The economic benefits of air transport
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The Economic Benefits of Air Transport A report prepared by the International Air Transport Association for the Air Transport Action Group, Geneva A TAG Geneva (1994) 28pp No price stated
The Air Transport Action Group (ATAG) is a coalition of organiza- tions that have joined forces to press for aviation infrastructure improve- ments to relieve congestion. In order to achieve this aim, the ATAG promotes the economic benefits of air transport to poIicymakers, legislators, governments and the public, with a view to encouraging infrastructure investment.
This report updates the 1991 ATAG report, and provides a wealth of information. It argues that air transport provides substantial economic benefits to the world economy, and with traffic forecast to grow at an average annual rate of S-6% between 1994 and 2010, the benefits of air transport are set to increase. However, congestion threat- ens to restrict this growth and limit the potential economic benefits. The report therefore concludes that invest- ment in airport, airspace and surface access infrastructure is required to accommodate forecast demand and avoid congestion, enabling the economic benefits of air transport to be fully realized.
The report is divided into nine sections, which follow three steps to the argument. The first spells out the size and economic importance of the air transport industry, the second focuses on the impact of congestion, and finally the urgent need for invest- ment is emphasized. Three main assumptions are made: first, that demand will grow at the forecast rate; second, that expansion of infrastruc- ture to accommodate forecast demand on an indefinite basis is desirable; and third, that capacity shouId be
Jnrrrnal of Au Transporr Mana.pnenr Vol 1. No 4. 255-258. 1994 pp. Copyright 0 1995 Else&r Science Ltd
Printed in Great Britain. All rights reserved ~69-4997/9~ $10.00 + 40
provided to accommodate demand where the airlines want it, at the busiest major airports.
All of these assumptions are open to debate, particularly the last two, which ignore the need for sustain- able development, recognized by governments at the Rio Earth summit. This is contrary to ATAGs stated philosophy (p 1): [ATAG] develops and promotes policies which balance environmental concern with the need for greater capacity. No mention is made of the existing use of regional airport capacity, or the effect of substitutes such as high-speed rail. This severely limits the scope and hence the valid- ity of the report.
The study uses a range of statistics based on 1992 data, to estimate the magnitude of benefits (pp S-14). These include wealth generation, employment, taxes, travel and tourism, wider spin-offs, regional and catalyst benefits. Unfortunately, there is little indication of how these benefits were calculated, and the report admits that its methodology is open to question. It draws on the work of a number of consultants and specialists, whose assumptions and methodologies for economic calcula- tions vary, ... and thus can alter the conclusions significantly (p 1). How this might affect the results is not explored.
Three types of benefit are measured: direct, indirect and induced. The methodology for calcu- lating the last two involves a degree of speculation that is criticaf to the results, because these categories account for the majority of benefits: 75% of the $1000 billion economic impact on world output and 68% of the estimated 22 million jobs attributable to aviation (p 9).
A number of questions arise concerning the calculation and inclu- sion of certain benefits. The report draws attention to the regional economic benefits of industrial and
commercial developments that are attracted to locations near airports. It is not certain to what extent airport infrastructure congestion may affect these. The business passengers associ- ated with such developments are likely to be the passengers least constrained by congestion because they are willing to pay the highest air fares. Therefore, benefits associated with the attraction of businesses to the region are unlikely to be lost owing to infrastructure congestion, but may be constrained by the availability of suitable sites.
The mention of wider benefits such as cultural links, relief flights to natural disaster areas and research is interesting but has little relevance to the infrastructure expansion argument (p 10). For example, relief flights are infrequent, can be made from any airport (often a military airfield) at any time, and are not under threat from the congestion of a few major airports.
The nature and economic costs of congestion to eight different groups (airlines, airports, air travellers, tourist industry, labour pool, business and industry, governments and aircraft manufacturers) are identified, and the penalties of inadequate infra- structure are outlined. An average delay figure of 8.4 minutes for the 4.4 million departures by US carriers in 1993 may amount to 616000 hours when added up (pp 15-16). but a series of minor delays to passengers of insignificant personal value do not translate into extra flights for a carrier. This sort of comparison is highly spurious.
The general economic arguments are supported with evidence from four select case studies: Heathrow, Hong Kong, Nashville and Los Angeles. These appear to be handpicked to support the arguments, as no evidence is presented to substantiate whether they are repre- sentative of the case woridwide or not.
The issue of benefits from infra- structure investment may be a global one, but policymakers and individual governments are rarely interested in or motivated by benefits that accrue beyond domestic markets. Instead, they are concerned with their own specific circumstances, which involve evaluating the benefits against politi- cal and environmental opposition.
The concluding section, entitled Final words from Government and industry, is misleading. as only one of the 14 quotes that foilows is made by a government official. The majority come from major airlines, who unsur- prisingly add their support to the general economic arguments in the report. This is an unsatisfactory conclusion, because it does not trans- late the issues from the worldwide economic case into a practical context for the key decision makers at whom the report is targeted. A series of bullet points spelling out the major economic benefits of air transport growth and the consequences of a capacity shortfall would focus the minds of governments and policymak- ers more clearly on the case that ATAG is promoting.
There is a case to be made for airport expansion, but it should directly address the counter- arguments and reveal the methodol-
ogy upon which its economic calculations are based. This would provide governments and policymak- ers with a more practical input to infrastructure expansion decisions.
I A4 Humphreys University of Wales College of
The Air Transport Industry: Solving Over-capacity and Financing New Equipment tan Verchere Economist Intelligence Unit, Research Report No. R459, Lodon (1994) I38 pp ~345 or &85 ISBN 0 85058 822 7
Solving overcapacity and financing new equipment are the critical issues in this account of aviation today. The author is currently deputy business
editor of The European newspaper. He previously held posts in aviation journalism in Hong Kong and in corporate communications for the Bank of America in Tokyo and New York. The report is well presented and takes a global perspective.
The crisis is summarized in IATA airline losses of $11.5 billion, overca- pacity that has 10% of the worlds 11 000 civil aircraft idle, and a third of the worlds airline seats flying empty. Prospects for a recovery in demand might increase the number of passengers by 40% by 1997 but renewed growth will bring with it the problem of how airlines will finance the US$300-400 billion of new aircraft that will be needed in the next seven years or so. Finance is also required for ATC and airport development.
Leasing companies are now the biggest customers for new aircraft. with 20% of the fleet, and this may double. GECAS, ILFC and AWAS are the major lessors, with some 80 plus minor lessors. Government financing agencies such as Eximbank, Coface, Hermes and ECGD are also playing an increased role in the finance of new aircraft but are open to criticism under fair competition rules in international trade. Verchere predicts 1997 as the year when aircraft manufacturers can shoulder no more of the burden of exposure to customer financing, which stands now at $13 billion.
Aviation today suffers from funda- mental flaws rather than a cyclical depression. Verchere seeks the removal of protectionism from the operation of air services and the manufacture and sale of aircraft. He believes that there will not be a Big Bang liberalization despite the recommendations of President Clintons commission and the EU Comite des Sages. He feels that an administrative solution through GATT or OECD is unlikely because the industry is trying to escape from central regulation. In his evolutionary approach all concerned with the industry, including the customers, must lobby to ensure that government intervention diminishes, protection- ism and subsidy are eliminated, and the market is allowed to work as
efficiently as possible. He concedes that the industrys rehabilitation will be slow and painful rather than rapid and decisive.
Part 1 deals with the air transport market and the airlines operating environment, deregulation and infra- structure. Interesting new develop- ments covered are the rise of new no-frills airlines such as Southwest, with highly intensive shuttle services on busy routes; the rapi