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strategic transportation & tourism solutions

Economic Impacts of Aviation: Catalytic Impacts Dr. Michael W Tretheway Chief Economist, InterVISTAS Consulting Group ACED Conference 20 September 2010


InterVISTAS Consulting Group Washington DC, Vancouver, London, the Hague • 80 employees • 8 offices in US, Canada, Europe, Caribbean • Specialities •

Air Service Development

Forecasting, Economic and Regulatory Analysis

Privatisation & Finance

Security and Borders Facilitation

Climate Change Strategy and Inventories 1


World GDP versus Air Traffic 7 6

World GDP Passengers Cargo Tonnes

Index (1970=1)

5 4 3 2 1 0 1970

1974

1978

1982

1986

1990

1994

1998

Source – International Monetary Fund and International Civil Aviation Organization.

2002

2006


World GDP versus Air Traffic 12

Index (1970=1)

10

World GDP Revenue Passenger Kilometres Revenue Tonne Kilometres

8 6 4 2 0 1970

1974

1978

1982

1986

1990

1994

1998

Source – International Monetary Fund and International Civil Aviation Organization.

2002

2006


Economic Impacts of Aviation • Direct •

A strong economic sector in its own right

• Indirect •

Contributor to tourism ($700b industry)

Contributor to logistics industry •

35% of trade value moves by air

• Catalytic •

improved aviation connectivity increases national productivity

4


Aviation Enhances Productivity Ultimately, aviation enhances productivity of economies by • providing better access to markets • enhancing communications and interactions between and within business • providing access to a larger labour pool

5


Methodology • Methodology developed for Measuring impact of information & communications technology investment on national productivity and economic growth •

ICT accounts for 5.4% of global economy

ICT contributes 25% of productivity growth

• Analysis •

Substantial academic literature

Data: cross section of national productivity •

With ICT investment

Model considers capital deepening

6


Methodology for ICT Studies • Analysis •

Substantial academic literature

Data: cross section of national productivity •

Labour productivity •

Capital deepening ICT Investment is a factor in capital deepening

Labour quality

TFP growth

Also analyse TFP growth and output growth

Test for causality (Granger type tests)

7


Methodology for Aviation Study •

Statistical regression analysis •

48 countries

9 years

Dependent variable (GDP per labour hour) •

Labour productivity is ultimately the source of standards of living

Independent variables •

Aviation connectivity index (supplied by IATA)

R&D spending as % GDP

Education spending as %GDP

Gross Fixed Capital Formation per worker

National fixed effect 8


Labour Productivity vs. Connectivity 60 North America and Western Europe Emerging Europe Developed Asia

50

Labour Productivity - GDP/Hour

Transitioning Asia and South America Developing Asia and Africa

40

30

20

10 Malta, Cyprus, Hong Kong, Singapore

0 0.0

0.2

0.4

0.6

0.8

1.0

1.2

Connectivity per $Billion of GDP

1.4

1.6

1.8 9


Labour Productivity vs. Connectivity North America and Western Europe

60

Excludes Malta, Cyprus, Singapore, Hong Kong

Emerging Europe Developed Asia Transitioning Asia and South America

50

Labour Productivity - GDP/Hour

Developing Asia and Africa

40

30

20

10

0 0.0

0.1

0.2

0.3

0.4

Connectivity per $Billion of GDP

0.5

0.6

0.7 10


Key Result • 10% increase in aviation connectivity per $GDP •

increases labour productivity by 0.07% •

Statistically significant

• Context for the ‘small’ number •

Poland •

Connectivity index increased 27%

E.g., Flights to UK increased from 58/week to 250 •

Cumulative increase in productivity: 0.19% •

Seats from 7,000 to 40,000

(us$600mn)

Impact on UK was $45mn 11


Key Results • Aviation Impact is smaller than ICT •

ICT investment is one of the largest drivers of economic growth and productivity

• But aviation impact is still strong and cumulative •

Sustained improved aviation connectivity drives •

Higher exports

Higher tourism (and the cash from tourism)

Anecdotal evidence suggests it drives higher export prices •

Higher shipment reliability or faster delivery time increases logistics value

12


Causality • Does aviation enable productivity and economic growth? •

Or is aviation driven by productivity and economic growth?

• ICT Sector •

Unambiguous causality: ICT investment drives growth

• Aviation •

Some authors find causality of aviation to growth/prod

We obtained inconclusive results •

Cannot establish that av connectivity causes productivity

But cannot establish the opposite

13


Causality • Does aviation enable productivity and economic growth? • Aviation •

Some authors find causality of aviation to growth/prod

We obtained inconclusive results

Cannot establish that aviation connectivity causes productivity

But cannot establish the opposite (growth drives aviation)

We find the ambiguity plausible •

Aviation clearly responds to economic growth

But improved connectivity enhances productivity and enables market access and growth

14


Economic Rate of Return Vancouver (YVR) example • Airport investment:

$ 506mn

• Aircraft capacity investment: $1,280mn • Air navigation investment:

$

19mn

• Total investment:

$1,805mn

• YVR Connectivity increased 25% •

Note that pax increased 34%

• RoR: 19.3% 15


Other RoR Examples

16


Copy of Study • IATA.org •

Economics •

Aviation Economic benefits

17


strategic transportation & tourism solutions

Thank You www.InterVISTAS.com

Economic Impacts of Aviation: Catalytic Impacts  

Presentation by Mike Tretheway at ACED Conference on September 20, 2010.

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