06-Feb-2015 6:31 PM

Europe's airports. Economic impact – the theory and the practice; ACI Europe report. Part 1

Analysis

In Jan-2015 Airports Council International Europe (ACI Europe) released a new study on the Economic Impact of European airports. It is billed as the first economic impact study to consider the direct, indirect, induced and catalytic economic impacts of airports across Europe. The study is published as the European Commission conducts a review of aviation policy and prepares a new Aviation Package.

The objective of the study was to demonstrate that airports and their associated aviation partners are not just providing a service to other industries and the travelling public but that they are in fact a key driver and facilitator of economic growth and prosperity in today's globalised world. The study and ACI document are considered within the context of a real life impassioned debate taking place in the UK right now concerning the relative value of regional airports, and of air connectivity, to trade.

Summary

Airports have the ability to generate wider economic benefits beyond their direct impact on the economy.
European airports contribute to the employment of 12.3 million people and generate €675 billion of GDP annually.
LCC passengers generate 20% less jobs than non-LCC passengers due to lower staffing levels and reduced passenger spending.
There is a positive relationship between air connectivity and GDP per capita, with a 10% increase in connectivity associated with a 0.5% increase in GDP per capita.
The catalytic impacts of airports in Europe generated approximately €426.7 billion in GDP, accounting for 2.6% of the total GDP of European countries in 2013.
Without European airports and their diverse connectivity, the economies of European countries would not be as large, affluent, or diverse as they are today.

This is Part 1 of a two part summary. Note: This is a review of the Executive Summary and also some elements of the synopsis developed by ACI Europe and entitled The Impact of an Airport.

Airports have a particular ability to generate wider economic benefits

In brief, the study set out independently to quantify and document the economic contribution of the airport industry. It identifies airports as natural job-intensive locations which have a direct impact on the economy, but also looked at the significant indirect, induced and catalytic impacts of airport activities. It takes the view that what sets airports and their associated aviation partners (airlines, ground handlers, retailers, air traffic control, etc) apart from most other sectors is their ability to facilitate and generate wider economic activities.

This specific ability boosts overall national and European economic performance - reflecting the role of air connectivity in delivering increased trade, greater investments, more tourism activity and better productivity overall.

By way of explanation direct, indirect, induced and catalytic economic impacts may be interpreted thus:

Type of impact	Description of typical impact
1 Direct	The activities required to provide the product. Operation of airlines and airports (technical support and handling, catering, fuel, security and cleaning); commercial activities (shopping, restaurants, motor vehicle rental, parking); land transport and air cargo
2 Indirect	Sub supplies (goods and services) to direct activities that are covered in the region. They include: wholesalers providing food for in-flight catering, oil refining activities for jet fuel, companies providing accounting and legal services to airlines, travel agents booking flights, and so on.
3 Induced	Impacts of income generated by direct and indirect effects especially by private consumption, (i.e. spending by employees in activities 1 & 2). For example, an airline employee might spend his/her income on groceries, restaurants, child care, dental services, home renovations and other items which, in turn, generate employment in a wide range of sectors of the general economy.
4 Catalytic	Captures the way in which the airport facilitates the business of other sectors of the economy through a number of mechanisms such as: a-Location impacts (firms and labour), e.g. industrial/commercial investment decisions; b- Tourism and trade (e.g. export markets) [demand side]; c- Productivity. Air transportation offers access to new markets which in turn enables businesses to achieve greater economies of scale while air access also enables companies to attract and retain high quality employees. [supply side]

The first three effects reflect air transport as an economic activity in itself while the last effect arises out of air transport acting as a catalytic agent inducing economic development in other industries. 'Catalytic' may be regarded as a euphemism for 'wider economic benefits.'

This category 'catalytic effects' is a fairly recent one and suggests that air transport and airports are 'catalytic agents' stimulating economic activity in industries that are not directly derived from or connected to air transport activities. Catalytic effects may indicate how air transport might actually serve as a pre-requisite for economic activity and proponents of that theory would no doubt point to the rise of airport cities and their kindred aerotropolises, of which there are now in excess of 85 worldwide either operational or under development.

The catalytic category is more complex than the other three and can be subdivided into the subcategories in the table above.

Moreover, it goes without saying that, as with many other sets of economic measurement, impact studies and even their fundamental rationale have come into question. The principal objection to this kind of econometric analysis is the causal direction. In the classic chicken and egg scenario it is sometimes difficult to imagine which comes first, growth in air transport or growth in the economy. It is also often possible to make a strong case that economic activity would have taken place without the existence of a neighbouring airport and many economists are happy to do that.

However, such highbrow academic discussions are not considered here.

Europe's airports support 12.3 million jobs and USD434 billion in income

The study reveals that Europe's airports contribute to the employment of 12.3 million people earning EUR365 billion (USD434 billion) in income annually. Overall, they generate EUR675 billion of GDP each year - accounting for 4.1% of GDP in Europe. For every 10% increase in a country's air connectivity, GDP per capita is lifted by 0.5%.

(Separately, Avinor recently advised that 2.3% of employment in Norway, or around 60,000 jobs, are linked directly or indirectly to the aviation, in an environment where tens of thousands of jobs are threatened by the falling oil price).

The allocation of these Europe-wide jobs, income and GDP by category is described below

The number of jobs, income and GDP contribution in the vaguer 'catalytic' category is evident, amounting to 64%; 59% and 63% respectively.

Direct Impacts: day-to-day activities at airports in Europe employ almost 1.7 million workers

In the case of Direct Impacts, the Economic Impact Report (EIR) suggests that activities by the airport operator, the airlines, airport air traffic control, general aviation, ground handlers, airport security, immigration and customs, aircraft maintenance, and other airport related activities result in almost 1.7 million direct jobs in Europe.

The geographic breakdown of these jobs is provided in the chart below. The top five countries

(Germany, United Kingdom, France, Spain and Turkey), account for over half (53%) of this direct employment. The relatively small ranking of Spain and Italy, two big countries but both severely affected by economic difficulties, is notable, as is the relatively high ranking of Turkey, which has two fast-growing airports in Istanbul alone and a third about to commence construction.

Direct Employment at Airports in Europe, 2013

The report states that European airports are a source of a wide variety of job categories, with different positions spread on-site and off-site across the airports. A breakdown of direct jobs at airports in Europe, by employment type, is provided in the graphic below. In this figure it is perhaps a little surprising that the security function, which typically makes up a disproportionate segment of airport costs and which remains highly labour intensive, should amount to only 11% of the total number of jobs, including related customs and immigration jobs.

Direct Jobs by Employment Type

LCC passengers generate 20% less direct jobs than non-LCC passengers

One finding of the report that might be considered worrisome when analysing the amount of LCC traffic in Europe is that LCC passengers generate one fifth less jobs than do full service/network carriers. This may be due to the lower staffing levels at LCCs, reduced auxiliary services (such as in-flight catering and airport lounges), and reduced LCC passenger spending on commercial offerings.

This CAPA chart demonstrates the continuing growth until very recently of LCCs in Europe as measured by seat availability. (Note that the first quarter of the year is often one in which LCC aircraft are laid up, hence the dip).

European LCC capacity share (%) of total seats: 2003 to 2015 Jan-Feb*

On the other hand, although LCC passengers require less direct workers, LCC traffic has been for many airports and areas, the major if not sole provider of growth in recent years. In such cases this traffic has contributed to the catalytic impact of airports.

Other, less dramatic findings included that connecting passengers have a marginally smaller (3%) direct employment impact than do origin/destination passengers. This may reflect the fact that connecting passengers do not consume certain services at airports such as car parking, car rental and other ground transportation.

Moving on to include indirect and induced impacts, the report indicates the combined direct, indirect and induced employment generated by European airports is estimated at nearly 4.5 million jobs, earning a total of EUR146.9 billion in income (wages, salaries, bonuses and other remuneration), and contributing EUR 247.8 billion to GDP (1.5% of the total GDP of the countries in the study). This data is represented in the table below.

Direct, Indirect and Induced Economic Impact, 2013

Impact	Jobs	Income (EUR billions)	GDP (EUR billions)
Direct	1,696, 200	68.5	101.6
Indirect	1,353,100	39.9	69.7
Induced	1,401,100	38.4	76.4
Total	4,450,400	146.9	247.8

Econometric analysis demonstrates a significant relationship between the air connectivity supported by airports and economic growth

Concerning catalytic impacts, and using data on the aviation connectivity and GDP per capita for 40 countries in ACI EUROPE between 2000 and 2012, the report shows a positive relationship between connectivity and GDP per capita.

(The considerable 'scatter' of observations is not surprising, given that there are a large number of other factors that affect economic growth).

Relationship between Air Connectivity and GDP per Capita in Europe, 2000-2012

10% increase in connectivity associated with a 0.5% increase in GDP per capita

Econometric analysis was conducted to investigate further the relationship between connectivity and GDP per capita. This analysis found that a 10% increase in connectivity was associated with an increase in GDP per capita of 0.5%. Additional analysis found evidence that this relationship was two-way. That is, as an economy grows, it supports a larger air transport sector, but it is also the case that growth in air transport supports economic growth. Ergo, air transport is not merely following economic growth but also acting as a catalyst for growth.

Based on this econometric analysis, the catalytic impact of airports in Europe was estimated. A total of 7.9 million jobs are associated with the catalytic impacts of airports in Europe, earning EUR209.5 billion in income. The catalytic impacts of these airports generated approximately EUR426.7 billion in GDP. This is approximately 2.6% of the total GDP of the European countries in 2013.

The size of the catalytic impact as a proportion of the national economy varies greatly between countries from just 1.1% in Hungary to 7.1% in Cyprus. Countries with relatively large tourism industries tend to have larger catalytic impacts, such as Cyprus, Spain, Greece and Turkey, reflecting the importance of aviation to their tourism industries. (The impact in some of these countries has been in flux of course as tourism fell then rebounded to various degrees in accordance with the economic climate rather than the meteorological one).

In its own analysis, ACI Europe, making use of data in the full report, identifies top ranking European countries by international tourism and air connectivity.

Top Ranking European Countries by international tourism and air connectivity

Rank	International tourism ranking 1	Connectivity ranking 2
1	Spain	Germany
2	France	United Kingdom
3	Italy	France
4	Germany	Spain
5	United Kingdom	Italy

ACI Europe makes the point that tourism plays a huge role in countless communities across Europe. The European Commission considers Europe to be the world's number one tourist destination, and indeed the special role of the industry is even recognised in the Lisbon Treaty. The sheer scale of the industry should not be underestimated, it says - Europe welcomed 563.4 million international arriving tourists in 2013, with receipts of EUR368.4 billion, according to the United Nations.

Returning to the Intervistas report, it states that more remote or island nations also tend to have larger catalytic impacts (e.g. Malta, Iceland), suggesting the importance of air connectivity to integrating those nations with the global economy. (The report does not point out that both those countries are also heavily dependent on tourism and, in the case of Iceland, on air interconnectivity by way of transit passengers who often double as tourists).

"How might these economies look if they had substantially reduced air connectivity levels?"

The report asks, "How might these economies look if they had substantially reduced air connectivity levels?" For example, if many of the direct and highly frequent services did not exist, passengers would have limited or no options to travel to/from these countries, or would have to travel via other hub airports. In such a scenario, it is easy to imagine that tourism to these countries would be much lower, that the overall volume of trade would be substantially lower, and that some companies would choose not to locate or expand in these countries. The net effect of this would be smaller, slower-growing economies.

It insists that these figures are not attempting to credit airports solely with creating 2.6% of the European economy. These economies are far more complex than that. It takes a wide range of players acting together to generate economic growth - government, business, infrastructure providers, residents and others.

For example, if no one had decided to build large amounts of hotels in many of these countries, tourism would also be substantially lower; travel and accommodation are mutually dependent. What the estimates do show is that without European airports, and particularly without the diverse and affordable connectivity supported by these airports, the economies of these countries would not be as large, affluent or diverse as they are today.

Turning to Total Impact, the report finds that combining the direct, indirect, induced and catalytic impacts airports in Europe generate or facilitate over 12.3 million jobs earning a total of EUR356.4 billion and EUR675 billion in GDP, equal to 4.1% of GDP of Europe.

Total employment by country

Part 2 of this report will look at a range of items including the impact on employment of failure to provide adequate infrastructure.