Congestion at Airports: The Economics of Airport Expansions Jeffrey P. Cohen and Cletus C. Coughlin MAY/J UNE 2003 9 C ongestion 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 arriv- ing 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 air- ports 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 controver- sial. 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 air- port can assist the movement of passengers and freight at other airports. This interdependence pro- vides an economic justification for a decisionmak- ing 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 exter- nalities 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 bene- fits 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. 6 Lambert International Airport web site: <http://www.lambert-pmo.org/ about/phase1/default.asp>. 7 See Gilbert (2002) for details. 8 The relationships among airports create a network. One feature of this network is the “hub and spoke” system. Flights from various remote airports (the nodes on the spokes) converge on one airport (the hub). Flight schedules provide some time for passengers to change planes, before they depart for their final destinations. 1 See Salant (2001). 2 The terrorist attacks also spurred increased screening of passengers and luggage, which generated other forms of congestion. See Coughlin, Cohen, and Khan (2002) for a discussion of aviation security and terrorism. 3 Data on average flight delays were found at <http://www.bts.gov/ ntda/oai/SummaryStatistics?DEMO/SummaryStatistics>. 4 However, the current financial problems of airlines and airports have, at least temporarily, led to either the cancellation or delay of an esti- mated $16 billion in capital projects at numerous airports, including ones in Los Angeles, Boston, and Phoenix. See Bayles (2001). 5 Bureau of Transportation Statistics web site: <http://www.bts.gov/ transtu/govfin/2001/tables/table_1b.html>. Jeffrey P. Cohen is an assistant professor of economics at the Barney School of Business, University of Hartford, and Cletus C. Coughlin is deputy director of research at the Federal Reserve Bank of St. Louis. The authors thank Chuck Reitter for useful information pertaining to the Lambert Airport expansion. Heidi L. Beyer and Molly J. Dunn provided research assistance. © 2003, The Federal Reserve Bank of St. Louis.