jobs and USD 116 billion in GDP for the region.2 This activity had its genesis in

the 1970s, when governments across the Middle East began to turn to investing

in their aviation industries as a way to diversify away from oil revenues and turn

towards becoming a global centre for commerce and trade.3 There are several

factors at play in the rise of aviation in the Middle East: the region’s strategic

geographic location between Europe and Asia, increasing inbound tourism to the

region, and large airport developments across the region.

Middle East airlines are expanding their networks by increasing their “closeness

centrality”, an expansion by which new routes are offered to customers (e.g.

London-Dubai-Sydney rather than London-Singapore-Sydney).4 Implicit in this

mode of aviation expansion is direct competition with other global aviation hubs

1 Air Transport Action Group (ATAG), Aviation: Benefits Beyond Borders (2014),

42.

2 Ibid.

3 Jan Vespermann, Andreas Wald and Ronald and Gleich, "Aviation growth in

the Middle East - impacts on incumbent players and potential strategic

reactions", Journal of Transport Geography, 16 (2008): 388-94.

4 Ibid.

4

in order to take market share. By expanding routes on offer, Middle East airports

do not only rely on domestic demand for air travel or international demand for air

travel to the Middle East, but also on transfer passengers routing via the Middle

East.

Indeed, the Airports Council International recently ranked Dubai as the sixth

busiest airport in the world for passenger traffic and as the world’s busiest airport

in terms of international passenger traffic.5 Passenger traffic at the airport rose

from 47 million in 2010 to 70 million in 2014, a 49 percent increase.6 The rapid

rise of Dubai in the global ranking of aviation hubs is strongly tied to the

expansion of Emirates airlines, which now flies the world’s largest fleet of long-

haul passenger airplanes.7

Two other major regional aviation hubs, Doha and Abu Dhabi have also

experienced outsized growth, bolstered by major airport developments and the

growth of their national carriers, Qatar Airways and Etihad. Passenger numbers

grew 166 percent in Qatar over the 2006 to 2014 period, with significant year-on-

year increases from a base of 3.7 million passengers in 2006 to 9.8 million

passengers in 2014.8 Abu Dhabi Airport carried more than 16.5 million

passengers in 2013, more than triple the 5.4 million passengers recorded in

2006.9 A new terminal opened in 2009 at Abu Dhabi Airport, and yet another

new terminal, the Midfield Terminal Complex, is set to open in coming years.

This terminal alone is designed to carry 30 million passengers per annum.

Overall, the OAG, who provide aviation information and analytical services

sourced from its aviation databases, predicts a 10 percent annual growth rate for

the growth of the aviation fleet in the Middle East.10

Moreover, aviation capacity

in the Middle East currently compares favourably with that of other regions.

Passenger and freight tonne kilometres offered per unit of GDP meet US levels

and even exceed the levels of European countries.11

The charts below show

both the growth in departures and passengers for the region from 2007-2013.

5 Airports Council International, "ACI World releases preliminary world airport

traffic and rankings for 2014 - DXB becomes busiest airport for international

passenger traffic - Mar 26, 2015," 2015

6 http://www.dubaiairports.ae/corporate/media-centre/fact-sheets/detail/dubai-

airports

7 Joel Lewin, "Dubai replaces Heathrow as busiest airport", Financial Times, 12

January 2015.

8 IATA and Oxford Economics, "Air Passenger Forecasts Data" June 17, 2015.

9 http://www.abudhabiairport.ae/english/airport-information/about-abu-dhabi-

airport/introduction.aspx

10 OAG Market Intelligence, India and the Middle East Aviation Market Analysis

(October 2011), 4.

11 Jurgen Ringbeck and Fadi Majdalani, Booz & Co.: Mastering the Challenges

of The Middle East Aviation System (2008), 2.

http://www.dubaiairports.ae/corporate/media-centre/fact-sheets/detail/dubai-airports


http://www.abudhabiairport.ae/english/airport-information/about-abu-dhabi-airport/introduction.aspx

http://www.abudhabiairport.ae/english/airport-information/about-abu-dhabi-airport/introduction.aspx

5

0

5

10

15

20

25

0

20

40

60

80

100

120

140

160

180

2007 2008 2009 2010 2011 2012 2013

Passengers carried % growth in passengers carried

Source : ICAO

Million %

Charts 1.1 and 1.2: Passenger and aircraft departures growth in the Middle

East, 2007-2013

In addition, the Middle East is investing heavily in tourism promotion, attracting

more inbound traffic. Overnight tourist arrivals increased by 27 percent across

the region from 2007 to 2013. A further 92 percent increase from 2013 to 2024 is

forecast, with GCC countries experiencing slightly higher rates of tourism

growth.12

At the forefront of tourism promotion and development within the GCC

region is Bahrain, with travel and tourism contributing 10 percent to its GDP and

providing for a similar percentage of jobs in 2013.13

As with aviation, tourism is

12 Oxford Economics, Tourism Decision Metrics Databank, accessed

27/04/2015.

13 Ibid.

0

5

10

15

20

0

200

400

600

800

1000

1200

2007 2008 2009 2010 2011 2012 2013

Aircraft departures % growth in departures

Source : ICAO

Thousand %

6

an important avenue for diversification away from the oil sector, as well as a

sector that generates a substantial amount of employment.

1.3 Challenges for aviation in the Middle East

Like airlines in the region, airports in the region have also engaged in substantial

growth programmes to supply more capacity. For example, Dubai opened a

second airport in 2010, initially for cargo operations, with the first passenger

operations taking place in 2013. It is designed to become the world’s largest

airport with capacity for 160 million passengers and 12 million tonnes of air

freight per year.14

The region’s available airspace and air traffic capability, however, has not kept

up with the region’s ambition. The region’s air traffic management has split into

different bodies, going from one Flight Information Region (FIR) in Bahrain in

195415

to six distinct ones starting in the early 1980s16

, with handover between

the regions creating delays in flight times.17

In addition, approximately half of the

Middle East airspace is reserved for military flights, further exacerbating the air

traffic control congestion.18

The challenges facing air traffic control are recognised throughout the region

and initiatives have been established to quantify and address the issues,

however the pace of progress often does not meet the pace of continued traffic

growth. An example of such an initiative is the MID ATM Enhancement

Programme (MAEP) led by ICAO, which provides a regional collaborative

platform for planning and implementing air navigation projects in support of the

MID Air Navigation Strategy 2014-2028. Also, a Project Management

Organisation has been established to develop a MAEP Master Plan, identifying

‘quick win’ initiatives and determine funding requirements. This report illustrates

some of the benefits that could arise from initiatives to improve air traffic control

management in the region.

1.4 Structure of the report

The remainder of the report is structured as follows:

14 http://www.dubaiairports.ae/corporate/media-centre/fact-sheets/detail/dubai-

airports

15 http://www.bahrainairport.com/about-us/our-history/aviation-in-bahrain.html

16 IATA, “Support Gulf Success with Regional Cooperation and Global

Standards,” http://www.iata.org/pressroom/pr/Pages/2014-04-07-01.aspx

17 Alan Dron, "Steep Growth At A Cost For Middle East Carriers", Aviation Week,

2/2/2015.

18 Ibid.



http://www.bahrainairport.com/about-us/our-history/aviation-in-bahrain.html

http://www.iata.org/pressroom/pr/Pages/2014-04-07-01.aspx

7

Chapter 2 describes the benefits of air traffic improvements to the Middle East region.

Chapter 3 describes the benefits of air traffic improvements to Oman.

Chapter 4 describes the benefits of air traffic improvements to Qatar.

8

2 Benefits of air traffic improvements to the Middle East

2.1 Geography and products

The geographical region included in this assessment of air traffic in the Middle

East includes the GCC countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia,

and the United Arab Emirates) as well as Iran and Iraq.

The type of traffic considered in this model consists of passenger traffic, for the

reason that improvements to air traffic control in the Middle East would mostly

benefit passenger traffic. There would be some additional benefit to cargo, but

that benefit is minute compared to the potential benefit for passenger traffic.

2.2 Model construction

The model constructed for this analysis is based on an efficiency framework,

focussing on the economic welfare benefits of improvements to air traffic control

in the Middle East. This type of approach is favoured by economists who wish to

understand the net economic gains of an initiative - or, equivalently, losses from

the absence of an initiative - to consumers, producers and the economy as a

whole.

Under this framework, gains to air passengers from an improvement in air traffic

control in the Middle East (e.g. from faster travel times) are considered

“consumer surplus”, while gains to airports, airlines, and air navigation service

providers (ANSPs) (e.g. from reduced fuel costs or increased revenues)

constitute “producer surplus”. The sum of producer and consumer surplus

represents the economic gain to the Middle East as a whole.

More formally, the consumer surplus represents the difference between what

consumers pay and the maximum price they would be willing to pay for aviation

services and the producer surplus represents the difference between the price

received by producers (airports, airlines, ANSPs) and the marginal costs of

supply.



a decrease in average delay minutes for passenger flights arriving and

departing and overflights flying over Middle East airspace; and

an increase in the number of flights, either arrivals/departures and/or

overflights.



9

with Middle East aviation experts resulted in the conclusion that it is likely there

would be an increase in the number of east/west overflights as a result of air

traffic improvements (thereby generating additional income for ANSPs).

However there is no agreement about the significance of such a factor and

accordingly, we have not quantified this factor in this report.

The base case (do-nothing) is the current state of aviation traffic in 2015. There

are no firm data on how air traffic control delays may increase in the next

decade. However, the approach taken is this study is to postulate a doubling of

such delays by 2025 if no action is taken to improve air traffic control systems.

This serves as a guide to policy makers as to the potential significance of such

impacts on passengers and airlines. Accordingly, the option case presents the

economic benefits of avoiding this hypothetical doubling of delay minutes by

2025 by implementing air traffic control improvements (or alternatively, the

economic costs of a doubling of delay minutes). As indicated, the time horizon

considered in this analysis spans a ten year period, starting at 2015 and ending

at 2025.

2.3 Model inputs

The key model inputs are described below.

2.3.1 Average tactical delay per flight

The most important input to the model is the average tactical (i.e. unexpected)

delay per flight. NATS supplied Oxford Economics with flight data from

Flightstats for the busiest airports in each of the countries considered for seven

days in June 2015.19

Total average delay was calculated by looking at the

difference between scheduled gate departure/arrival time and actual gate

departure/arrival time.20

The average flight delay for the region was

approximately 36 minutes; however, not all of this delay is attributable to air

traffic control.

Given that publically available data on the precise sources of air traffic delays in

the Middle East doesn’t exist, we used EUROCONTROL airport ATFM delay

data for 2008-2014, excluding the effects of weather (which are much smaller in

the Middle East) as a guide.21

Averaging these data over these years suggests

82 percent of total delays could be attributable to air traffic

control/capacity/staffing issues.

19 Data were gathered for Baghdad, Bahrain, Doha, Dubai, Jeddah, Riyadh,

Sharjah, Kuwait, Tehran, Abu Dhabi, Dammam, and Muscat.

20 Arrival delays were calculated net of any departure delays.

21 See http://www.eurocontrol.int/prudata/dashboard/eur_view_2014.html

http://www.eurocontrol.int/prudata/dashboard/eur_view_2014.html

10

This cuts down the delay minutes attributable to air traffic control from 36 to 29

in 2015. For 2025, it was posited that delay minutes would double to 59, absent

improvement in air traffic control.

2.3.2 Passenger values of time

An important benefit of decreased flight delays is the value of that time saved for

passengers. As data does not exist for the Middle East, we used the value of

time for the UK, calculated using recent surveys done by the UK’s Airports

Commission for business trips and EUROCONTROL values of time for leisure

trips.22

These values of time (VoT) were converted to USD at Purchasing Power

Parity (PPP) exchange rates.23

Two sets of values of time were used, one for

business passengers and one for leisure passengers, yielding a per minute USD

1.31 VoT for business passengers and a per minute USD 0.48 VoT for leisure

passengers.

A weighted average VoT was then calculated for the Middle East using a 14

percent business passenger split and an 86 percent leisure passenger split. An

adjustment factor of 0.73 was used to take into account the difference in

average GDP per capita on a PPP basis for the region and that of the UK for

business trips and one of 0.8 to account for the differences between the EU and

the region for leisure trips. The split by purpose of travel was estimated using

data on tourism arrivals by purpose, produced by Oxford Economics. The final

weighted average figure for VoT was USD 0.47 per minute for each passenger.

2.3.3 Proportion of regional passengers

To estimate the consumer surplus for passengers, it was assumed that 50

percent of passengers were regional passengers. This is consistent with

previous Oxford Economics estimates for Saudi Arabia and is in line with the

proportion of residents in other markets.24

2.3.4 Delay costs to airlines

In addition to passenger delay costs, there are also delay costs to airlines.

Delays were estimated in the same way as for passenger delays. Delay costs

per minute of USD 40 were estimated based on the University of Westminster

22 Airports Commission, Economy: Delay Impacts Assessment Methodology

Paper, (November 2014), 6. and Eurocontrol 6th ed. (September 2013),

Standard Inputs for Eurocontrol Cost Benefit Analysis

23 As UK inflation is close to zero for 2015, no adjustment was made to inflate

the 2014 values to 2015 values.

24 Oxford Economics (2011) Economic Benefits of Air Transportation Saudi

Arabia

11

(2011) and EUROCONTROL’s Standard Inputs for Cost Benefit Analyses for

tactical delays without network effects.25

2.3.5 Air traffic movements

Internal Oxford Economics forecasts for air passengers in the region were

converted to Air Traffic Movements (ATMs) using an average of approximately

117 passengers per flight. This average was calculated using the ratio of

passengers to ATMs in the Middle East from the Airports Council International

2014 Preliminary World Airport and Traffic Rankings.26

2.3.6 Distribution of increased delays through to 2025

For this model, it was assumed that delays would increase in a linear trend from

2015 to 2025 without an improvement in air traffic control. By 2025, delays

would be double those of 2015. Chart 2.1 below shows the resulting distribution

of gross delay costs for airlines and passengers for each year of the model.

Chart 2.1: Gross delay costs for airlines and passengers, 2015-2025

2.3.7 Discount rate

As per EUROCONTROL guidelines, a 4 percent discount rate was used.27

25 University of Westminster (2013) European airlines delay cost reference

values: Final report and EUROCONTROL, Standard Inputs for EUROCONTROL

Cost Benefit Analyses, 6th ed. (September 2013), p. 11




27 EUROCONTROL, Standard Inputs for EUROCONTROL Cost Benefit

Analyses, 6th ed. (September 2013), 48

0

20

40

60

80

100

120

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

ATC gross delay cost toairlinesATC gross delay cost topassengers

USD Million

12

2.4 Model results

Using the inputs detailed above, a welfare-based model was built to estimate the

passenger benefits and the airline benefits. Benefits to ANSPs were not included

in this model, as additional flights were not modelled. Together, these benefits

represent the combined consumer and producer surplus (benefits) as a result of

potential air traffic control improvements in the Middle East. The consumer

surplus (shaded in blue) of USD 7.2 billion represents the total benefits that

airline passengers would receive over the 2015-2025 period. Likewise, the

producer surplus (shaded in green) of USD 9.1 billion corresponds to the total

benefits airlines would receive over the same period.

The sum of producer and consumer surplus is known as the gross benefits of

improved air traffic control. The net present value of these gross benefits was

estimated as USD 16.3 billion for the Middle East as a whole for the period

2015-2025. In terms of the distribution of benefits, 44 percent of this surplus

would go to passengers and 56 percent to airlines.

Chart 2.2: Distribution of benefits between passengers and airlines in the

Middle East

Quantity

$, Billion

44%

56%

S

D

Consumer surplus

Producer surplus

$ 7.2 billion

$ 9.1 billion

13

3 Benefits of air traffic improvements to Oman

3.1 Aviation in Oman

Oman’s first airport dates back to 1929 and it was mainly for military purposes.

In the 1960s, Gulf Air began flying its DC3 Aircraft through Bait Al Falaj Airport

and in the 1970s, Pakistan and British Airways began flying semi-regular

passenger flights out of the airport. In 1973, Muscat Airport (formerly known as

Seeb Airport) opened and by the end of the first year of operation, 87,200

passengers had flown via the airport.28

The national carrier, Oman Air, began

operations in 1993.29

Aviation expansion in Oman is designed to serve Oman’s ambitions as a tourism

destination. Muscat International hosted over 8 million passengers in 2013, an

increase of 10 percent from 2012.30

Oman is planning for even more growth and

over the next decade plans to build six new runways and four new regional

airports.31

At Muscat International, the existing runway was recently upgraded.

Furthermore, a new parallel runway and a new terminal (designed to hold 48

mppa by 2050) will soon open. At Salalah airport, a new terminal building

designed to hold up to 4 mppa went operational and the main runway of the

airport has been upgraded. The airport will also have an air cargo terminal

designed to hold 400,000 tonnes per annum at maximum capacity.

At Sohar, another regional airport to the northwest of Muscat and mid-way

between the city and Dubai, a 500,000 passenger per annum terminal building

and a 13,190ft (4,020m) runway are planned. This airport will also have a 50,000

tonne capacity cargo terminal. In the south-eastern city of Ras Al Hadd, a new

airport with a passenger capacity of half a million and a single runway will be

constructed. Another regional airport being upgraded is Al Duqm, an industrial

oil town. A further regional airport development planned in the town of Adam has

initial plans for half a million passengers with a single 13,125ft (4,000m) runway,

likely as a military base. In a later stage of regional airport development, two

additional new airports are planned for Hayma and Shalim.

28 Oman Airports Management Company, “Airport History- Muscat Airport”,

https://www.omanairports.co.om/Page.aspx?MID=38&PGID=21

29 Oman Air, “History”, http://www.omanair.com/en/about-us/corporate-

information/history

30 Maslen, Richard “New Airports and New Runways for Oman,”

http://www.routesonline.com/news/29/breaking-news/244302/new-airports-and-

new-runways-for-oman/

31 Ibid.

https://www.omanairports.co.om/Page.aspx?MID=38&PGID=21

http://www.omanair.com/en/about-us/corporate-information/history

http://www.omanair.com/en/about-us/corporate-information/history

http://www.routesonline.com/news/29/breaking-news/244302/new-airports-and-new-runways-for-oman/

http://www.routesonline.com/news/29/breaking-news/244302/new-airports-and-new-runways-for-oman/

14

These airport developments mirror a similar capacity expansion programme

taking place at Oman Air, with 24 new aircraft to be delivered in phases by 2018,

taking Oman Air’s fleet total to 50 aircraft.32

Upgrades to Oman’s air traffic

management systems have been ongoing in parallel to airport developments,

however this work must be completed, and system capabilities fully exploited,

before operational benefits can be realised. This report presents a model to

estimate the benefits of potential air traffic control improvements for Oman.

3.2 Products

The type of traffic considered in this model consists of passenger traffic. This is

because improvements to air traffic control in Oman would mostly benefit

passenger traffic. There may be some additional benefit to cargo, but that

benefit would be minute compared to the potential benefit for passenger traffic.



looking at the economic welfare benefits of improvements to air traffic control in

Oman. This type of approach is favoured by economists who wish to understand

the net economic gains of an initiative to consumers, producers and the

economy as a whole.

Gains to air passengers from an improvement in air traffic control in Oman are

considered as “consumer surplus”, while gains to airports, airlines, and air

navigation service providers (ANSPs) constitute “producer surplus”. The sum of

producer and consumer surplus represents gains to Oman as a whole.





supply.




overflights flying over Omani airspace; and




with Omani aviation experts resulted in the conclusion that it is likely there would

32 http://www.omanair.com/en/about-us/press-releases/arrival-of-new-b737-

marks-launch-of-oman-air-fleet-expansion-programme

http://www.omanair.com/en/about-us/press-releases/arrival-of-new-b737-marks-launch-of-oman-air-fleet-expansion-programme

http://www.omanair.com/en/about-us/press-releases/arrival-of-new-b737-marks-launch-of-oman-air-fleet-expansion-programme

15

be an increase in the number of east/west overflights as a result of air traffic

improvements (thereby generating additional income for ANSPs). However there

is no agreement about the significance of such a factor and accordingly, we

have not quantified this factor in this report.











at 2025.

3.4 Model inputs



The most important input to the model is the average tactical delay per flight.

NATS supplied Oxford Economics with flight data for seven days in June 2015

for Oman from Flightstats (for Muscat airport). Total average delay was

calculated by looking at the difference between scheduled gate departure/arrival

time and actual gate departure/arrival time.33

The average flight delay in Oman

was approximately 27 minutes; however, not all of this delay is attributable to air

traffic control.

Given that publically available data on the precise causes of air traffic delays in

the Middle East and/or Oman doesn’t exist, we used EUROCONTROL airport

ATFM delay data for 2008-2014, excluding the effects of weather (which are

much smaller in Oman) as a guide. Using this data, about 82 percent of total

delays can be attributed to air traffic control related issues. This cuts down the

delay minutes attributable to air traffic control from 27 minutes to about 22

minutes in 2015. For 2025, it was posited that delay minutes would double to

approximately 44 minutes, absent improvement in air traffic control.



passengers. As data does not exist for the Middle East or Oman, we used the

value of time for the UK, calculated using recent surveys done by the UK’s

Airports Commission for business trips and EUROCONTROL value of time for


16

leisure trips.34

These values of time (VoT) were converted to USD at PPP

exchange rates.35

Two sets of values of time were used, one for business

passengers and one for leisure passengers, yielding a per minute USD 1.31 VoT

for business passengers and a per minute USD 0.48 VoT for leisure

passengers.

A weighted average VoT was calculated for Oman using a 12 percent business

passenger split and an 88 percent leisure passenger split. Note that Omani GDP

per capita is roughly the same as UK GDP per capita on a PPP basis, so no

country-specific VoT adjustment was required for business passengers.

However an adjustment factor of 1.11 was used to take into account the

difference in average GDP per capita on a PPP basis for Oman and the EU for

leisure trips. The split by purpose of travel was estimated using data on tourism

arrivals by purpose, produced by Oxford Economics.

The final weighted average figure for value of time was USD 0.62 per minute for

each passenger in Oman.

3.4.3 Proportion of local passengers


percent of passengers were Omani passengers. This is based on Oxford

Economics analysis from industry sources.




per minute were estimated as USD 40 based on the University of Westminster




Internal Oxford Economics forecasts for air passengers in Oman were converted

to Air Traffic Movements (ATMs) using an average of approximately 117

passengers per flight, an average calculated using the ratio of passengers to


Paper, (November 2014), 6. : Eurocontrol (2013) Standard Inputs for Eurocontrol

Cost Benefit Analysis





Cost Benefit Analyses, 6th ed. (September 2013), 11.

17

ATMs in the Middle East from the Airports Council International 2014 Preliminary

World Airport and Traffic Rankings.37






Chart 3.1: Gross delay costs for airlines and passengers for Oman, 2015-

2025

3.4.7 Discount rate


3.5 Model results



in this model as additional flights were not modelled. Together, these benefits

represent combined consumer and producer surplus as a result of air traffic

control improvements in Oman. The consumer surplus (shaded in blue) of USD

244 million represents the total benefits that airline passengers would receive

over the 2015-2025 period. Likewise, the producer surplus (shaded in green) of





Analyses, 6th ed. (September 2013), 48.

0

20

40

60

80

100

120

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025


USD Million

18

USD 351.2 million corresponds to the total benefits airlines would receive over

the same period.


improved air traffic control. The net present value of these gross benefits sums

to USD 595 million for Oman for the period 2015-2025. In terms of the

distribution of benefits, 41 percent of this surplus would go to passengers and 59

percent to airlines.

Chart 3.2: Distribution of benefits between passengers and airlines in Oman

Quantity

$, Million

41%

59%

S

D

Consumer surplus

Producer surplus

$ 244.0 million

$ 351.2 million

19

4 Benefits of air traffic improvements to Qatar

4.1 Aviation in Qatar

Civil aviation in Qatar began in the 1950s, with oil companies prospecting in the

southern part of the country. In order to serve these companies’ needs in

carrying personnel and equipment, the first runway was built in the western part

of Qatar, receiving one plane per month. As commercial air transport grew, the

first airport (on the current site of Doha International Airport) was built. As

Qatar’s economy developed, so did Qatar’s aviation sector. The national carrier,

Qatar Airways, was established in 1994. Qatar Airways’ fleet grew from 4

airplanes in 1997 to 152 airplanes serving 146 destinations and carrying over 22

million passengers.39

Furthermore, Qatar Airways has over 330 new airplanes

pending delivery over the next few years.40

In 2001, the Qatar Civil Aviation Authority (QCAA) was established to promote

civil aviation and weather forecasts. Another milestone passed when Qatar

opened its new international report, Hamad International Airport, in 2014 with

phase 1 capacity of 30 million passengers per annum and a planned expansion

to 50 million passengers per annum. This new airport, designed to elevate Doha

as a key regional and global aviation hub, was also built to relieve congestion at

Doha International Airport as passenger and cargo air traffic increase on a

monthly basis.

The 2022 FIFA World Cup in Qatar will bring even more passenger growth to

Qatar, with Qatar’s market share of GCC aviation capacity predicted to increase

by 17.1 percent by 2023, more than three times the predicted capacity growth of

the GCC region’s share of global aviation.41

This report presents a model to

estimate the benefits of potential air traffic control improvements for Qatar.

4.2 Products

The type of traffic considered in this model consists of passenger traffic. This is

because improvements to air traffic control in Qatar would mostly benefit

39 Qatar Airways, “The Qatar Airways Story,” April 2015,

http://www.qatarairways.com/iwov-resources/temp-docs/press-

kit/The%20Story%20of%20Qatar%20Airways%20-%20English.pdf

40 Ibid.

41 Qatar Civil Aviation Authority, “Qatari aviation market to witness a huge leap in

10 years,” http://www.caa.gov.qa/content/qatari-aviation-market-witness-huge-

leap-10-years

http://www.qatarairways.com/iwov-resources/temp-docs/press-kit/The%20Story%20of%20Qatar%20Airways%20-%20English.pdf

http://www.qatarairways.com/iwov-resources/temp-docs/press-kit/The%20Story%20of%20Qatar%20Airways%20-%20English.pdf

http://www.caa.gov.qa/content/qatari-aviation-market-witness-huge-leap-10-years

http://www.caa.gov.qa/content/qatari-aviation-market-witness-huge-leap-10-years

20

passenger traffic. There may be some additional benefit to cargo, but that

benefit would be minute compared to the potential benefit for passenger traffic.



looking at the economic welfare benefits of improvements to air traffic control in

Qatar. This type of approach is favoured by economists who wish to understand

the net economic gains of an initiative to consumers, producers and the

economy as a whole.

Gains to air passengers from an improvement in air traffic control in Qatar are

considered as “consumer surplus”, while gains to airports, airlines, and air

navigation service providers (ANSPs) constitute “producer surplus”. The sum of

producer and consumer surplus represents gains to Qatar as a whole.





supply.




overflights flying over Qatari airspace; and



flights (arrivals/departures/overflights) was included in the model. In terms of

overflights, Qatar lies under Bahraini airspace and does not manage any

overflights. Consequently, these were not modelled.











at 2025.

21

4.4 Model inputs



The most important input to the model is the average tactical delay per flight.

NATS supplied Oxford Economics with flight data for seven days in June 2015

for Qatar from Flightstats. Total average delay was calculated by looking at the

difference between scheduled gate departure/arrival time and actual gate

departure/arrival time.42

The average flight delay in Qatar was approximately 37

minutes; however, not all of this delay is attributable to air traffic control.

Given that publically available data on the precise causes of air traffic delays in

the Middle East and/or Qatar doesn’t exist, we used EUROCONTROL airport

ATFM delay data for 2008-2014, excluding the effects of weather (which are

much smaller in Qatar) as a guide. Using this data, about 82 percent of total

delays can be attributed to air traffic control related issues. This cuts down the

delay minutes attributable to air traffic control from 37 minutes to about 30

minutes in 2015. For 2025, it was posited that delay minutes would double to

approximately 60 minutes, absent improvement in air traffic control.



passengers. As data does not exist for the Middle East or Qatar, we used the

value of time for the UK, calculated using recent surveys done by the UK’s

Airports Commission for business trips and EUROCONTROL value of time for

leisure trips.43

These values of time (VoT) were converted to USD at Purchasing

Power Parity (PPP) exchange rates.44

Two sets of values of time were used, one

for business passengers and one for leisure passengers, yielding a per minute

USD 1.31 VoT for business passengers and a per minute USD 0.48 VoT for

leisure passengers.

A weighted average VoT was calculated for Qatar using an 18 percent business

passenger split and an 82 percent leisure passenger split as well as an

adjustment factor of 3.8 to take into account the difference in average GDP per

capita on a PPP basis for Qatar compared to the UK (for business trips) and

4.14 compared to the EU (for leisure trips). The split by purpose of travel was

estimated using data on tourism arrivals by purpose, produced by Oxford



Paper, (November 2014), 6 and Eurocontrol (2013) Standard Inputs for

Eurocontrol Cost Benefit Analysis



22

Economics. The final weighted average figure for value of time was USD 2.52

per minute for each passenger in Qatar.

4.4.3 Proportion of local passengers


percent of passengers were Qatari passengers. This is based on the rough

proportion of Qatari nationals relative to the total population.45




per minute were estimated as USD 40 based on the University of Westminster




Internal Oxford Economics forecasts for air passengers in Qatar were converted

to Air Traffic Movements (ATMs) using an average of approximately 117

passengers per flight, an average calculated using the ratio of passengers to

ATMs in the Middle East from the Airports Council International 2014 Preliminary

World Airport and Traffic Rankings.47






45 Gulf Research Centre (2014), “Demography, Migration and Labour Market in

Qatar.” Note that this is consistent with the scope of the research being citizens

of Qatar, with the focus being on benefits to those citizens. Some might argue all

business trips, of expatriate residents should also be included as these would

impact on Qatari productivity. However an equal case could be made that all

business trips by non-residents should also be included. Likewise, a case could

be made that all leisure trips should be included. A more consistent approach,

more in keeping with study scope, however, would be to restrict scope to Qatari

citizens.



Cost Benefit Analyses, 6th ed. (September 2013), 11.



passenger traffic - Mar 26, 2015," 2015.

23

Chart 4.1: Gross delay costs for airlines and passengers for Qatar, 2015-

2025

4.4.7 Discount rate


4.5 Model results



in this model as additional flights were not modelled. Together, these benefits

represent combined consumer and producer surplus as a result of air traffic

control improvements in Qatar. The consumer surplus (shaded in blue) of USD

921 million represents the total benefits that airline passengers would receive

over the 2015-2025 period. Likewise, the producer surplus (shaded in green) of

USD 614 million corresponds to the total benefits airlines would receive over the

same period.


improved air traffic control. The net present value of these gross benefits sums

to USD 1.5 billion for Qatar for the period 2015-2025. In terms of the distribution

of benefits, 60 percent of this surplus would go to passengers and 40 percent to

airlines. This is shown in the below chart.


Analyses, 6th ed. (September 2013), 48.

0

50

100

150

200

250

300

350

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025


USD Million

24

Chart 4.2: Distribution of benefits between passengers and airlines in Qatar

Quantity

$, Million

60%

40%

S

D

Consumer surplus

Producer surplus

$ 921.3 million

$ 614.2 million

25

OXFORD

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PARIS

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Tel: + 33 178 91 5052

email:

[email protected]

http://www.oxfordeconomics.com/

Director, Middle East John Swift Tel: 00 971 (0) 50 329 2732

[email protected]

Head of Operations, Middle East Ben Kiff Tel: 00 971 (0) 55 696 3173

[email protected]

Country Manager, Qatar Mark Wordley Tel: 00 974 (0) 55 681921

[email protected]

Country Manager, Oman Sajeesh Unnikrishnan Tel: 00 968 (0) 9462 6024

[email protected]

NATS

mailto:[email protected]

http://www.oxfordeconomics.com/





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Documents

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delay costs

average tactical delay

passenger values of

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