Orange County Business Council Links Prolonged Economic Prosperity To Having A Commercial Airport

By: Steven P. Erie, Ph.D. & Andrew M. Mckenzie, Ph.D.

By their nature, airports create a large number of dispersed benefits, e.g., numerous jobs created throughout the region, and a much smaller set of concentrated costs, e.g., traffic and noise around the airport. This benefit/cost structure can skew public debate about airports since it creates incentives for airport opponents, rather than supporters, to be heard. Over the last several years the Orange County Business Council has commissioned two studies of OCX's economic impacts in order to broaden the public discussion and debate of this important regional policy issue.

Since that time, the aviation capacity issue has begun to appear on the national radar screen, regional officials have studied demand and adopted a scenario for meeting it, southern California communities have begun to look more critically at alternatives for meeting demand (and have become more vocal about protecting neighborhood interests), and a new initiative designed to block OCX has circulated in Orange County (intended for the March ballot).

This report represents an update and refinement of these two earlier OCX studies. It builds upon their essential groundwork in specifying the potential contributions of OCX to the Orange County economy. Using the state-of-the-art regional air passenger demand allocation model (RADAM), we quantify the 2010 employment and dollar economic impacts associated with an 18.8 MAP OCX. Besides standard direct, indirect and induced employment impacts, high-tech catalytic impacts also are assessed. These various employment benefits are estimated for individual cities and unincorporated areas of Orange County using the RADAM methodology. Using a benchmark of the economic impacts of comparable mid-sized airports, we also estimate the dollar benefits of OCX to the Orange County economy as well as potential tax revenues to local and state governments. We also enumerate the non-quantifiable economic benefits such as lower airfares, reduced travel time, stress and costs, and greater opportunities for international trade. Finally, we place the OCX debate in the context of growing concerns about the adequacy of national and regional airport capacity. The study's major findings are as follows:

1) Orange County's airport problem is part of a nationwide aviation crisis caused by skyrocketing passenger volumes (up 37% since 1990) and stagnant airport capacity (up only 1%). The best solutions nationwide involve better use of regional airports and conversion of military bases, which feature large buffer zones.

Local politics has stymied attempts to build or expand airports. With forecasts of a 4.3% average annual growth rate for U.S. air passengers, from 694 million to more than one billion in 2012, the crisis will worsen. The demand/capacity imbalance is worst at major hubs, yet the hubs collectively have added just six new runways since 1990. Cancellations and delays, often related to capacity problems, cost airlines and their passengers nearly $6 billion annually. One remedy is to spread out flights by charging airlines steep "congestion" fees for peak-hour landings at busy airports. Yet, this short-term quick fix will increase airfares without adding new capacity.

Delay has many causes, including inefficiencies in the nation's air traffic control system and bad weather, but new runways offer the largest potential capacity gains. By 2010, rising passenger volumes will create a capacity demand equal to ten new airports the size of Atlanta International (the nation's busiest), yet there is insufficient federal funding for so many new airports. Lower-cost alternatives include greater use of existing, well-positioned regional airports and conversion of military bases, which offer the added benefit of large buffer zones.

2) Southern California's potential airport capacity shortfall (40% by 2025 relative to current capacity) is among the worst among major U.S. metropolitan areas. There is also a growing regional imbalance; new capacity primarily lies in less accessible peripheral areas. For Orange County, there are few viable alternatives to OCX.

The region has a combined capacity of 120 million annual passengers (MAP), yet even conservative forecasts suggest the region's air passenger demand will rise, 2000-2025, from 89 to 167 MAP. The shortfall has significant implications for Orange County air travelers, particularly if Orange County International Airport (OCX) is not built at the site of the former Marine Corps Air Station El Toro.

Los Angeles International (LAX) is the primary airport for the area, and is rapidly reaching its physical capacity. LAX is the third worst airport in the nation for delays, yet expansion no longer appears to be an option because of widespread political opposition. Ontario International has room to grow, and will serve growing air travel demand in the Inland Empire. In contrast, Burbank, Long Beach, and John Wayne are very small airports surrounded by dense urban development. They have reached current service levels only because of a lack of viable alternatives. There is plenty of capacity at March Global Port, San Bernardino International, Southern California Logistics, and Palmdale, but these airports are far from the coast where most air passenger demand originates. Camp Pendleton, also mentioned as an alternative, would never be abandoned or authorized for joint use by the Marines.

Orange County travelers frequently use airports outside the county for long-haul and international flights, adding time, inconvenience and expense to their trips. Now, growing freeway congestion and the air capacity crisis threaten to exacerbate the situation. Unless OCX is built, Orange County travelers face a significant deterioration in air service, and the area's economy may suffer.

3) The Southern California economy is increasingly dependent on air transportation, more so in Orange County than in the region as a whole. Without OCX, areas with greater airport capacity and access, such as the Inland Empire, are poised to attract Orange County's high-tech businesses.

A profusion of high-tech clusters, growing professional employment, high per capita incomes, and rising numbers of older residents with greater leisure time and discretionary income are pushing Orange County's air trip rates per capita significantly above the regional average. The high-tech sector is particularly air-dependent, and generates almost four times more air trips per employee than the county average. Overall, Orange County businesses are more likely than those located elsewhere in Southern California to ship by air; they generate about 30% of the region's air cargo by value. These airport-dependent businesses tend to be the same ones – high-tech, knowledge-based and time-sensitive – that have powered the county's economy over the past five years.

Provided local businesses have access to adequate international and air cargo service, the five-year outlook for the Orange County economy remains optimistic.

Key economic drivers are global trade, especially with Mainland China, and biotechnology. The recent slowdown, which is more severe in other areas of the country, is mitigated here by airport-reliant industries such as machinery, biotechnology, instruments, and electronics. While executives believe Orange County remains an attractive place to do business, they worry that conditions are slipping. Notably, the number who indicate they would move some or all of their operations outside the county within the next five years increased from 17% to 25%, 2000 to 2001, and was even higher (33%) in manufacturing.

To remain competitive, Orange County needs an airport at El Toro. The region's airport capacity crisis will hurt businesses across Southern California, but particularly those in Orange County. The county already foregoes considerable tourist revenue because of the lack of direct international airport access, and the failure to build OCX will make it difficult to attract and retain desirable, high-wage industries that are airport-dependent. Without OCX, increasing freeway congestion and growing ground access problems at other Southern California airports threaten to put Orange County businesses at a competitive disadvantage. In particular, the Inland Empire, with plenty of airport capacity and access, is poised to attract Orange County's high-tech businesses.

4) Orange County International Airport offers substantial economic benefits, including numerous high-wage, high-tech jobs. For 2001-2010, an 18.8 MAP OCX is forecast to create 68,648 jobs countywide-13,606 directly at OCX, 42,709 indirect and induced jobs, and 12,333 high-tech, high-wage catalytic jobs. OCX's indirect and catalytic employment is widely dispersed throughout the county. By 2010, OCX will generate $6.84 billion in economic activity, and nearly $450 million in annual local and state government tax revenues. Convenient airport access will help attract and retain desirable businesses.

We surveyed 24 airport impact studies from across the U.S. and selected three airports – Seattle/Tacoma, Charlotte/Douglas and Phoenix – based on their similarity to OCX in both size and markets to establish benchmarks for economic impact and direct jobs. Applied to an 18.8 MAP OCX, this approach suggests a $6.84 billion overall economic impact and 13,606 direct jobs. These are conservative estimates because the benchmark airports generated roughly 30% less economic activity than average. A broader benchmark (using ten airports) forecasts OCX generating $444 million annually in state and local tax revenues.

Overall, by 2010 OCX will sustain 68,648 jobs countywide. All 13,606 direct jobs are located at the airport. Both indirect jobs – which derive from activities related to the airport (and range from hotel clerks to freight forwarders)–and induced jobs–the "ripple" employment created by direct and indirect economic activity– are geographically dispersed. 42,709 such jobs are located within Orange County. 12,333 high-tech, high-wage catalytic jobs are likely to be created as businesses locate or expand near airports to reduce bottom-line costs and enhance their competitive edge. Over one-half of the catalytic employment will be created in Newport Beach, Irvine, Tustin and Lake Forest – cities close to OCX. Sixty percent of the catalytic jobs are high wage (over $60,000 annually).

OCX also offers considerable economic benefits that are not easily quantifiable. These include greater international trade opportunities, more convenient access to air cargo service, increased economic efficiency, higher property values, greater accessibility to markets, and reduced shipment time and costs. Orange County travelers would also benefit from reduced travel time to and from the airport, lower airfares, and greater availability of flights to a wider variety of destinations.