Economic Impact of International Flights on Denver’s Economy SUMMARY

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Economic Impact of International Flights on Denver’s Economy
SUMMARY
The annual economic impact of a single daily flight to Denver International Airport varies
considerably by region of origin. Figure 1 below displays the anticipated impact of one
additional daily flight from Mexico, Europe and Asia. The annual benefit of a daily flight from
Europe would be 3.5 times greater than one from Mexico; that of a flight from Asia would be 5.5
times as large.
Figure 1
Annual Economic Impact of One Daily Flight to DEN
$142,425,029
$90,577,704
$25,732,652
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
$140,000,000
$160,000,000
Mexico Europe Asia
Origin of Flight
Annual Economic Impact
The difference in impact among the regions of origin results from two major factors:
􀁸􀀃 Carriers serving Asia and Europe use larger aircraft
Figure 2
Median Aircraft Size of US Departures
Flights to Mexico
Flights to Europe
Flights to A sia
0
50
100
150
200
250
300
350
400
450
Carrier
Seats per Aircraft
Economic benefits from air carrier expenditures are greater for carriers operating
larger aircraft, since they must pay more per flight for airport fees and services.
Larger aircraft also accommodate a larger number of visitors, resulting in a
correspondingly greater aggregate amount of visitor expenditures in the local
region.
􀁸􀀃 Trip directionality: Historical point-of-sale data shows that most passengers
traveling between Denver and Mexico are actually Denver residents visiting
Mexican destinations. In contrast, traffic on flights between Denver and Europe
or Asia shows a more favorable ratio of visitors to local residents.
Figure 3
Directionality of Denver O&D Traffic - 2000
60.7%
50.4%
24.0%
76.0% 49.6% 39.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Mexico Europe Asia
Origin or Destination
Denver Residents Traveling Abroad
Non-US Visitors to Denver
Visitors spend money on lodging, food, and entertainment in the Denver area,
contributing a sizable benefit to the local economy. In sum, an additional daily
flight from Europe or Asia will bring more visitors to Denver than one from
Mexico, because 1) the larger aircraft that would likely be employed would carry
more passengers, and 2) because among those passengers, a greater proportion are
likely to be visitors to Denver rather than local residents traveling abroad.
The remainder of this memorandum details the calculation of the total economic benefits shown
in Figure 1.
METHODOLOGY
To estimate the value of an additional daily flight from Mexico, Europe, and Asia, this study
analyzed three components of the total economic impact: a direct impact, an indirect impact, and
an induced impact. The direct impact consists of on-airport expenditures by passengers and
airlines resulting from a new daily flight, and is the simplest to project. The indirect impact
represents off-airport spending, particularly by the visitors brought to Denver by the additional
daily flight. Induced impact occurs as these on- and off-airport expenditures are received as
income and partially re-spent by Denver residents.
The greatest portion of the total economic benefit results from the indirect impact, as Figure 4
demonstrates below:
Figure 4
Annual Economic Impact of 1 Daily Flight at
Denver
$61,039,298
$38,819,016
$11,028,280
$72,693,082
$45,112,572
$11,665,946
$8,692,649
$6,646,116
$3,038,427
$142,425,029
$90,577,704
$25,732,652
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
$140,000,000
$160,000,000
Mexico Europe Asia
Direct (On-Airport)
Indirect (Of f-Airport)
Induced
This analysis formulated a most-likely scenario in which one new daily flight to Denver is added
from Mexico, Europe, and Asia. Consistent with Figure 2, which showed the most common
aircraft sizes used to serve US destinations, the scenario employs the following aircraft on an
assumed daily service:
􀁸􀀃 An Airbus A320 with 150 seats from Mexico
􀁸􀀃 A Boeing 777 with 300 seats from Europe
􀁸􀀃 A Boeing 747 with 400 seats from Asia
I. DIRECT IMPACT (On-Airport Expenditures)
The estimated direct impact resulting from an additional daily flight by region of origin is shown
in Figure 5. The direct impact of a new flight from Europe is projected to be over twice as great
as that of a flight from Mexico. A daily flight from Asia will yield a direct impact nearly three
times larger. The calculation is described below.
Figure 5
Direct Impact (On-Airport Expenditures)
$8,692,649
$6,646,116
$3,038,427
$0
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
$10,000,000
Mexico Europe Asia
Flight Region of Origin
Expenditures made on-airport are divided into two categories, reflecting the airport’s dual nature
as a public utility and as a venue for commercial activity. There are compulsory fees and
charges set by the airport or the government, paid for the use of the facility. Airlines and
passengers also make expenditures for goods and services provided by third parties on a
commercial basis.
A. Airport Charges
Airport charges at Denver are levied based on landings, landed weight, on-board passengers and
O&D passengers. Following are the operational parameters on which airport charges are based
in the most-likely scenario.
Figure 6
Aircraft Type: A-320 B-777 B-747
Seats per Aircraft: 150 300 400
Departures
Frequencies per Week: 7 7 7
Annual Departures: 365 365 365
Landed Weight
Weight ('000lbs): 162 650 850
Ann'l Landed Weight ('000lbs): 59,130 237,250 310,250
Passenger Traffic
Weekly Arriving Seats: 1,050 2,100 2,800
Annual Arriving Seats: 54,750 109,500 146,000
Load Factor: 70% 70% 70%
Arriving On-Board Psgrs: 38,325 76,650 102,200
Local Traffic
Percent f lying to Denver: 85% 80% 70%
Percent f lying beyond Denver: 15% 20% 30%
Arriving O&D Psgrs: 32,576 61,320 71,540
Operational Statistics - 1 Additional Daily Flight
Asia
To Denver From:
Mexico Europe
Due to greater landed weight and passenger traffic, a flight from Europe or Asia will generate
more airport charge revenues than a flight from Mexico over the course of a year:
Figure 7
Units Expenditure Units Expenditure Units Expenditure
Total Airport Charges: $2,326,723 $5,119,140 $6,784,430
Landing Charges $2.909 per 1000lbs 59,130 $172,009 237,250 $690,160 310,250 $902,517
International Facilities Fees
FIS Fee $4.48 per arrv intn'l psgr 38,325 $171,696 76,650 $343,392 102,200 $457,856
Gate-use Fee $1.78 per arrv/dep intn'l psgr 76,650 $136,437 153,300 $272,874 204,400 $363,832
AGTS & Tunnel Fee $0.78 per arrv O&D psgr 32,576 $25,409 61,320 $47,830 71,540 $55,801
Non-Preferential Gate-use $1.23 per 1000lbs 59,130 $72,730 237,250 $291,818 310,250 $381,608
APHIS A/C Inspection Fee $65.25 per landing 365 $23,816 365 $23,816 365 $23,816
Air Transportation Tax $13.20 per arrv/dep intn'l psgr 76,650 $1,011,780 153,300 $2,023,560 204,400 $2,698,080
Immigration User Fee $6.00 per arrv intn'l psgr 38,325 $229,950 76,650 $459,900 102,200 $613,200
Customs User Fee $5.00 per arrv intn'l psgr 38,325 $191,625 76,650 $383,250 102,200 $511,000
Agricultural Tax $3.10 per arrv psgr 38,325 $118,808 76,650 $237,615 102,200 $316,820
Passenger Facility Charge $4.50 per dep psgr 38,325 $172,463 76,650 $344,925 102,200 $459,900
Source: IATA Airport and Air Navigation Charges Manual
Annual Airport Charges Resulting from
Mexico Europe Asia
To Denver From:
1 Additional Daily Frequency
B. Airport Commercial Expenditures
Airlines and passengers at Denver also make on-airport expenditures for products and services
provided on a commercial basis. Ground handling and catering services for in-flight meals
represent the major commercial expenditures for airlines (major air carriers do not purchase fuel
from the airport). Passengers in the airport terminal spend money on food and beverages, retail
and duty-free merchandise, movies, and various other services.
Total annual expenditures on airline catering and ground-handling, as well as consumer
expenditures in the terminal, are estimated in the table below. Passenger spend rates were
determined by dividing total terminal expenditures by the number of enplaning passengers in
2000. Estimates of catering and ground-handling expense were derived from industry averages.
Figure 8
Mexico Europe Asia
Total Airport Services Expense: $711,704 $1,526,977 $1,908,219
Aircraft Type: A-320 B-777 B-747
Catering Expenditure
Annual Departing Seats: 54,750 109,500 146,000
Catering Factor: 75% 75% 75%
Annual Meals: 41,063 82,125 109,500
Premium Meal Percent: 5% 5% 5%
Premium Meals: 2,053 4,106 5,475
Economy Meals: 39,009 78,019 104,025
Expenditure per
Premium Meal: $8 $15 $15
Economy Meal: $4 $8 $8
Total Catering Expense: $172,463 $685,744 $914,325
Ground Handling
Annual Arrivals: 365 365 365
Ground-Handling Fee: $850 $1,050 $1,050
Total G-H Expense: $310,250 $383,250 $383,250
Passenger Expenditures at Airport:
Ann'l On-Board Departing Psgrs: 38,325 76,650 102,200
Spend Rate Per-Enplanement: $5.97 $5.97 $5.97
Total Psgr Airport Exp: $228,991 $457,983 $610,644
To Denver From:
Annual Airport Service Expenditures Resulting from
1 Additional Daily Flight
Due to larger aircraft size, greater on-board traffic, and longer flight times (requiring more meals
provided per flight), an additional daily flight from Europe or Asia will yield more airport
commercial expenditures than one from Mexico.
II. INDIRECT IMPACT (Off-Airport Expenditures)
Off-airport expenditures consist primarily of visitors to the Denver metropolitan area spending
money on food, lodging, entertainment, and other services. The visitor expenditure level
produced by an additional daily flight is a function of the average spending per visitor from the
region of origin, as well as the number of additional visitors that the flight brings to the Denver
area each year.
Figure 9
Indirect Impact (Off-Airport Expenditures)
$72,693,082
$45,112,572
$11,665,946
$0
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
$80,000,000
Mexico Europe Asia
Flight Region of Origin
`
The indirect impact of an additional daily flight from Europe or Asia is several times greater than
one from Mexico. The calculation follows in the sub-sections below.
A. Expenditures per visitor
The International Trade Administration of the US Department of Commerce conducts a quarterly
in-flight survey of international air passengers. Survey data compiled in 2000 indicate that total
trip expenditures by visitors from Mexico, Europe, and Asia are comparable:
Figure 10
Avg. Trip Expenditure per Visitor:
Transportation in US: $216 $198 $217
Lodging: $333 $443 $443
Food and Beverage: $243 $336 $281
Gif ts/Souvenirs: $327 $207 $396
Entertainment: $169 $147 $150
Other Spending: $156 $92 $187
Total per Visitor: $1,444 $1,423 $1,674
Source: US DOC In-Flight Survey
Average Expenditure per Visitor
by Region of Origin
To Denver From:
Mexico Europe Asia
B. Additional visitors to Denver
While average expenditures per trip among Mexican, European, and Asian visitors to the US are
similar, the number of additional visitors anticipated from a new daily flight is not. An
additional flight from Europe is expected to bring nearly four times more visitors to Denver than
a flight from Mexico. Over five times as many Asian visitors will arrive in Denver each year.
Figure 11
Additional Visitors to Denver from One
Additional Daily Flight
43,425
31,702
8,079
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
Mexico Europe Asia
Flight Region of Origin
The number of additional visitors was estimated by first calculating the on-board traffic
transported to Denver from the three regions of origin. Aircraft size and weekly frequencies
were determined earlier in this analysis by examining current carrier service practices from
Mexico, Europe, and Asia. This study assumed a 70% load factor.
Figure 12
Arriving Seats and Passenger Traffic (70% Load
Factor)
102,200
76,650
38,325
43,800
32,850
16,425
146,000
109,500
54,750
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
Mexico Europe Asia
Flight Region of Origin
Empty Seats
On-board Traff ic
Of these on-board passengers, many are flying to Denver as their final destination. Because
Denver functions as a hub for United and Frontier, however, a significant fraction will connect
through DEN to points beyond. These connecting passengers may make expenditures in the
terminal, as was assumed in Section I: Direct Impact. However, they will not contribute to
visitor expenditures in the Denver area and so are removed from consideration of the indirect
economic impact.
The percentage of international traffic connecting through Denver was determined with on-board
international passenger information, as well as itinerary-level origin-and-destination passenger
data. The analysis showed that on-board traffic from Mexico had the lowest connecting
percentage at Denver. Only 15% of on-board passengers from Mexico were connecting through
Denver, while 85% ended their journey there. 20% of traffic from Europe connected through
Denver, while 80% was local or non-connecting.
Because there is currently no passenger traffic coming directly from Asia to Denver, a
connecting percentage had to be estimated by comparing Denver to San Francisco, another
United hub that has a similar annual passenger volume. SFO’s connecting percentage of Asian
traffic was 45%, a plurality of which was bound for Las Vegas. Denver’s connecting percentage
of Asian traffic was estimated to be 30%, somewhat lower than SFO. Asian traffic will prefer
not to connect to Las Vegas through Denver, which require back-hauling. With 30% connecting
traffic, the local percentage of on-board traffic is therefore 70%.
Figure 13
Arriving Traffic: O&D vs. Connecting
71,540
61,320
32,576
30,660
15,330
5,749
102,200
76,650
38,325
0
20,000
40,000
60,000
80,000
100,000
120,000
Mexico Europe Asia
Flight Region of Origin
Connecting
O&D Psgrs
Of these passengers ending their journey at Denver, a portion represents Denver residents
returning from abroad, and the rest consists of visitors to the area. Only the visitors contribute to
visitor spending and the indirect economic impact of the new daily flight. Travel ‘directionality,’
that is, the percentage of Denver residents versus visitors among the Denver O&D passengers,
was calculated with point of sale information from the US DOT’s O&D passenger ticket survey.
With this data it is possible to determine the airport at which roundtrip passengers began their
journeys.
Among O&D passengers between Denver and Mexico in 2000, only 24% were found to be
Mexican visitors to Denver, while 76% were Denver residents visiting Mexico. The O&D travel
between Denver and Europe was more balanced, with 48% originating in Denver and 52% in
Europe. O&D travel between DEN and Asia was weighed toward visitors, with 39% Denver
residents and 61% Asian visitors.
Figure 14
Arriving O&D Traffic: Denver Residents vs. Visitors
43,425
31,702
8,079
28,115
29,618
24,497
71,540
61,320
32,576
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Mexico Europe Asia
Flight Region of Origin
Denver Residents
Visitors
Applying these directional percentages to estimated DEN O&D traffic yields the visitor figures
shown in Figure 14. Figure 15 below recapitulates the calculation of estimated annual visitors to
Denver brought by additional flights from Mexico, Europe, and Asia.
Figure 15
On-Board Traffic
Aircraft Type: A-320 B-777 B-747
Seats: 150 300 400
Frequencies per Week: 7 7 7
Weekly Arriving Seats: 1,050 2,100 2,800
Annual Arriving Seats: 54,750 109,500 146,000
Load Factor: 70% 70% 70%
Arriving On-Board Psgrs: 38,325 76,650 102,200
Local (O&D) Traffic
Percent flying to Denver: 85% 80% 70%
Percent f lying beyond Denver: 15% 20% 30%
Arriving Local Psgrs: 32,576 61,320 71,540
Directional i ty of Local Traffic:
Percent Originating in Denver: 75.2% 48.3% 39.3%
Percent Orginating Abroad: 24.8% 51.7% 60.7%
Visitors to Denver: 8,079 31,702 43,425
Sources: DOT T100 International, Database Products' Gateway and OD1A Datasets
Annual Visitors to Denver Resulting from
1 Additional Daily Flight
Mexico Europe Asia
To Denver From:
The number of Denver visitors resulting from a new daily flight from Europe or Asia would be
nearly four times greater than the number of Mexican visitors. This difference in new visitor
traffic would cause a similar asymmetry in the indirect economic impact of the flights:
Figure 16
Total Visitor Expenditures: $11,665,946 $45,112,572 $72,693,082
Annual Visitors to Denver: 8,079 31,702 43,425
Avg. Trip Exp. per Visitor:
Total per Visitor: $1,444 $1,423 $1,674
Source: US DOC In-Flight Survey
Mexico Europe Asia
Indirect Economic Impact Resulting from
1 Additional Daily Airline Flight
To Denver From:
The indirect impact of a new daily flight from Europe would therefore be about four times
greater than that of a flight from Mexico. A flight from Asia would yield visitor expenditures
over six times as large.
III. INDUCED IMPACT
The induced economic impact occurs as the direct and indirect expenditures described above are
received as income by local Denver residents. That income undergoes successive rounds of
partial re-spending, enhancing the benefit of the original economic infusion.
The magnitude of the induced impact depends on the fraction of the income, on average, that is
re-spent in the Denver area. Some of the income is saved and some of it leaves the Denver area,
at which point it escapes the cycle of spending and ceases to contribute to the induced impact.
The effect of this cycle is quantified in a ‘multiplier,’ the total economic benefit an area will
receive through rounds of spending for each original dollar of new income.
The appropriate multiplier to be used depends upon the industry and metropolitan area of
interest, each of which have their own characteristics. Consultation with the Economic
Development Research Group indicated that a proper multiplier for the travel and tourism
industry in the Denver metropolitan area is 1.75. Thus on average, 43% of every dollar received
is re-spent in the Denver area.
Figure 17
Induced Economic Impact (Multiplier = 1.75)
$14,704,373
$81,385,731
$51,758,688
$11,028,280
$61,039,298
$38,819,016
$142,425,029
$90,577,704
$25,732,652
$0
$20,000,000
$40,000,000
$60,000,000
$80,000,000
$100,000,000
$120,000,000
$140,000,000
$160,000,000
Mexico Europe Asia
Flight Region of Origin
Induced Impact
Direct + Indirect Impact
For each region of origin, the induced economic impact equals 75% of the direct-plus-indirect
impact value, thus preserving pre-existing differences in proportion.
CONCLUSION
The economic impact of additional daily flights from Mexico, Europe, and Asia were found to
vary considerably. Figure 18 below recounts the values estimated for the direct, indirect, and
induced economic impact, which together amount to the total benefit of a new flight for the
Denver metropolitan area.
Figure 18
Mexico Europe Asia
Direct Impact: $3,038,427 $6,646,116 $8,692,649
Airport Fees $2,326,723 $5,119,140 $6,784,430
Airport Services $711,704 $1,526,977 $1,908,219
Indirect Impact $11,665,946 $45,112,572 $72,693,082
Total Direct + Indirect $14,704,373 $51,758,688 $81,385,731
MSA Multiplier 1.75 1.75 1.75
Total Impact $25,732,652 $90,577,704 $142,425,029
Compared with Mexico Flight 100% 352% 553%
Sources: SH&E Analysis, Economic Development Research Group
To Denver From:
Total Economic Impact Resulting from
1 Additional Daily Flight
All told, the annual benefit of a flight from Europe is over 3.5 times greater than a flight from
Mexico, and 5.5 times greater for a flight from Asia.
Two major factors underpinned most of this difference:
􀁸􀀃 Carriers serving the US from Europe and Asia use larger aircraft than those flying from
Mexico. The bigger planes carry more passenger traffic, and contribute more in size- and
weight-based airport fees on a per-flight basis.
􀁸􀀃 Passenger traffic between Denver and Mexico is mostly southbound, that is, Americans
visiting Mexico. In contrast, Denver-Europe traffic is evenly balanced, and Denver-Asia
travel is weighted toward Asian visitors to Denver. These visitors spend money on
lodging, food, and other services and provide a great boon to the local economy.