Congestion at Airports: The Economics of Airport Expansions
Cohen, Jeffrey P., Coughlin, Cletus C., Review - Federal Reserve Bank of St. Louis
Congestion has been and continues to be a problem at many airports throughout the United States. For example, in the first five months of 2001, over 25 percent of the flights arriving at the nation's 11 busiest airports were more than 15 minutes late.1 Despite a decline in travelers and flights in 2001, which was associated with the recession that began that spring and the September 11 terrorist attacks, congestion remained a problem in some locations.2 For example, 16.2 percent of the flights bound for Lambert-St. Louis International Airport from May 1, 2001, through June 30, 2001, arrived late, with an average delay of roughly 55 minutes. Using the same period one year later, 16.3 percent of the arriving flights were delayed, with an average delay time of roughly 56 minutes.3
Congestion imposes costs on both the users and providers of airline transportation services. A common response is to expand the capacity of airports in the most afflicted regions. Consequently, airport expansions have occurred and are occurring in many major cities, including Atlanta and St. Louis.4 Figure 1 shows that the amount of federal, state, and local government spending on airports increased in all but two years between 1986 and 1999.5 Federal, state, and local funds for U.S. airports in 1999 totaled over $20 billion, up from $11 billion in 1985 (using constant, 1996 dollars).
Expansions are costly, complex, and controversial. For example, the cost of "Phase 1 " of the current expansion of Lambert-St. Louis International Airport is $1.1 billion. The key component of this project is the construction of a new runway.6 To add this runway, the approved project entailed the acquisition of more than 1,500 acres of land, which ignited protests from affected homeowners and businesses; the reconfiguration of seven major roads; the movement of some airport support operations and the Missouri Air National Guard facility; and the construction of a new school.7
We begin our analysis by providing a discussion of how congestion arises and how it can be dealt with. Because the air transportation services provided by one airport are related to the services provided by many airports, delays at one airport have adverse effects on the movement of passengers and freight at other airports.8 Thus, the expansion of one airport can assist the movement of passengers and freight at other airports. This interdependence provides an economic justification for a decisionmaking authority above the level of individual airports, such as a governmental body, to be involved in the approval as well as the financing of expansions. However, when both congestion and network externalities are present, the appropriate government actions may be to levy a tax, to provide a subsidy, or possibly to refrain from any intervention.
To justify a specific airport expansion, its benefits must exceed its costs. We examine how the benefits and costs of expansions are measured. We use the expansion of Lambert-St. Louis International Airport to illustrate many of the key points.
We also examine two controversial aspects of expansions-the displacement of people and the environmental effects. The controversy as well as the cost of expansion projects has spurred the search for alternative ways to reduce congestion. One alternative that we examine, which reduces congestion by using existing capacity more efficiently, is congestion-based pricing of landing fees.
ANALYZING CONGESTION IN THE AIR TRANSPORTATION NETWORK
Expanding the capacity of an airport entails a multi-year capital expansion project to construct a runway and/or a terminal. The financing of expansions generally includes funding provided by a governmental body. An alternative in some cases to increasing an airport's infrastructure is to use its existing facilities more efficiently. This alternative approach to reduce the adverse effects of congestion can be implemented in the short run via the setting of appropriate prices or taxes. …