logan airport in the boston regional economy: a remi...

Logan Airport in the Boston Regional Economy: A REMI Analysis

Logan Airport Team Final Presentation 11.482J Regional Socioeconomic Impact Analyses and Modeling

Professor: Karen R. Polenske Michael Brown, Travis Dunn, Manshi Low

Isabelle Yi Xu, Hongliang Zhang

Massachusetts Institute of Technology December 8, 2004

Dec 2004 1 MIT 11.482J Logan Airport Team

Agenda

Logan Airport Overview

Research Questions

Methodology

Analysis (3 Scenarios)

Conclusions


Logan Airport

Logan has one of the country’s highestpercentage of business travelers

Logan is the nation’s 19th busiest airport,serving 23 million travelers annually

About 90% of Logan passengers use Logan as a destination (as opposed to a hub)

Boston’s growth sectors account for the largest industry demand and share for air service

Demand for air service will outpace overall economic growth

Opportunity to tailor services to best meet the needs of industries with the greatest demand


Logan Airport: Seasonal Variation

Logan Passenger Volumes

3

2.5

2

1.5

1

0.5

0

Mill

ions

of p

asse

nger

s

98 99 00 01

02 03 0498 01 0201 01 02 02

0398 98

03 0403

0499Oc

00Oc -00 - - - - -- - -99Ju

-9 9 -00Jun- n- n- n- n- n-n-r r rr l- t r r t t t- r-- -

Ju-

Ju- ul- ul-JaJu

l l l l

Oc t t

Ap Oc Ap Oc Ap Oc ApAp Ap Apa a aa a a J JJ J JJ J J

Month

Source: Compiled using data from Massport, Statistics for Logan Airport, “About Logan,” www.massport.com.


Logan Airport: Seasonal Variation

Monthly passenger volume change relative to previous year

60%

40%

20%

0%

-20%

-40%

-60%

Perc

ent c

hang

e fro

m p

revi

ous

year

's v

olum

e

-99 -01 2 -03 040 01 -02

0399 9n-0

0

n-01 1

n-02 03

3n-0

400 040 20099Ju t 9 t 0 t 0t 0 -0r- r-r- r- r-ul- ul- ul-n- n-l

Jul

JulprAp Ap Ap Ap ApOct aa Oc Oc Oc Oca a aaJ J JAJ J JJ J J

Source: Compiled using data from Massport, Statistics for Logan Airport, “About Logan,” www.massport.com.


REMI 5-County Region

Source: Adapted from University of Texas Perry-Castaneda Library Map Collection and U.S. Census Bureau


Logan Airport Industry SectorsUnforeseeable Events

Research Questions

Explore interactions between the Boston regional economy and Logan Airport over 20 years. Specifically:

– The impacts of industry expansion on Logan airport output and jobs

– The impacts of unforeseeable events, e.g., terror warnings on air travel and regional economy

Logan Airport Unforeseeable Industry Sectors Events


Research Questions

Baseline forecast

Growth scenario

– Consider growth 5% above baseline in identified sectors and use REMI to determine impact on air transportation sector

– Consider growth 10% above baseline in identified sectors and use REMI to determine impact on air transportation sector

Security uncertainty scenario

– Consider impact of Homeland Security “Orange” alerts on air travel and use REMI to determine impact on regional economy


Methodology:Criteria for Identifying Sectors

Sector’s share of the regional economy and growth trends – Share of jobs (%) – Growth in job share

Sector’s reliance on air transportation services – Air travel cost as a percentage of total industry revenue – Employee annual air travel trips

Sector’s significance to the air transportation-services industry – Sector spending on air services as a percentage of total output of air

services


Methodology:Job-Share for Selected Sectors, 2000

Job-share for selected industries in 2000:Suffolk County, Boston Metro, and US

(%)

18.0

16.0

14.0

12.0

10.0

8.0

6.0

4.0

2.0

0.0

l USSuffo k County 5-County Metro

FIRE Medical Prof. Service Education Comp, Electr Air mfg Tranportation

Source: Authors' calculations based on the baseline regional and national controls in REMI 5.4, © 2003


Methodology: Job-Share for Selected Sectors 2020

Job-share for selected industries in 2020:Suffolk County, Boston Metro, and US

(%)

18.0

16.0

14.0

12.0

10.0

8.0

6.0

4.0

2.0

0.0

l USSuffo k County 5-County Metro

FIRE Medical Prof. Service Education Comp, Electr Air mfg Tranportation

Source: Authors' calculations based on the baseline regional and national controls in REMI 5.4, © 2003


Methodology: Industry Reliance on Air Services

Index of industry spending on air services as a proportion of total revenue, 1996

Data Source: US Department of Commerce and BTS in EDR Group, 2001 Logan International Airport’s Evolving Role in New England Economy.



Annual air passenger trips per employee (by industry), 1998

Business service

Management service

Manufacturing/ High tech

Communications

Finance

Retail Trade

Other Services

Construction

Education

Health Service

Values reflect averageannual air passenger trips

per employee Real Estate

0 1 2 3 4 5 6 7 8 9

Data Source: Massport in EDR Group, 2001 Logan International Airport’s Evolving Role in New England Economy.



The regional Boston economy’s dependence on air services is increased by transition towards a knowledge-based economy, which includes

– Professional services (e.g., engineering services, legal services) – Financial services – Technology (Information Technology, Biotechnology) – Education

Boston exports services of knowledge-based sectors

Finance, professional services, and computer manufacturing are among the industries that purchase the most air services

Employees in the education and healthcare sectors purchase air services at an average level; however, non-employee travel (e.g., student and patient travel induced by the sectors) not included


Methodology: Industry’s Significance to the Air Services Sector

l i

i

i l i

i ls

li

ini i i

il

iti

iti

/el i

Ai ion

i i

(% )

Industries with high share of total air service demand in Boston Metro

0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00

Real estate

Insurance

Ambulatory hea th care serv ces

Construct on

Educat ona serv ces

Hosp ta

Pub shing

Adm strat ve, support serv ces

Reta trade

Monetary author es, et al.

Wholesale trade

Secur es

Computer ectronic manufactur ng

r transportat

Profess onal Serv ces

Source: Authors' calculations based on data from REMI Policy Insight Version 6.0.100, © 2004


Methodology:Key Sectors Identified

Key sectors for Boston's economy and the air-services industry include:

FIRE, professional services, healthcare, education, and computer/electronics manufacturing.

The five sectors jointly account for more than one-third of total jobs in Boston Metro

Each of the five promising key growth sectors has a greater than average or average reliance on air services

They together account for nearly half of the industry demand for air services in the region (industry represents about 1/3 of total passenger demand)


Scenario I: Base Case Assumptions

REMI data for 2002-2020 forecast is based on historical trends and data gathered from the Bureau of Economic Analysis, Bureau of Labor Statistics, and US Census Bureau

No significant shocks to regional economy or air transportation sector

Jobs in “air transportation” sector are directly associated with air transport at Logan Airport

Demand structure for Logan Airport service remains constant (e.g., proportion of travel for business)


Scenario I: Base Case Results

Scenario I: Air transportation sector baseline REMI forecast, 2002-2020

12

10

8

6

4

2

0

Jobs (000's)

Output ($ billions) Output (1996 $ billions) Jobs (thousands)

220

0 3 420

520

620

0 7 820

920

0 120

1 2 320

1 4 520

1 6 720

1 8 920

2 000 00 00 01

01 01 01 010 0 0 1

2 2 2 2 2 2 2 2

Year



Scenario I: Base Case Results

Total job loss of 1,400 in air-services sector (Boston Metro) by 2020 (~13%)

Output nearly doubles

Perhaps reflective of increasing automation of in-airport services and location of airline service jobs in remote locations

Because Logan is a destination airport and not a hub, increase in output likely reflects increasing demand for travel from within Boston and to Boston from other locations


Scenario II: Growth in Knowledge Sectors Assumptions

Assume higher growth than in the baseline forecast, as represented by the following industries: – Hospitals – Education services – Securities, common contracts, and investments – Monetary authorities – Insurance – Professional Services – Computer and electronics manufacturing

Assume uniform percentage change in export growth across the 5-county region (5% and 10%)

Assume new travel associated with growth in knowledge sectors is business travel (e.g., induced demand for air travel is negligible) – Except for CEM sector, whose demand for air travel is mostly cargo-related – Assume 75% of new growth is business-travel growth


Scenario II: Growth in Knowledge Sectors Variables

Exogenous Change Change in REMI Variables

Additional growth in exports as 5% or Output Block

10% of industry output >> Industry Output

>> Industry Sales / International Exports (share)


Scenario II: Growth in Knowledge Sectors Individual Results

Growth in Air Transportation due to 5% growth in knowledge sectors individually

Perc

ent G

row

th in

Out

put o

f Air

Tran

spor

tatio

n Se

ctor

0.9%

0.8%

0.7%

0.6%

0.5%

0.4%

0.3%

0.2%

0.1%

0.0%

-0.1%

ing

iti

i i

l

iti

l

i ls

i ii

l i

G

Computer Manufactur

Secur es

Profess onal Servces

Who esale Trade

Monetary Author es

Educational Services

Retail Trade

Rea Estate

Insurance

Hosp ta

Adm nistrat ve & Support Servces Ambu atory Servces

Oil & 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Year



Scenario II: Growth in Knowledge Sectors Joint Results

Impact on Air Transportation of growth in selected knowledge sectors

6%

5%

4%

3%

2%

1%

0%

Output Growth (10% Scenario)

Job Growth (10% Scenario)

Job Growth (5% Scenario)

Output Growth (5% Scenario)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Year



Scenario II: Growth in Knowledge Sectors Results

Under 5% growth of knowledge sectors, total job loss in base case is offset somewhat by addition of about 300 jobs in 2005. By 2020, reduction in jobs is fewer than 1100.

Under 10% growth of knowledge sectors, total job loss in base case is offset by addition of 600 jobs in 2005. By 2020, reduction in jobs is fewer than 900.

Proportion of business travelers shifts slightly for years 2005-2020 according to table below:

Base Case 5% Growth 10% Growth Scenario Scenario

Leisure (%) 44.0 43.1 42.4

Business (%) 56.0 56.9 57.6


Scenario III: Orange Alert Assumptions

Homeland Security implemented a color-coded terrorism advisory system in March 2002

Terror levels have remained at yellow, or “elevated,” except for 5 periods when the alert was raised to orange, or “high.” These occurred: – September 10-24, 2002 – February 7-27, 2003 – March 17-April 16, 2003 – May 20-30, 2003 – December 21, 2003-January 9, 2004

Relative declines in passenger volumes at Logan Airport were observed during these periods, as compared to the historical share for the months involved.



Monthly Share of Passengers

Si l98-00 Average

nce Orange A ert

Orange-alert periods

11.0%

10.5%

10.0%

9.5%

9.0%

8.5%

8.0%

7.5%

7.0%

6.5%

6.0%

Shar

e

2 2 3 3 402Aug

02 02Feb

03Aug

03 03Feb

04Aug

043 4

r-0 0 r-0 0 -00 0

ct- ct-n c- un- c- -

un-prp pDe eu O OA A ADJ J J

Month

Source: Data compiled from Massport, Statistics for Logan Airport, “About Logan,” www.massport.com


MIT 11.482J Logan Airport TeamDec 2004 27

Scenario III: Orange AlertAssumptions

0.0020.0700.068February-04

-0.0020.0630.065January-04

0.0070.0790.072December-03

0.0000.0800.081November-03

0.0030.0950.092October-03

-0.0040.0790.083September-03

0.0010.0980.097August-03

0.0010.0960.094July-03

0.0010.0910.091June-03

-0.0030.0830.086May-03

-0.0020.0840.086April-03

-0.0030.0810.085March-03

-0.0020.0660.068February-03

0.0020.0670.065January-03

0.0060.0780.072December-02

-0.0050.0760.081November-02

-0.0020.0910.092October-02

-0.0030.0800.083September-02

0.0040.1010.097August-02

0.0010.0960.094July-02

0.0020.0920.091June-02

0.0010.0880.086May-02

0.0010.0870.086April-02

DifferenceActual share for monthHistorical Average Share for monthMonth

Source: Data compiled from Massport, Statistics for Logan Airport, “About Logan,” www.massport.com


Based on monthly share losses, assume 150 thousand passenger loss per orange alert

Based on historical trend of 5 orange alerts in 2.5 years, assume 2 orange alerts per year from 2005-2010

Based on current volume of ~23 million passengers per year, a loss of 300,000 passengers represents roughly a 1% decline in travel

In REMI, assume a decline of 1% in output of air transportation for each year from 2005-2010 (Suffolk County only)

Measure impacts of this change on the Boston region


Scenario III: Orange Alert Variables

Exogenous Change Change in REMI Variables

Decline of 1% in output of air Output Block

transportation >> Industry Output

>> Industry Sales / Int’l Exports (share)


Scenario III: Orange Alert Results

Jobs Lost under Orange Alert Scenario

Jobs

0

-20

-40

-60

-80

-100

-120

2005 2006 2007 2008 2009 2010

Ai i

i

i i

r Transportat on Jobs

Food Serv ce Jobs

Adm nistrat ve Support Jobs

Year



Scenario III: Orange Alert Results

Difference in output from base under Orange Alert

Air Transport Output 0

-5

-10

-15

-20

-25

-30

-35

-40

Total GRP

2005 2006 2007 2008 2009 2010 Year


1996

$ (m

illio

ns)


Conclusions

Our Logan Airport team has determined interdependencies among identified industry sectors and the air-services sector using three scenarios

The key growth sectors all have greater than average or average reliance on air services, and together account for more than 50% of industry demand for air services in the region

Interdependence between industries has been explored through linkages between identified industry sectors and the air service sector via 3 scenarios

Impact of Homeland Security alerts is small, but noteworthy. Correlation between alerts and economic performance should be examined in more detail

Further growth in business travel, though modest, implies that a continued focus on business travel-oriented services at Logan is appropriate


Selected References

Boston Redevelopment Authority Publication. 1 September 2004. The Boston Economy 2004 Turning the Corner.

Boston Redevelopment Authority Publication. 1 October 2003. The Boston Economy - 2003. Boston Redevelopment Authority Publication. 1 January 2003. Leadership Through Innovation: The

History of Boston's Economy: 1970-2000. EDR Group. 2001. Logan International Airport’s Evolving Role in New England Economy. Harrison, B., and J. Kluver, 1989. “Deindustrialization and Regional Restructuring in

Massachusetts.” In Deindustrialization and the Regional Economic Transformation: The Experience of the United States, edited by Lloyd Rodwin and Hidehiko Sasanami. Boston, MA: Unwin Hyman, pp. 104-131.

Leonard, P., Modicamore, D., and G.W. Perkins, 2004. The Boston Economy 2004 - Turning the Corner. Boston Redevelopment Authority Publication # 599.

Lewis, G., Avault, J., and J. Vrabel, 1999. History of Boston's Economy: Growth and Transition 1970-1998. Boston Redevelopment Authority Publication # 529.

Massport. 2004. Logan Airport Statistics, “About Logan.” www.massport.com. REMI Policy Insight Model, Version 5.4, © 2003. REMI Policy Insight Model, Version 6.0, © 2004. Rickman, D.S. and R.K. Schwer, 1995. "A Comparison of the Multipliers of IMPLAN, REMI, and

RIMS II: Benchmarking Ready-Made Models for Comparison," The Annals of Regional Science, Vol. 29, No. 4, pp. 363-374.

U.S. Census Bureau. 20 December 2003. Population in Metropolitan and Micropolitan Statistical Areas in Alphabetical Order and Numerical and Percent Change for the United States and Puerto Rico: 1990 and 2000. http://www.census.gov/population/cen2000/phc-t29/tab01a.pdf


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