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Connecticut Economic Digest: July 2005 issue

Bradley Airport's Economic Contribution Studied
By Stephen Houdlette, Economist, DECD

For most people, airports bring to mind images of vacations in warm weather or visiting relatives. Business owners however, may think about a shipment that needs to get cross-country by end-of-day tomorrow, or the opportunity to meet prospective clients at an out-of-state trade show. In either case, airports represent access to other places and other markets. A new study by the Department of Economic and Community Development (DECD) explores, for the first time, the link between providing air passenger and cargo services at Bradley International Airport (Bradley) and the economic benefits as they relate to Connecticut's residents and businesses.

Historically, airport economic impact studies have not addressed these concepts, and instead have focus solely on the number of people employed at the airport and visitor spending. This is not to say that these studies are incorrect, since the operations of an airport and visitor spending in a region most certainly produce economic impacts. What these traditional studies fail to do, or do inadequately, is quantify the value of airports as transportation assets. Specifically they do not quantify the value of the access they provide to other economies and other geographies, or the value of time savings they provide over other modes of transportation. By focusing solely on the operational impact of an airport, the broader and more important role of the airport is obscured and the true benefit of airports is overlooked completely.

A New Approach

When the Bradley Board of Directors asked DECD to conduct an economic impact analysis of Bradley International Airport (Bradley), the agency's Research and Planning unit set to reviewing current best practices in airport impact analysis. After an extensive investigation of the existing literature of airport studies, DECD decided to develop a more comprehensive approach to quantifying not only operational and visitor spending impacts, but also the transportation and user benefits associated with airports.

In addition to raising the bar for estimating the economic impacts of airports, DECD's study establishes a baseline upon which Bradley can effectively plan for its future operations and expansions. In designing the methodology for this study, DECD put in place the capability to model scenarios related to specific policy initiatives or alternative plans related to Bradley's growth and development.

Selecting A Model

Most airport analyses use input-output (I-O) based tools in order to estimate the economic impacts of airports. The most commonly employed of these are IMPLAN (MIG), Policy Insight (REMI), and RIMS II (BEA). RIMS II is especially prominent due to it being recommended by the FAA. While these tools are capable of capturing the indirect and induced effects of operations and visitor spending at an airport by tracing inter-industry transactions within an economy, they are not equipped to deal with transportation impacts.

Until recently, models capable of estimating the economic consequences of transportation impacts were not widely available. Starting with the 5.0 version of REMI Policy Insight, the core structure of the model was revamped, and the changes have made the first step in bridging the gap between transportation changes and economic impacts. In the context of airports, the recent enhancements allow for structural linkages that capture the time savings and accessibility concepts that are missing in earlier analyses of airport economic impacts.

Once the groundwork was laid for more specific applications of economic models in transportation, DECD, at the request of the Bradley Board and Connecticut Department of Transportation (DOT), worked with REMI to develop a first-of-its kind airport model: REMI TranSight/Airports. The model was tailor-built for the Bradley study, with regions defined, locally, along the I-91 corridor and the Bradley market area, and nationally, including major city destinations of the airport. With the model structure and theory now in place, it became increasingly clear that a wealth of data would be required to populate and calibrate the model.

To make this new model effective, baseline data needed to be collected. Passenger flow between regions, distance, and coupon (ticket price) data was obtained from Campbell-Hill Aviation. Much of the data could not adequately be obtained from secondary sources, however, meaning primary data would need to be generated. The UCONN Center for Survey Research and Analysis (CSRA) was contracted to collect the necessary data through a survey conducted at the airport. Likewise, business-related data, including frequency of use, employment, and cargo vs. passenger use of the airport were collected through a business survey of firms in Bradley's market area conducted by CSRA.

The next step was to define scenarios that best illustrated the different methods employed. In all, three scenarios were run with the new TranSight/Airports model: Airport Operations, which duplicates the RIMS II approach, the Tourism Effect scenario, which uses a more realistic treatment of visitor spending, and the Airport Contribution scenario, which is a more comprehensive analysis of airport impacts. Additionally, to lend comparability to past studies, an analysis using the RIMS II multipliers and FAA methods was added to the study.

Study Results

The first REMI scenario, Airport Operations, uses inputs identical to the RIMS II scenario. Not surprisingly, the economic impacts from the two analyses bear a strong resemblance. The total employment impact in Connecticut from the RIMS II analysis is higher than shown in the TranSight/Airports analysis by 4,440 jobs (25%), while total output differs by $265 million (15%), and earnings differs by $40 million (7%).

When comparing the results of these two approaches it is important to note the differences in regional capture of the models. The RIMS II multipliers explicitly cover a geographic range, which includes, besides Connecticut, New England and New York. However, since the REMI model has more specific geographic controls than RIMS II, we can look at results from specific states and even counties (in Connecticut). The second and third columns of the REMI results in Table 1 show a more comparable set of impacts. The column labeled "CTWMA" includes all of the State of Connecticut as well as Hampshire and Berkshire counties in Massachusetts. The column labeled "CTNENY" includes Connecticut, the rest of the New England states, and New York. Using these broader geographic definitions, the impact of Bradley in REMI draws even closer comparisons in employment impact to the RIMS II results.

The second REMI scenario, Tourism Effect, contains both the on-airport employment and visitor spending featured in the Airport Operations scenario. However, it treats visitor spending impacts more realistically. In economist Joseph DeSalvo's paper, "The Direct Impact of an Airport on Traveler's Expenditures: Methodology and Application," he points out that one of the shortcomings of existing economic impact studies is that "it is assumed that the demand for travel into the local area by visitors is perfectly elastic with respect to the time and money costs of travel, while the demand for travel by local residents is perfectly inelastic with respect to these variables." This is modeled by recapturing income from Connecticut residents that would have been lost from outgoing air travel.

In traditional airport studies, visitor-spending impacts comprise a large portion of the economic impacts. While this shows the large contributions of out-of-state visitors to the local economy in terms of visitor spending, it completely ignores the "tourism trade balance" that occurs when Connecticut residents take their income out of the region when they use the airport. The airport, while a facilitator of visiting travelers, actually allows more wealth to escape the region due to tourism travel than it actually brings in from "out-of-staters."

When comparing the results of the first year of the Tourism Effect scenario to the results of the Airport Operations scenario, the difference in the size of the impact measurements is striking. The Airport Operations results are almost twice as large in each case; for output, Airport Operations results are 168% of the output created in the Tourism Effect scenario. Since the principle difference between these two scenarios is the recapturing of Connecticut resident income, the results point out the glaring contradiction in both the previous interpretations of visitor-spending impacts and the importance of airports as economic generators for the tourism industry.

The Airport Contribution scenario highlights DECD's new approach, which includes both the airport employment and visitor-spending components as well as quantifying the time savings and accessibility concepts. This is accomplished through use of the regional capabilities of the TranSight/Airports model, which establishes baseline relationships between local industry and the airport. Using a counterfactual approach, this scenario takes Bradley (and all air transportation services) out of the Bradley market area in Connecticut and Western Massachusetts.

Table 2 shows the first year impacts to be the largest of any of the REMI (and RIMSII) scenarios, with over 18,000 jobs, almost four billion in output, and over a billion in personal income. The second and third columns show the average annual impacts (i.e. comparable to 2004) over the 10 and 20 year forecast horizons. The dynamic relationship between the airport and the economy shows the increasing importance of the airport over time.

This is not to say, however, that the results of this scenario portray future job creation in the Connecticut economy by the airport. In using a counterfactual approach, these results instead show jobs supported by the airport that already exist in the Connecticut economy. Or, to look at it another way, it represents the opportunity cost, or potential loss of jobs that would occur if the airport didn't exist. From this perspective, the Airport Contribution scenario shows the deep connection that is already established between the local economy and the airport and the enormous future cost of not continuing to develop and support this regional asset.

There is a difference between viewing the airport as an isolated generator of economic impacts, versus the more comprehensive and interconnected representation of the airport as a transportation infrastructure asset. By providing crucial access to markets, the airport allows Connecticut businesses to continue to grow. By allowing a cost-effective means for moving goods and people, the airport creates a comparative regional advantage that is essential for economic viability.

Conclusion

In the face of globalization and interstate competition, the Connecticut economy continues to become more reliant on its ability to compete in national and international markets. As the stakes get higher, the comparative advantages gained by a productive and educated labor force can only be optimized with the proper infrastructure in place. Bradley is the centerpiece of the I-91 transportation corridor, and the greatest opportunity for future economic growth in the State. The DECD's new TranSight/Airports model, with its ability to accurately estimate economic contribution of airport development alternatives, will certainly help guide investment decisions in order to meet expected demands for Bradley Airport.

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Published by the Connecticut Department of Labor, Office of Research
Last Updated: July 1, 2005