Evaluating the Attractiveness and Growth Potential of America’s Secondary Airports
Mazen Chaanine CPLN 680 | Final Project
University of Pennsylvania Department of City & Regional Planning 2015 Š
TABLE OF CONTENT Abstract
4
Overview
5
Background
5
Objective
5
Methodology
6
Scope
6
Data Preparation
7
Results
9
Distance-Based Attrativeness
9
Socio-Economic Attractiveness
12
Financial Attractiveness
15
Passenger Attrativeness
16
Conclusion
18
References
19
3
ABSTRACT This project identifies and ranks the most attractive airports in the United States, those with the highest growth potential and capacity to lure investors. In particular, twenty secondary airports are examined, defined as those that serve metropolitan areas with a population between one and two million. Using ArcGIS, attractiveness indices are generated and subsequently mapped. These indices are based on geographic location, regional demographic and economic growth, enplanement growth, and airport financials. The results, which include a performance ranking of secondary airports, identify Austin, Salt Lake City, and Oklahoma City airports as the most attractive, having reported normalized attractive indices of 1.00, 0.72, and 0.60 respectively. While these outcomes may serve as a reference for investors seeking to capitalize on future airport expansions, the report recognizes that other factors, which were not considered in this case, have an equal influence on airport growth.
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OVERVIEW BACKGROUND The US aviation sector is a major driver of the nation’s economy, catering for an ever-increasing passenger base. American airports are among the busiest in the world in terms of both passenger volume and aircraft movement. They facilitate the efficient movement of millions of people across vast distances, catalyzing economic growth, and strengthening the bonds between communities, regions, and nations. Overall, the 485 commercial airports in operation today support 9.6 million jobs with a yearly payroll of $358 billion, and produce $1.1 trillion in annual output. Indeed, these are impressive contributions to the national economy, all of which highlight the role of airports as economic engines for cities, counties, and states (CDM Smith, 2013).
one and two million. Because airport growth often translates into capital expansions, the support of the private sector will be crucial in securing funding, made primarily through the issuance revenue bonds. Therefore, the evaluation presented in this report hopes to provide greater information on secondary airport performance for investors seeking lower risk and higher returns on their bond purchases. In order to provide an effective assessment, attractiveness indices will be developed and then mapped. These are built upon geographic location, regional demographic and economic growth, enplanement growth, and airport financials. The outcomes will feature, among others, a ranking of twenty secondary airports based on their overall performance with respect to their attractiveness indices.
Beyond the existing and well-established primary hubs such as those in Atlanta, Chicago, and New York, other well-to-do, medium-sized airports are showing signs of rapid growth. This is the case for Salt Lake City International, Austin Bergstrom International, and Nashville International. If this growth persists under current trends, capital investments in future expansions should be anticipated, including the addition of new runways and terminals, or the construction of rail connections to the airports.
OBJECTIVE This project intends to identify and rank America’s most attractive secondary airports, those with the highest predisposition to grow. As a side note, secondary airports will be defined as those serving metropolitan areas with a population between
• Austin Bergstrom International 5
METHODOLOGY SCOPE
International, a promising facility that has witnessed noticeable growth in the past decade.
The first step of this analysis requires identifying the focus airports. As previously mentioned, secondary airports are defined here as those serving metropolitan areas with a population ranging from one to two million. Using 2013 estimates from the Census Bureau, we locate 20 of these cities along with their respective major airports (Map 1).
Intuitively, a number of factors appear to contribute to airport growth and attractiveness:
A quick overview shows a greater concentration of secondary airports in the Southeast, Midwest, and Northeast. This should come as no surprise given these regions’ high population density. That being said, the Mountain states are home to Salt Lake City International, a principal hub for Delta Airlines and the busiest airport in the list. Similarly, the Southwest region features Austin Bergstrom
•
Geographic location: -- An airport can be more attractive the further away it is from other regional competing facilities, and vice versa.
•
Hubbing nature: -- Airports designated as hubs by specific airlines have stronger tendencies to expand. This is the case for Salt Lake City International, the fourth largest hub for Delta Airlines.
•
Socio-economic conditions: -- Population growth in a metropolitan area or region can induce higher demand for air travel.
Map 1 - Focus Secondary Airports
ROCHESTER
MILWAUKEE O
BUFFALO
OO
HARTFORD
O O
O
PROVIDENCE
COLUMBUS
SALT LAKE CITY
INDIANAPOLIS
O
LOUISVILLE
O SAN JOSE OKLAHOMA CITY
O
O
O
O NASHVILLE MEMPHIS O
RICHMOND O
O NORFOLK
O RALEIGH
O BIRMINGHAM AUSTIN
O
NEW ORLEANS
O
O JACKSONVILLE
Regions Pacific
Midwest
Mountain
Southeast
Southwest
Northeast
6
-- A similar assumption can be made for growth in employment, and metro-wide GDP. •
Financial performance: -- Airports with historically high profit margins are generally more viable investment alternatives.
•
Other factors: -- Airport capacity, which depends on the availability of developable land. -- Landing fees, depending on their level of competitiveness as far as airlines are concerned.
For the purpose of this project, only the first four factors will be used in the various analyses. That being said, the report recognizes the equal importance of other factors in determining airport attractiveness. These could serve as a basis for a future evaluation.
DATA PREPARATION Moving forward, a number of indices are generated to quantify and map the impact on airport growth and attractiveness. These are normalized figures on a scale of 0 to 1, using data on the factors presented above. The normalization formula is as follows:
With
2. Population Index, estimated by normalizing population growth of the twenty metropolitan areas between 1990 and 2012, and obtained from the Bureau of the Census. 3. GDP Index, the normalized GDP growth rates of the twenty metropolitan areas between 2001 and 2012, from the Bureau of Economic Analysis. 4. Unemployment Index, computed by normalizing the inverse of metropolitan unemployment rates as of 2015, and provided by the Bureau of Labor Statistics. 5. Financial Performance Index, the normalized profit margins of secondary airports in their latest annual reports. Profit margins are defined as the ratio of net revenue to total revenue. 6. Enplanement Index, the normalized enplanement growth rates at secondary airports between 1992 and 2012. Passenger enplanement is defined as the total number of passengers who have boarded an aircraft at a given airport. This data is made available by the Federal Aviation Administration and Airports Council international - North America.
being the normalized value of , the smallest value in the dataset,
and
, the largest value in the dataset.
The indices include: 1. Airport Proximity Index, computed by taking the sum of the Euclidean distances between the focus airport and its competing secondary airports. This figure is obtained with the help of the Point Distance tool on ArcGIS. The closer the resulting index is to 1, the further the airport stands from regional competitors, and the more attractive it becomes. Conversely, the closer the index to 0, the less attractive the airport.
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Richmond International
RESULTS DISTANCE-BASED ATTRACTIVENESS
Table 1
Using the Kernel Density tool to plot the Airport Proximity Index, a first map is generated (Map 2). Unsurprisingly, the most isolated, and hence attractive, airports are located in the Pacific and Northeast regions. The highest scoring ones are in San Jose, Salt Lake City, Austin, and Providence (Table 1). That being said, there appears to be a flaw in this approach. Although some airports are indeed isolated with respect to other secondary airports, they are in fact located very close to primary hubs This is the case for San Jose, situated only 30 miles away from San Francisco International. The same holds for Providence, only 50 miles from Boston Logan airport. Map 2 - Normalized Distance-Based Attrativeness
MILWAUKEE SALT LAKE CITY
OO
O
HARTFORD
O
O O PROVIDENCE
COLUMBUS
O
O
O
O SAN JOSE OKLAHOMA CITY
NASHVILLE
O
MEMPHIS
RICHMOND
O
O
O
O
O O
AUSTIN
Attrativeness Level High
O
NEW ORLEANS
JACKSONVILLE
O
O
Best Performing Airports 1) San Jose (Index = 1.00)
Medium
2) Salt Lake City (Index = 0.66)
Low
3) Austin (Index = 0.27)
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To get a better sense of the proximity of secondary to primary airports, 140-mile buffer rings are added (Map 3). This distance represents the furtherst one would be willing to travel by car to reach an airport. Consequently, all secondary airports that intersect with these buffers must undergo a cutback in their initial Airport Proximity Indices, to better reflect the negative pressure from primary airports. They are shortlisted in Table 2.
Table 2
The next step consists of quantifying the cutbacks for impacted secondary airports. First, the distance in decimal degrees between secondary airports and their impacting primary hubs is determined. This figure is then inversed and multiplied by 100. The resulting product now serves as the “excess airport weight� that needs to be deducted from the sum of distances computed in Table 1. The entire procedure is summarized below:
3. Deduct from initial sum of distances obtain adjusted figures:
to
After incorporating this procedure to all secondary airports, the new sums of distances are once again normalized and mapped (Table 3 & Map 4).
1. Determine distance between shortlisted secondary airport and primary hub(s);
Various changes can be seen on the adjusted map. First of all, San Jose loses its ranking as best performing secondary airport. Its very close proximity to San Francisco International drastically cut down on its attractiveness index, allowing Salt Lake City to take the lead. A similar trend was witnessed at
2. Inverse value and multiply by 100, to get:
Map 3 - Primary Airport Impacts on Secondary Airports
o
MINNEAPOLIS
Milwaukee Salt Lake City
O
o
o
o
CHICAGO
DENVER
o LOS ANGELES
Hartford NEWARK
Indianapolis
O
SAN FRANCISCO
oO San Jose
BOSTON
DETROIT
O
O OoProvidence
oo NEW YORK o PHILADELPHIA
O
Columbus
LAS VEGAS
o
o
PHOENIX
o
DALLAS
o Austin O
o
HOUSTON
O
Birmingham
o
O Raleigh-Durham
CHARLOTTE
ATLANTA
O Jacksonville
o MIAMI Legend
o
Primary Airport (DENVER)
O
Secondary Airport (San Jose) Buffer (140 Miles)
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Milwaukee, whose fairly close distance to Chicago O’Hare caused its ranking to drop, and at Austin Bergrstom as well. Although Austin’s attractiveness index technically increased, it was nonetheless surpassed by a number of Midwestern and Southern airports. In fact, a swath of attractiveness developed in both these regions, which pushed airports in Jacksonville, New Orleans, and Nashville up the ranks. Table 3
Map 4 - Adjusted Normalized Distance-Based Attrativeness
MILWAUKEE SALT LAKE CITY
O
BUFFALO O
ROCHESTER
O
HARTFORD
O
INDIANAPOLIS
O
LOUISVILLE
O SAN JOSE OKLAHOMA CITY
O
O O PROVIDENCE
COLUMBUS
O
O
RICHMOND
O NASHVILLE
O
O NORFOLK
O
RALEIGH-DURHAM
MEMPHIS O BIRMINGHAM O
AUSTIN
Attrativeness Level
O
NEW ORLEANS
JACKSONVILLE
O
O
Best Performing Airports
High
1) Salt Lake City (Index = 1.00)
Medium
2) San Jose (Index = 0.45)
Low
3) Oklahoma City (Index = 0.43)
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SOCIO-ECONOMIC ATTRACTIVENESS
Table 4
POPULATION Metropolitan population growth is perceived as a major contributor to increases in passenger volumes at airports. In fact, most of the primary hubs in the country are located in urban areas with more than 5 million residents. Map 5 displays the normalized population growth rates at the 20 metropolitan areas being assessed, between the years 1990 and 2012. The fastest growing ones are evidently located in the South and Midwest. Over the last two decades, the city of Austin, ranked first, grew by a staggering 117%. It was closely followed by Nashville and Jacksonville, which have both witnessed substantial increases in demographics by 75% and 52% respectively.
Normalized Secondary MSA Population Growth (2012) Source: Bureau of the Census
Map 5 - Normalized Secondary MSA Population Growth (1990 - 2012)
MILWAUKEE SALT LAKE CITY
ROCHESTER
OO
O
O O
LOUISVILLE OKLAHOMA CITY
NASHVILLE
O
MEMPHIS
AUSTIN
O
NEW ORLEANS
O
O
RICHMOND
O
RALEIGH/DURHAM
O
O
O
O
BIRMINGHAM
Population Growth
O O PROVIDENCE
COLUMBUS INDIANAPOLIS
O SAN JOSE
HARTFORD
O JACKSONVILLE
O
O
Fastest Growing MSAs
High (> 40%)
1) Austin
Medium (5% - 40%)
2) Nashville
Low (< 5%)
3) Jacksonville
12
SOCIO-ECONOMIC ATTRACTIVENESS
Table 5
GROSS DOMESTIC PRODUCT (GDP) Metropolitan GDP holds once again a strong influence on airport passenger volumes. Figures for the cities under evaluation were obtained for the years 2001 and 2012, which represent the pre and post-recession era, and a growth rate was generated and then normalized. Map 6 shows similar trends to the one on population growth. Once again, cities in the South and Midwest witnessed the highest GDP growth rates. Austin topped the list with an impressive 93% growth level, followed by Oklahoma City at 91%, and Raleigh-Durham at 83%. In the Mountain region, Salt Lake City ranked fourth with a 79% rise in its GDP over the same timeframe.
Normalized Secondary MSA GDP Growth (2012) Source: Bureau of the Census
Map 6 - Normalized Secondary MSA GDP Growth (2001 - 2013)
MILWAUKEE SALT LAKE CITY
ROCHESTER
OO
O
O
O O PROVIDENCE
COLUMBUS INDIANAPOLIS
O SAN JOSE
HARTFORD
O
LOUISVILLE OKLAHOMA CITY
NASHVILLE
O
MEMPHIS
O
O
RICHMOND
O
RALEIGH/DURHAM
O
O
O
O
BIRMINGHAM O
AUSTIN
Population Growth
O
NEW ORLEANS
JACKSONVILLE
O
O
Best Performing MSAs
High (> 70%)
1) Austin
Medium (40% - 70%)
2) Oklahoma City
Low (< 40%)
3) Raleigh - Durham
13
SOCIO-ECONOMIC ATTRACTIVENESS
Table 6
UNEMPLOYMENT Although unemployment has less of a direct impact on airport growth than the previous factors, it is nonetheless interesting to compare their trends. Once more, mapped metropolitan unemployment rates as of February 2015 reveal very similar displays to maps 6 & 7. Areas with the lowest unemployment are situated in the South, Midwest, and Mountain regions. Yet again, Austin came out first with 3% unemployment, followed by Oklahoma City (4%), and Salt Lake City (5%).
Normalized Unemployment Rates (As of February 2015) Source: Bureau of Labor Statistics
Map 7 - Normalized Secondary MSA Unemployment Rates (As of February 2015)
! !
! !
!
3
!
!
! !
!
!
! !
2
!
!
! !
!
Unemployment Level Low (< 4.0%)
1
!
!
Best Performing MSAs 1) Austin
Medium (4.0% - 7.0%)
2) Oklahoma City
High (> 7.0%)
3) Salt Lake City
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FINANCIAL ATTRACTIVENESS
Table 8
As far as investors are concerned, understanding the financial performance of airports is crucial in their decision-making process, as they choose which airport revenue bond to purchase. Profit margins in 2013 were obtained, normalized, and mapped. The best financially performing airport is Memphis, having earned profit margins of 51%. In fact, Memphis International Airport is a global freight hub, home to FedEx Express, and generates considerable revenue from this sector. Richmond International and Austin Bergstrom International follow suit, with margins of 50% and 37% respectively. The least performing airports, in this case, were Jacksonville and Indianapolis, which recorded net losses in 2013.
Normalized Secondary Airport Profit Margins (2013) Source: Bureau of the Census
Map 9 - Normalized Secondary Airport Profit Margins (2013)
MILWAUKEE SALT LAKE CITY
O
OO
ROCHESTER
O O PROVIDENCE
O
INDIANAPOLIS
OKLAHOMA CITY
NASHVILLE
O
MEMPHIS
O
O
NEW ORLEANS
O
O
O
RICHMOND RALEIGH/DURHAM
O
O
O
O
BIRMINGHAM
AUSTIN
HARTFORD
COLUMBUS
LOUISVILLE
O SAN JOSE
Profit Margins
BUFFALO
O JACKSONVILLE
O
O
Best Performing Airports
High (> 30%)
1) Memphis
Medium (15% - 30%)
2) Richmond
Low (< 15%)
3) Austin
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PASSENGER ATTRACTIVENESS
Table 7
Growth in enplanement numbers is, perhaps, the most important of all attractiveness indicators, as it truly demonstrates the overall performance and health of airports. Map 8 shows the normalized growth rates in passenger enplanements between 1992 and 2012. It is interesting to note that many of the trends seen in previous sections can be corroborated here. Austin reported the highest growth in passenger enplanements over the last two decades, with a 113% increase. Indeed, in recent years, new flight routes began serving the facility, including a direct flight to London, bringing in more and more passengers. Other Midwestern and Southern airports also experience high growth rates, including most notably, Jacksonville (108%) and Milwaukee (81%), which did not seem much affected by its neighboring Chicago hub.
Normalized Enplanement Growth (1992 - 2012) Source: Bureau of the Census
Map 8 - Normalized Passenger Enplanement Growth (1992 - 2012)
MILWAUKEE SALT LAKE CITY
O
BUFFALO O
O
ROCHESTER HARTFORD
O
INDIANAPOLIS
O
LOUISVILLE
O SAN JOSE OKLAHOMA CITY
NASHVILLE
O
O O PROVIDENCE
COLUMBUS
O
O
RICHMOND
O
RALEIGH/DURHAM
O
O NORFOLK
O
MEMPHIS O BIRMINGHAM O
AUSTIN
Enplanement Growth
O
NEW ORLEANS
JACKSONVILLE
O
O
Best Performing Airports
High (> 60%)
1) Austin
Medium (15% - 60%)
2) Jacksonville
Low (< 15%)
3) Milwaukee
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Indianapolis International
CONCLUSION Evaluating the attractiveness of airports is a challenging task, given the multitude of factors that come into play here. Beyond the ones that were selected for this analysis, airline hubbing stands as another significant catalyst to airport growth. Indeed, some airports such as Atlanta thrived after being designated as hubs, while others such as Pittsburgh declined considerably after they were de-hubbed. Measuring hubbing activity remains, however, a difficult and uncertain task.
Table 9
As this report comes to an end, the various indices that were generated previously are summed up and normalized to obtain an overarching attractiveness index. Based on this analysis, the most attractive secondary airport is Austin Bergstrom International, followed by Salt Lake City International, and Oklahoma City’s Will Rogers World.
Map 10 - Most Attractive Secondary Airports
SALT LAKE CITY OKLAHOMA CITY
AUSTIN
NASHVILLE
RICHMOND
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REFERENCES Bureau of Economic Analysis Bureau of Labor Statistics Bureau of Census, American Community Survey Federal Aviation Administration, Terminal Area Forecast Airports Council international - North America Airport Websites
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