&EPA
United States
Environmental Protection
Agency
Economic Analysis for Proposed
Effluent Limitation Guidelines and
Standards for the Airport Deicing
Category
July 2009
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U.S. Environmental Protection Agency
Office of Water (4303T)/Office of Science and Technology
Engineering and Analysis Division
1200 Pennsylvania Avenue, NW
Washington, DC 20460
EPA-821-R-09-005
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
TABLE OF CONTENTS
CHAPTER 1 INTRODUCTION 1-1
1.1 Scope and Purpose 1-1
1.2 Report Organization 1-1
1.3 References 1-2
CHAPTER 2 PROFILE OF THE AIR TRANSPORTATION INDUSTRY 2-1
2.1 Industry Overview 2-1
2.1.1 Important Highlights 2-2
2.2 Airports 2-2
2.2.1 Number and Size 2-3
2.2.2 Airport Location and Climate Data 2-6
2.3 Airlines 2-7
2.3.1 Number and Size 2-8
2.3.1.1 Number of Aircraft 2-8
2.3.1.2 Definition and Number of Air Carriers 2-9
2.4 Air Transportation Industry Trends 2-12
2.4.1 Deregulation of Airlines 2-12
2.4.1.1 Development of Hub and Spoke Networks 2-12
2.4.1.2 Emergence of Low-Cost Carriers 2-13
2.4.1.3 Effect on Airports Served 2-14
2.4.2 Cyclical Nature of Air Travel Demand 2-14
2.4.3 Growth in Air Travel 2-16
2.4.3.1 Airport Capacity Constraint 2-16
2.4.3.2 Change in Airline Service 2-16
2.4.3.3 Introduction of Regional Jets 2-17
2.5 Survey Methodology and Counts by Industry 2-18
2.5.1 Airports 2-18
2.5.1.1 Sample Frame 2-18
2.5.1.2 Airport Count by Category 2-19
2.5.2 Airline/Airport Combinations 2-20
2.6 Airport Management 2-20
2.6.1 Airport Ownership and Management 2-20
2.6.2 Airport Financial Management 2-22
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2.6.2.1 Funding Methods 2-22
2.6.2.2 Revenue Categories and Operating Profit 2-24
2.6.2.3 Cost Trends 2-26
2.6.2.4 Capital Financing 2-26
2.6.2.5 Net Operating Revenues 2-32
2.6.3 Airport Finance and the Economic Impact Analysis 2-33
2.7 Airline Financial Management 2-33
2.7.1 Historical Overview of Airline Profitability 2-33
2.7.2 Factors in Airline Profitability 2-36
2.7.2.1 Industry Characteristics Affecting Profitability 2-36
2.1.2.2 Factors Controlled by the Airlines 2-37
2.7.2.3 Labor Costs 2-37
2.7.2.4 Fuel Costs 2-38
2.7.2.5 Landing Fees 2-38
2.7.3 Industry Concentration 2-39
2.7.3.1 Market Power 2-39
2.7.3.2 Barriers to Exit 2-40
2.8 Airport-Airline Interactions 2-42
2.8.1 Effect of Airline Bankruptcies on Airports 2-42
2.8.2 Airport-Airline Cost Pass-Through Analysis 2-42
2.8.2.1 Airports to Airlines 2-43
2.8.2.2 Airlines to Passengers 2-47
2.9 Alaska 2-49
2.9.1 Alaska International Airport System 2-51
2.9.2 Alaska Rural Airport System 2-51
2.9.2.1 RAS Airport Funding 2-51
2.9.2.2 AIP Spending 2-51
2.9.2.3 Other Funding Issues 2-53
2.9.2.4 Operation and Maintenance 2-53
2.9.3 Alaska and the Economic Impact Analysis 2-53
2.10 References 2-54
CHAPTER 3 ECONOMIC IMPACT METHODOLOGY 3-1
3.1 Financing Capital Expenditures and Compliance Cost Annualization 3-1
3.1.1 Financing Methods for Capital Expenditures 3-1
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3.1.2 General Airport Revenue Bonds 3-3
3.1.3 Annualization of Capital Costs using GARB 3-3
3.1.4 Comparison of Impacts under GARB, AIP Grants and PFCs 3-5
3.2 Economic Impact Analysis of Airports 3-6
3.2.1 Ratio of Annualized Compliance Costs to Operating Revenues 3-6
3.2.2 Debt Service Coverage Ratio 3-7
3.3 Economic Impact Analysis of Airlines 3-8
3.3.1 Airline Cost Extrapolation 3-8
3.3.2 Baseline Air Carrier Financial Condition and the Impact Analysis 3-9
3.3.3 Airline Impacts I: Compliance Costs and Airline Revenues 3-10
3.3.4 Airline Impacts II: Compliance Costs and Demand for Air Transportation
Services 3-12
3.3.4.1 Price Elasticity of Demand 3-13
3.3.4.2 Price Elasticity of Supply 3-14
3.3.4.3 Calculation of Impacts 3-15
3.3.4.4 Impact on Reduction in Demand for Air Transportation Services
on Airport Revenues 3-16
3.4 References 3-16
CHAPTER 4 POLLUTION CONTROL OPTIONS 4-1
4.1 Effluent Limitation Guidelines and Standards 4-1
4.2 Technology Basis for Deicing Options 4-2
4.2.1 Glycol Recovery Vehicle 4-2
4.2.2 Plug and Pump 4-3
4.2.3 Centralized Deicing Pads 4-3
4.2.4 Anaerobic Fluid Bed Biological Treatment 4-4
4.3 Analyzed Options 4-4
4.4 References 4-5
CHAPTER 5 ECONOMIC IMPACT ANALYSIS RESULTS 5-1
5.1 National Compliance Costs 5-1
5.2 Airport Impacts 5-2
5.2.1 Distribution of Projected Compliance Costs 5-2
5.2.2 Revenue Test Analysis 5-3
5.2.3 Debt Service Coverage Ratio Analysis 5-7
5.2.4 Impacts on Alaskan Airports 5-13
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5.2.4.1 Impacts on the Alaska International Airport System 5-13
5.2.4.2 Impacts on the Alaska Rural Airport System 5-13
5.3 Airline Impacts 5-14
5.4 Market Impacts 5-22
5.5 Summary of Projected Impacts and Selection of the Proposed Option 5-24
5.6 References 5-26
CHAPTER 6 INITIAL REGULATORY FLEXIBILITY ANALYSIS 6-1
6.1 Initial Assessment 6-1
6.2 Regulatory Flexibility Analysis Components 6-1
6.2.1 Legal Basis of and Need for the Rule 6-2
6.2.2 Estimated Number of Small Business Entities to Which the Regulation
Will Apply 6-2
6.2.3 Description of the Proposed Reporting, Recordkeeping, and Other
Compliance Requirements 6-3
6.2.4 Identification of Relevant Federal Rules That May Duplicate, Overlap, or
Conflict with the Proposed Rule 6-3
6.2.5 Significant Regulatory Alternatives 6-3
6.3 Small Business Analysis 6-3
6.3.1 Analysis of Small Airports 6-4
6.3.1.1 Definition of Small Airports 6-4
6.3.1.2 Number of Potentially Affected Small Airports 6-4
6.3.1.3 Summary of Projected Compliance Costs for Small Airports 6-7
6.3.1.4 Impact of Compliance Costs on Small Airport Revenues 6-8
6.3.1.5 Impact of Compliance Costs on Debt Service Coverage Ratio of
Small Airports 6-9
6.3.2 Analysis of Airlines 6-10
6.3.2.1 Definition of Small Airlines 6-10
6.3.2.2 Data Issues 6-11
6.3.2.3 Number of Potentially Affected Small Airlines 6-11
6.3.2.4 Impacts on Small Airlines 6-12
6.4 Regulatory Flexibility Analysis 6-14
6.5 References 6-15
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
LIST OF TABLES
Table 2-1 Direct Commercial Aviation Economic Impacts (2004) 2-2
Table 2-2 Distribution of U.S. Airports in NPIAS (2004) 2-4
Table 2-3 Commercial Service Aircraft Departures (Passenger) 2-5
Table 2-4 Commercial Service Aircraft Departures (Cargo) 2-6
Table 2-5 Commercial Service Passenger Enplanements 2-6
Table 2-6 Number of Aircraft and Flight Hours (2006) 2-9
Table 2-7 Air Carrier Definitions 2-10
Table 2-8 Air Carrier Statistics (2006) 2-11
Table 2-9 Operational Highlights of the U.S. Scheduled Service Airline Industry 2-17
Table 2-10 Regional Jet Versus Turboprop Departures (Passenger Data) 2-18
Table 2-11 Airport Survey Sample Stratification 2-19
Table 2-12 Airport Funding Methods (2004) 2-23
Table 2-13 Portions of Revenue Collection Using Residual-Cost Approach When Airport
Uses Mixed Approach Overall 2-24
Table 2-14 Airside and Non-airside Operating Revenues and as a Percent of Total Revenues 2-25
Table 2-15 Average Revenues and Expenditures by Hub Size, 2002-2006 2-26
Table 2-16 AIP Grants Awarded for Aircraft Deicing Related Projects 2-28
Table 2-17 PFCs as Percent of Total Operating Revenues (2003-2006) and Total Value
(2006) 2-29
Table 2-18 Distribution of State Funding 2-29
Table 2-19 Sources of Airport Funding (2001-2005) 2-30
Table 2-20 Capital Expenditure Financing (2001-2005) 2-30
Table 2-21 Five-Year Average Financials for Domestic Operations by Airline Type (2002-
2006) 2-34
Table 2-22 Financial Highlights of the Airline Industry (U.S. Airlines, scheduled service, in
millions except as noted) 2-35
Table 2-23 Changes in Domestic Operating Profit and Net Income, 2002 to 2006 2-36
Table 2-24 Landing Fees by Hub ($71000 Ib landed weight) 2-39
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Economic Analysis for Proposed Effluent Limitation Guidelines
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Table 2-25 Average Departures and Enplanements by Hub Size, 2002-2006 2-45
Table 2-26 Ratio of Airport Operating Expense to Revenues, 5-Year Average (2002-2006) 2-46
Table 2-27 Average Capital Expenditure and Financing by Hub Size, 2002-2006 2-46
Table 2-28 Commercial Service Aircraft Departures (Alaska) 2-50
Table 2-29 Commercial Service Passenger Enplanements (Alaska) 2-50
Table 2-30 Commercial Service Aircraft Passengers per Departure (Alaska) 2-50
Table 2-31 Alaska Rural Airports AIP Spending Plan 2-52
Table 2-32 Total AIP Spending by Project Type - Alaska Rural Airport System 2-52
Table 2-33 FY 2001 Capital & Operating Budget for the AK DOT&PF 2-53
Table 4-1 BAT Options for Primary Commercial Service Airports with more than 1,000
Annual Jet Departures 4-5
Table 5-1 Estimated Option Costs for In-scope Airports (millions, 2006 dollars) 5-2
Table 5-2 Summary Cost Statistics for In-scope Airports 5-3
Table 5-3 Airports in Top Quartile of Projected Compliance Costs 5-4
Table 5-4 Compliance Costs as Percent of Operating Revenues, In-scope Airports 5-7
Table 5-5 Airports with Projected Annualized Costs Exceeding 3 Percent of Operating
Revenues 5-8
Table 5-6 Multi-Airport Authorities 5-10
Table 5-7 Projected Impacts to Debt Service Coverage Ratio of Multi-Airport Authorities
Incurring Costs for Various Cost Pass-Through Assumptions (unweighted) 5-12
Table 5-8 Projected Impacts to Debt Service Coverage Ratio of Single Airport Owners
Incurring Costs for Various Cost Pass-Through Assumptions 5-12
Table 5-9 Impacts on the Alaska International Airport System (IAS) 5-13
Table 5-10 Impacts on the Alaska Rural Airport System (RAS) 5-14
Table 5-11 Number of Airlines with Negative Profits and Income 5-15
Table 5-12 Average Financial Data for Potentially Affected Air Carriers, 2004-2006 (in
millions) 5-16
Table 5-13 Ratio of Compliance Costs to Air Carrier Operating Revenue, 2004 Financial
Data 5-16
Table 5-14 Ratio of Compliance Costs to Air Carrier Operating Revenue, 2005 Financial
Data 5-17
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Economic Analysis for Proposed Effluent Limitation Guidelines
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Table 5-15
Table 5-16
Table 5-17
Table 5-18
Table 5-19
Table 5-20
Table 5-21
Table 5-22
Table 6-1
Table 6-2
Table 6-3
Table 6-4
Table 6-5
Table 6-6
Table 6-7
Table 6-8
Table 6-9
Table 6-10
Table 6- 11
Table 6-12
Table 6-13
Table 6-14
Table 6-15
Table 6-16
July 2009
Ratio of Compliance Costs to Air Carrier Operating Revenue, 2006 Financial
Data
Air Carriers with Positive Operating Profits and Net Incomes; 2006 Financial
Data and Airline Type
Ratio of Compliance Costs to Air Carrier Operating Profit, 2006 Financial Data
Ratio of Compliance Costs to Air Carrier Net Income, 2006 Financial Data
Compliance Costs Incurred by Air Carriers Without 2006 Financial Data and
International Air Carriers
Air Carrier 2006 Financial Data and Average Estimated Annual Compliance
Costs
Impacts to Air Carrier Revenues and Revenue Miles Assuming 100 Percent Cost
Pass-Through, 2006
Summary of Impacts Under Analyzed Options
Small and Non-small Airports, Surveyed (Unweighted)
Small and Non-small Airports, Excluding Alaska, Weighted
Numbers of Small andNonsmall Airports In Scope
Total Compliance Costs for Small Airports In Scope
Small Airports in Top Quartile of Projected Compliance Costs
Impacts on Small Airports (Weighted Figures)
Small Airports with Projected Compliance Costs Exceeding 3 Percent of
Operating Revenues
Projected Impacts to Debt Service Coverage Ratio of Small Single Airport-
Owners Incurring Costs
Small Business Administration Size Standards for Airline Industry
2006 Departures Data for Non-Small and Small Airlines, as Defined by
Employment
Numbers of Non-Small and Small Airlines by Airline Type: 2004
Numbers of Non-Small and Small Airlines by Airline Type: 2005
Numbers of Non-Small and Small Airlines by Airline Type: 2006
Impacts on Operating Revenues of Small Airlines
Impacts on Operating Profits of Small Airlines
Impacts on Net Income of Small Airlines
vii
..5-18
.5-19
...5-20
...5-21
...5-21
5-22
...5-24
5-24
6-5
.6-6
6-7
6-7
6-7
.6-8
6-9
6-10
6-10
.6-11
6-12
6-12
..6-12
6-13
6-14
6-14
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Economic Analysis for Proposed Effluent Limitation Guidelines
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LIST OF FIGURES
Figure 2-1 FAA Categories of Airports 2-3
Figure 2-2 U.S. Airports and Number of SOFP Days 2-7
Figure 2-3 Cyclical Nature of Airline Operating Profits Since Deregulation 2-15
Figure 2-4 Airport Ownership 2-21
Figure 2-5 Comparison of Past Airport Funding to Future Development Costs 2-31
Figure 2-6 Comparison of Larger Airports' Past Funding to Future Development Costs 2-32
Figure 2-7 Airline Operating Costs as Percentage of Total (2007) 2-37
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Economic Analysis for Proposed Effluent Limitation Guidelines Chapter 1. Introduction
and Standards for the Airport Deicing Category
CHAPTER 1
INTRODUCTION
1.1 Scope and Purpose
The U.S. Environmental Protection Agency (EPA) proposes and promulgates water effluent discharge
limits (effluent limitation guidelines and standards) for industrial sectors. This Economic Analysis
document (EA) summarizes the costs and projected economic impacts of technologies that form the bases
for setting limits and standards for airport anti-icing/deicing operations. EPA does not mandate use of
these technologies. Instead, EPA's analysis demonstrates that the proposed effluent limitation guidelines
and standards can be met and are economically achievable using specified technologies; industry is free to
adopt whatever technologies it chooses to meet the limits.
The Federal Water Pollution Control Act (commonly known as the Clean Water Act [CWA, 33 U.S.C.
§1251 et seq.]) establishes a comprehensive program to "restore and maintain the chemical, physical, and
biological integrity of the Nation's waters" (§101(a)). EPA is authorized under sections 301, 304, 306,
and 307 of the CWA to establish effluent limitation guidelines and pretreatment standards of performance
for industrial dischargers.
EPA is publishing proposed effluent limitation guidelines for the airport deicing category in this
rulemaking effort.
1.2 Report Organization
This Economic Analysis (EA) document is organized as follows:
• Chapter 2—Profile of the Air Transportation Industry
Provides background information on the industry sectors affected by this regulation.
• Chapter 3—Economic Impact Methodology
Summarizes the economic methodology by which EPA examines incremental pollution
control costs and their associated impacts on industry.
• Chapter 4—Pollution Control Options
Presents short descriptions of the regulatory options considered by EPA. More detail is
provided in the Technical Development Document (U.S. EPA, 2009).
• Chapter 5—Economic Impact Analysis Results
Using the methodology described in Chapter 3, EPA presents the annualized costs associated
with control of aircraft deicing fluid (ADF)-contaminated runoff and storm water, using the
technologies outlined in Chapter 4. EPA then summarizes the projected economic impacts
generated by the regulatory costs, including impacts on airports and airlines. In other words,
this chapter presents the findings on which EPA based its proposed determination of
economic achievability under the CWA.
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Economic Analysis for Proposed Effluent Limitation Guidelines Chapter 1. Introduction
and Standards for the Airport Deicing Category
• Chapter 6—Initial Regulatory Flexibility Analysis
Pursuant to the Regulatory Flexibility Act. as amended by the Small Business Regulatory
Enforcement Fairness Act, EPA examines whether the regulatory options will have a
significant adverse impact on a substantial number of small entities.
1.3 References
U.S. EPA. 2009. Technical Development Document for Proposed Effluent Limitation Guidelines and
Standards for the Airport Deicing Category. EPA-821-R-09-004.
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Economic Analysis for Proposed Effluent Limitation Guidelines Chapter 2. Profile of the
and Standards for the Airport Deicing Category Air Transportation Industry
CHAPTER 2
PROFILE OF THE AIR TRANSPORTATION INDUSTRY
Airport deicing/anti-icing operations are performed by airlines, airports, or contracted out to fixed-based
operators (i.e., contract service providers). Typically, airlines and fixed-based operators are responsible
for aircraft deicing/anti-icing operations, while airports are responsible for the deicing/anti-icing
operations of airfield pavement. Compliance with environmental regulations may be shared between
airlines and airports as co-permittees.
This chapter presents a profile of the significant economic and financial aspects of the air transportation
industry as it relates to airport/aircraft deicing operations. The demand for deicing operations is a derived
demand; that is, deicing operations are performed solely to provide the service of safely transporting
passengers and cargo by air. Thus, the economic conditions underlying airport/aircraft deicing operations
are those of the air transportation industry itself.
A variety of data sources were used in the preparation of this analysis. Many profile statistics were
obtained from the U.S. Department of Transportation (DOT) Bureau of Transportation Statistics (BTS)
Air Carrier Financial Reports (Form 41 Financial Data), Air Carrier Statistics (Form 41 Traffic), and Air
Carrier Summary Data (Form 41 and 298C Summary Data) databases and the Federal Aviation
Administration (FAA) Form 5100-127 (Airport Operating and Financial Summary). EPA has also
included relevant data collected from its questionnaires, which were sent to a sample of airports and
airlines regarding their operations and finances. Additionally, many literature sources were consulted in
the development of this profile. These references are provided in Section 2.10.
The structure of this chapter is as follows: Section 2.1 provides a brief overview of air transportation in
the context of the U.S. economy, and summarizes some key points from the detailed industry profile that
follows. Sections 2.2 and 2.3 introduce the airport and airline sectors respectively, presenting important
definitions as well as the types and numbers of potentially affected entities. Although the air
transportation industry has been largely deregulated for 30 years, to understand the current industry
structure it is helpful to know how those tumultuous years since the onset of economic deregulation
shaped the industry. Thus, Section 2.4 briefly reviews industry trends over the past 30 years. Section 2.5
describes EPA's data collection effort. Sections 2.6 and 2.7 discuss the nature of the economic
environment in which airports and airlines operate, as well as current financial conditions. Section 2.8
considers how airports interact financially with their airline customers, particularly how costs might be a
passed from one entity to another. Finally, the nature of air transportation in Alaska differs considerably
from the lower 48 contiguous states; Section 2.9 presents information on Alaskan airports and airlines.
2.1 Industry Overview
The U.S. commercial aviation industry plays an integral role in the nation's economy; in 2004, the
industry (including commercial air transportation and support services) was responsible for 5.8 percent of
U.S. gross output, 5.0 percent of personal earnings, and 8.8 percent of national employment (Campbell-
Hill 2006) as listed in Table 2-1.
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 2. Profile of the
Air Transportation Industry
Table 2-1. Direct Commercial Aviation Economic Impacts (2004)
Sector
Commercial air transportation
Air transportation support services
and government agencies
Aircraft-related manufacturing
Total
Output
(Billion $)
$154
$18
$75a
$247
Jobs
691,000
121,000
241,000
1,053,000
a Annual sales for commercial use, excludes military-related and general aviation production.
Source: Campbell-Hill 2006
For the purpose of the proposed effluent limitation guidelines, EPA has narrowed the definition of the air
transportation industry to include only airports and airlines.
2.1.1 Important Highlights
As a preview to the information provided in the remainder of this chapter, the following list highlights
some of the major air transportation related issues:
• Approximately 60 large airports are responsible for the vast majority of air traffic in the U.S.,
as will be described in Section 2.2.
• A shift in aircraft fleet composition has occurred with more use of regional jets, and
retirement of older, less efficient larger planes. (See Section 2.3 for more details).
• Two very different airline business models are operating in competition—"legacy" airlines
(carriers from the regulated industry days) and "low-cost" carriers, each with their own
unique operational characteristics as discussed in Section 2.7.
• Low-cost carriers and passengers are increasing utilization of secondary airports to avoid
larger, congested airports, where capacity is constrained. (See Section 2.4 for more details).
• Airline profits have been highly cyclical since deregulation as described in Section 2.7.
• The events of September 11, 2001, are only one factor in a series of events that have caused
the years since 2001 to be some of the worst financial years in airline history.
2.2 Airports
The applicable North American Industry Classification System (NAICS) code for airports is 488119:
Other Airport Operations. The U.S. Census Bureau describes this industry as establishments primarily
engaged in (1) operating international, national, or civil airports, or public flying fields or (2) supporting
airport operations, such as runway maintenance services, hangar rental, and/or cargo handling services.
The 2002 Economic Census provides a snapshot of the airport industry at 1,484 establishments (Census
2005). The Census Bureau estimates revenues of approximately $3.7 billion and 57,300 paid employees.
Since FAA and BTS provide more refined data collection for the air transportation industry, EPA relies
on these data sources for a majority of the data provided in this section.
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 2. Profile of the
Air Transportation Industry
2.2.1 Number and Size
The United States has approximately 19,850 airports nationwide, ranging from large commercial airports
to privately owned landing strips (FAA 2006). Of this number, the FAA has designated 3,431 airports
(17 percent of the total) to be part of the National Plan of Integrated Airport Systems (NPIAS). NPIAS
includes 67 proposed airports expected to open in the next 5 years in addition to 3,364 existing airports.
The NPIAS designation identifies those airports significant to the United States' aviation infrastructure,
which makes them eligible for federal funding. FAA makes its determination for inclusion in NPIAS
based on the airport's activity level and location.
This analysis frequently uses FAA's classification of airports, as illustrated in Figure 2-1. FAA created
its classification system for apportioning Airport Improvement Program (AIP) funding, where airport
classes are primarily determined by passenger activity. Although deicing operations and deicing/anti-
icing fluids (also known as aircraft deicing fluids, or ADF) generation are a function of aircraft
operations, not passenger activity, the two measures are highly correlated, and FAA's classification
system provides a useful indication of airport size for EPA's purposes.
National Airport System
3,364 airports (plus 67 proposed airports)
Designated by FAA as important to national air transportation
Commercial Service Airports
517 airports (plus 8 proposed)
- publicly owned
- scheduled passenger service
• at least 2,500 boardings per year
General Aviation & Reliever Airports
2,847 airports (plus 59 proposed)
- no scheduled passenger service
- less than 2,500 boardings per year
- at least 10 based aircraft
Primary Airports
382 airports (plus 2 proposed)
• more than 10,000 boardings per year
Nonprimary Airports
135 airports (plus 6 proposed)
- at least 2,500 boardings per year
- no more than 10,000 boardings per year
Large hubs (30 airports): 1% or more of total national boardings per year
Medium hubs (37 airports): 0.25% to 1% of total national boardings per year
Small hubs (72 airports): 0.05% to 0.25% of total national boardings per year
Nonhubs (243 airports): less than 0.05% of total national boardings per year
Figure 2-1. FAA Categories of Airports
Source: FAA 2006
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 2. Profile of the
Air Transportation Industry
FAA defines commercial service airports as publicly owned airports that receive scheduled passenger
service and have at least 2,500 annual passenger boardings. Commercial service airports can be: primary,
which have more than 10,000 annual boardings, or non-primary, which have at least 2,500 but no more
than 10,000 annual boardings.1 Primary commercial service airports are further broken down by percent
of total national boardings into large hubs, medium hubs, small hubs and nonhubs.2
General aviation (GA) airports have no scheduled passenger service and less than 2,500 annual passenger
boardings. General aviation reliever airports are located near commercial service airports and service
general aviation aircraft that would normally utilize a more congested airport. Of the 2,847 existing GA
airports in the NPIAS, 274 are assigned "reliever" status. FAA classifies the approximately 16,500 non-
NPIAS airports as low activity landing areas. These landing areas are excluded from further discussion in
this analysis since they are not significant in terms of stormwater discharges. Military airports have also
been excluded from this economic analysis because they have different operational and financial
characteristics. EPA is working with the Department of Defense to determine the nature and significance
of deicing/anti-icing operations at military airports.
Table 2-2 presents the number of airports in NPIAS, broken down by FAA definition, and percent of
boardings and based aircraft for calendar year (CY) 2004. This table emphasizes the dominance of large
hubs (those with more than 1 percent of total U.S. enplanements) in the air transportation network. The
30 large hubs accounted for almost 69 percent of all passenger boardings. Altogether the 67 large and
medium hub commercial service airports account for almost 90 percent of all passenger boardings.
Table 2-2. Distribution of U.S. Airports in NPIAS (2004)
Airport Type
Commercial Service Large Hub
Commercial Service Medium Hub
Commercial Service Small Hub
Commercial Service Nonhub
Non-primary Commercial Service
General Aviation Relievers
General Aviation
Existing NPIAS Airports
Number of
Airports
30
37
72
243
135
274
2,573
3,364
Percentage of
Enplanements
68.7%
20.0%
8.1%
3.0%
0.1%
0.0%
0.0%
99.9%
Percentage of
Based Aircraft3
1.1%
3.0%
4.7%
10.6%
2.4%
28.8%
41.2%
91.8%
a Based on active aircraft fleet of 214,591 aircraft in 2005.
Source: FAA 2006 [Note: Airport counts will differ depending on the source and year of data represented]
FAA's designation of hub status depends on the percent of total passenger boardings occurring at each
airport, resulting in variation in the number of airports in each hub category from year to year. For its
analysis, EPA utilizes the CY 2004 airport classifications, which identified 382 primary commercial
service airports, 67 of which are large and medium sized hubs. EPA chose to focus the proposed rule on
the commercial service airports because aircraft at general aviation airports rarely fly in weather requiring
deicing and therefore are anticipated to generate relatively little ADF-contaminated stormwater. Aircraft
must be approved by the FAA for flight in icing conditions, which involves a rigorous testing program,
1 FAA defines passenger boardings as the number of revenue passenger boardings on aircraft engaged in commerce.
The term "boarding" is interchangeable with the term "enplanement" (U.S. EPA 2000).
2 Airlines may also designate certain airports as "hubs." However, these airline designations relate to the airport's
usage to facilitate connections between airline routes. Unless otherwise noted, this analysis utilizes the FAA hub
definition.
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 2. Profile of the
Air Transportation Industry
and relatively few light aircraft, which are the majority of aircraft at general aviation airports, 3 carry this
approval (AOPA 2002). EPA did, however, include general aviation airports with an average of five or
more cargo-only departures in the analysis because these operations tend to use jet aircraft and fly in
wintry weather. EPA designated such airports as general aviation/cargo airports.
Large certificated4 carriers must report monthly traffic statistics and quarterly financial data to BTS,
which provides the data to the public. Small certificated carriers report scheduled service on a quarterly
basis, and although they also report financial statistics, data are not published due to confidentiality
agreements. Since the financial statistics for airlines, presented later in this section, were based on data
from the BTS T-100 data and BTS Form 41 Air Carrier Financial Reports database, it is limited to large
certified carriers only.
Tables 2-3, 2-4, and 2-5 are based on analysis of the BTS T-100 data for commercial service airlines. As
Table 2-3 illustrates, large and medium hub airports posted moderate growth in passenger aircraft
departures from 2003 through 2005, but saw declines in 2006. Small hub and nonhub airports started to
experience this decline in departures in 2004. Table 2-4 shows cargo-only departures are highly variable
over the 2003 through 2006 time period. Table 2-5 presents passenger boardings for 2003 through 2006.
Table 2-3. Commercial Service Aircraft Departures (Passenger)
Airport
Type
Large Hub
Medium
Hub
Small Hub
Nonhub
Non-
primary
Total
Number of Departures
2003
5,973,386
1,698,917
1,041,900
804,034
76,413
9,594,650
2004
6,359,189
1,769,476
1,107,831
826,234
75,052
10,137,782
2005
6,446,213
1,792,848
1,103,882
811,182
69,091
10,223,216
2006
6,274,990
1,762,224
1,041,607
764,375
72,321
9,915,517
Annual Growth Rates
2004
6.46%
4.15%
6.32%
2.76%
-1.78%
5.66%
2005
1.37%
1.32%
-0.36%
-1.82%
-7.94%
0.84%
2006
-2.66%
-1.71%
-5.64%
-5.77%
4.67%
-3.01%
Source: EPA analysis of BTS T-100 database
In 1998, single-engine propeller aircraft comprised 70 percent of the general aviation fleet (GAO 2001).
4 A certificated air carrier is one "holding a Certificate of Public Convenience and Necessity issued by DOT to
conduct scheduled services interstate. Nonscheduled or charter operations may also be conducted by these carriers.'
The term "certificated air carrier" is interchangeable with "certified air carrier." (BTS 2008c). More detail is
provided in Section 2.3.1.2 of this report.
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Table 2-4. Commercial Service Aircraft Departures (Cargo)
Airport
Type
Large Hub
Medium
Hub
Small Hub
Nonhub
Non-
primary
Total
Number of Departures
2003
207,887
194,115
82,571
85,519
8,379
578,471
2004
212,971
194,908
83,537
88,645
8,551
588,612
2005
204,131
193,087
76,934
81,067
7,082
562,301
2006
200,338
197,563
73,100
91,393
7,960
570,354
Annual Growth Rates
2004
2.45%
0.41%
1.12%
1.37%
2.09%
1.75%
2005
-4.15%
-0.93%
-7.90%
-8.54%
-17.2%
-4.47%
2006
-1.86%
2.31%
-4.98%
12.7%
12.4%
1.43%
Source: EPA analysis of BTS T-100 database
Table 2-5. Commercial Service Passenger Enplanements
Airport
Type
Large
Hub
Medium
Hub
Small
Hub
Nonhub
Non-
primary
Total
Passenger Enplanements
2003
474,573,405
117,260,549
50,344,945
18,897,491
515,371
661,591,761
2004
514,416,974
124,964,548
55,117,982
20,772,050
563,408
715,834,962
2005
536,384,310
130,048,827
56,722,694
21,657,701
604,481
745,418,013
2006
539,513,169
130,207,784
56,259,611
20,924,686
696,769
747,602,019
Annual Growth Rates
2004
8.40%
6.57%
9.48%
9.92%
9.32%
8.20%
2005
4.27%
4.07%
2.91%
4.26%
7.29%
4.13%
2006
0.53%
0.12%
-0.82%
-3.38%
15.3%
0.29%
Source: EPA analysis of BTS T-100 database
While boardings grew from 2003 to 2005, gains were much smaller or negative from 2005 to 2006, with
the exception of double-digit growth at nonprimary commercial service airports. Large hub airports
posted positive growth every year since 2003. The overall growth from 2003 to 2006 for passenger
boardings was 13.0 percent over four years. Although passenger boardings and passenger service aircraft
departures tend to be highly correlated, airlines can increase boardings without increasing departures by
using larger planes or obtaining higher load factors (the percent of available seats that are used by
revenue-paying passengers). Thus, from 2005 to 2006, passenger boardings grew even though the
number of departures declined.
2.2.2 Airport Location and Climate Data
Airport location as it relates to climate is important to examine because airports with high levels of snow
and freezing rain are more likely to have substantial deicing operations and the volume of ADF-
contaminated storm water produced will be larger than at airports in warmer locales. EPA used weather
data from the National Oceanic and Atmospheric Administration (NOAA) Climate Maps of the United
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States to generate the number of snow or freezing precipitation (SOFP) days5 at airports nationwide.
Figure 2-2 presents a map of primary commercial service airports by hub size and SOFP days. This
information was used to stratify the airport sample frame to ensure small and nonhub airports that
potentially perform significant deicing operations would be adequately represented in the survey sample.
The survey and sampling plan are discussed in Section 2.5.
U.S. Airports and Total Number of Days
with Snow Fall >1 inch or Freezing Precipitation
Number of Days with Freezing Precipitation
plus number of Days with Snowfall >1 inch
:.- ••
O
4 Medium Hub
• Small Hub
£ Non-Hub
\ * &%? v. ' .* °
* • .,W*v-»—-t ; t
« 0 , i *• fS
o t ,
.\
« o
' •
Figure 2-2. U.S. Airports and Number of SOFP Days
2.3 Airlines
The NAICS code applicable to airlines is: 481: Air Transportation, which includes air transportation of
passengers and/or cargo using aircraft. The subsector distinguishes scheduled from nonscheduled air
transportation. Scheduled air carriers fly regular routes on regular schedules and operate even if flights are
only partially loaded. Nonscheduled carriers often operate during nonpeak time slots at more congested
airports. These establishments have more flexibility with respect to choice of airport, hours of operation,
load factors, and similar operational characteristics. Nonscheduled carriers provide chartered air
transportation of passengers, cargo, or specialty flying services. The Census Bureau does not gather data
5 EPA combined NOAA 30 year averages (1961 to 1990) of the number of days with snow fall exceeding one inch
and the number of days with some form of freezing precipitation to create the composite snow or freezing
precipitation days measure used in this analysis.
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from large certificated passenger carriers since that data is collected by BTS. Therefore this analysis relies
on data collected by BTS and FAA to represent airline statistics.
2.3.1 Number and Size
Civil aviation can be divided into two groups: air carriers and general aviation. Air carriers are defined as
companies or other organizations that carry passengers or cargo for hire or compensation. General
aviation constitutes all other civil aviation. This section looks at both the number of aircraft that comprise
the U.S. fleet, and the number of airlines operating in the United States.
2.3.1.1 Number of Aircraft
Aircraft utilized by air carriers are distinguished from general aviation aircraft by size, frequency, and
intensity of use. At the end of 2006, the U.S. airline fleet consisted of 7,626 aircraft (FAA 2007),
composed of:
• 3,886 mainline passenger aircraft (more than 90 passenger seats)
• 2,743 regional passenger aircraft
• 997 cargo aircraft
From 2005 to 2006, the mainline passenger fleet fell by 39 aircraft, with an overall loss of 576 large
aircraft since 2000. In contrast, the mainline cargo fleet rose by six aircraft in 2006, with fleet size now
increasing for two years in a row. In response to rapidly increasing fuel prices, airlines have been forced
to reduce capacity by either grounding aircraft, or retiring larger aircraft in favor of smaller, more
efficient models.
The Air Transport Association (ATA) (2008a) reports that the cost per gallon of jet fuel has increased
more than 216 percent since 2000, while fuel costs as a share of total operating expenses have increased
from 9.9 percent in the first quarter to 2002 to 26.5 percent in third quarter 2007. As a result, domestic
airlines—including United, American, and Continental—have grounded planes, reduced schedules, and
deferred or canceled future deliveries. During the first six months of 2008, American Airlines announced
plans to retire up to 50 MD-80s, while U.S. Airways announced plans to cut capacity by retiring larger
Boeing 757s and 737s in favor of fewer smaller planes. Other airlines have followed suit, with Delta,
Continental, Northwest, and JetBlue all announcing plans to cut domestic capacity and/or accelerate plans
for retirement of older, less efficient planes over the coming months (Associated Press 2008). The
regional fleet has increased by nearly 470 aircraft since 2000, while turboprop and piston fleets have
declined by 648 aircraft over the same time period.
As shown in Table 2-6, commercial aircraft are utilized more intensively than general aviation aircraft.
Although the commercial airline fleet comprises only 4 percent of the aircraft associated with general
aviation, total commercial hours flown per aircraft (on average) is almost 20 times that of a general
aviation aircraft.
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Table 2-6. Number of Aircraft and Flight Hours (2006)
Aircraft Type
Number of Aircraft
Total Flight Hours
Hours Per Aircraft
Commercial, Cargo and Commuter Carriers"
Total (Fixed-wing)
Turbojet
% of Total
Turboprop
% of Total
7,149
5,916
83%
880
12%
17,846,835
16,095,937
90%
1,462,290
8%
2,496
2,721
1,662
General Aviation
Total (Fixed-wing)
1- Engine Piston
% of Total
2-Engine Turbojet
% of Total
2-Engine Turboprop
% of Total
182,186
145,036
80%
10,379
6%
5,487
3%
22,764,959
13,975,869
61%
4,077,209
18%
1,309,643
6%
125
96
393
239
Not including Part 135 On-Demand Air Taxis.
Source: FAA 2007b and FAA 2007c.
2.3.1.2 Definition and Number of Air Carriers
Commercial air carriers can be divided into four categories based on FAA and U.S. Department of
Transportation (DOT) requirements: large certificated carriers, small certificated carriers, commuter
carriers, and air taxis. These categories are primarily determined by the combination of financial
("fitness") and safety ("operating") criteria carriers are required to meet.
Fitness criteria are set by DOT. Large and small certificated carriers require a Federal Aviation Act
Section 401 fitness certificate (hence the term "certificated carrier"). Under DOT's criteria, the
differences between large and small certificated carriers are: (1) aircraft size, and (2) international
operations. Large certificated carriers operate aircraft that have more than 60 seats, or a pay load capacity
in excess of 18,000 pounds, or conduct international flights. Small certificated carriers operate aircraft
that have 60 seats or less, or a payload capacity less than 18,000 pounds, and do not conduct international
flights.
Commuters and air taxis do not require a fitness certificate but must register with DOT under 14 CFR
Part 298. Commuter air carriers and air taxis are distinguished by the type of service provided. Air taxis
primarily provide on-demand service. Commuter air carriers are defined as air taxis that also provide
published scheduled service of at least five round trips per week between at least two locations.
Operating criteria are set by FAA and are based on aircraft size and type. Carriers operating aircraft
carrying more than nine passengers, or more than 7,500 pounds payload, or are powered by turbojets must
meet the requirements of Federal Air Regulation (FAR) Part 121(14 CFR 121). FAR Part 135 operating
certificates are required for aircraft carrying nine passengers or less, or less than 7,500 pounds payload,
and is not a turbojet. Table 2-7 summarizes the combination of fitness and operating requirements for
each classification.
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Table 2-7. Air Carrier Definitions
Air Carrier
Type
Large
Certificated
Small
Certificated
Commuter
Air Taxi
Defined by Combination of Following
Description
Aircraft with more than 60 seats, or payload capacity
greater than or equal to 18,000 pounds, or conduct
international flights
Aircraft with 60 seats or less, or payload capacity less
than 18,000 pounds, and conduct domestic flights only
Air taxi with published scheduled service of at least five
round trips per week between at least two locations
Primarily on demand service
Fitness Criteria
DOT Section 401
Certificate
DOT Section 401
Certificate
Registered under
14 CFR 298
Registered under
14 CFR 298
Operating
Criteria
FAR Part 12 la
FAR Part 12 la or
FARPartl35b
FAR Part 12 la or
FARPartl35b
FAR Part 12 la or
FARPartl35b
a Aircraft carries more than nine passengers, or more than 7,500 pounds payload, or is a turbojet.
b Aircraft carries nine passengers or less, less than 7,500 pounds payload, and is not a turbojet.
Although the distinction between large certificated and other types of air carriers is clear-cut, the
distinction between small certificated and commuter air carriers is more ambiguous. Both are able to
operate the same type of aircraft and offer the same type of service. The decision to become a small
certificated carrier rather than a commuter is largely at the discretion of the operator, and hinges on
complex legal issues beyond the scope of this analysis (U.S. EPA 2000). Because BTS data and data
availability use this distinction, EPA will present results in this form in the EA. However, these two types
of air carriers can intuitively be considered very similar for understanding operational patterns and
differences between their operations and larger carriers.
For the purpose of reporting air carrier statistics, BTS further characterizes large certificated carriers by
annual revenue as shown below:
• Major carriers are airlines with annual operating revenues of more than $1 billion.
• National carriers are airlines with annual operating revenues of between $100 million and $1
billion.
• Regional carriers are airlines with annual operating revenues of less than $100 million. They
can be further categorized into large regional carriers (revenues of $20 million to $100
million) and small regional carriers (revenues of less than $20 million).
National and regional carriers tend to focus their service in particular regions of the country. Major
airlines generally provide nationwide and often worldwide service. National and regional airlines often
provide "feeder" services to major airlines by carrying passengers from smaller airports not served by
major airlines to the major airlines' operational hubs. Through code-sharing agreements, the regional
airlines can schedule such feeder flights under the major airline's scheduling code. This allows the major
airlines to appear to have scheduled service to more cities or more frequent flights to a city, while the
regional airlines gain by having its service appear to the traveler as being provided by a major airline.
Through the code-sharing agreements, major and national/regional airlines often have more
complementary relationships than competitive ones.
Foreign-owned airlines have become increasingly interested in capturing a share of the U.S. air travel
activity. Current legislation prohibits foreign airlines from moving passengers between points only in the
United States. However, "open skies" advocates are working toward allowing foreign airlines to compete
for domestic U.S. travel (Kaps 2000).
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As is the case for airports, the airline industry is dominated by a small number of very large entities.
Table 2-8 depicts the BTS air carrier traffic statistics for 2006.6 Twenty major airlines account for 84.5
percent of passenger enplanements; major and national carriers combined account for over 96 percent of
enplanements.
Table 2-8. Air Carrier Statistics (2006)
Carrier
Type
Major
National
Regional
Small
Certificated
Commuter
Total
Number
(% of
Total)
20
(13.4%)
32
(21.5%)
35
(23.5%)
35
(23.5%)
27
(18.1%)
149
Passenger
Enplanements
(thousands)
634,202
(84.5%)
88,112
(11.7%)
8,893
(1.2%)
4,146
(0.6%)
15,443
(2.1%)
750,796
Revenue
Passenger-
Miles
(millions)
733,936
(90.6%)
64,748
(8.0%)
5,763
(0.7%)
1,320
(0.2%)
4,321
(0.5%)
810,098
Available
Seat-Miles
(millions)
922,667
(89.8%)
87,643
(8.5%)
8,347
(0.8%)
2,060
(0.2%)
6,808
(0.7%)
1,027,525
Revenue
Ton-Miles
(millions)
100,193
(83.0%)
16,821
(13.9%)
3,166
(2.6%)
151
(0.1%)
423
(0.4%)
120,764
Available
Ton-Miles
(millions)
163,090
(81.9%)
29,669
(14.9%)
5,434
(2.7%)
261
(0.1%)
780
(0.4%)
199,234
Source: BTS Air Carrier Summary: Tl: U.S. Air Carrier Traffic and Capacity Summary by Service Class
The air transportation industry uses standard measures of unit capacity and utilization to account for
differences in aircraft size and routes. For passenger service, these measures are (BTS 2008b):
• Revenue passenger-miles (RPM): number of revenue-earning passengers multiplied by the
number of miles flown.
• Available seat-miles (ASM): number of aircraft seats multiplied by the number of miles
flown.
Thus, ASM measures an air carrier's capacity, while RPM measures how many of those seats were filled
by paying customers. Dividing RPM by ASM results in the "load factor;" the percent of available seat
miles that were filled. Table 2-8 shows that flying larger aircraft over longer distances, major airlines
account for about 90 percent of industry RPM and ASM.
For cargo, industry unit measures are (BTS 2008b):
• Revenue ton-miles (RTM): tons of revenue-earning cargo carried multiplied by the number of
miles flown.
• Available ton-miles (ATM): cargo-carrying capacity measured in tons multiplied by the
number of miles flown.7
6 Due to the use of different data sources there is a minor discrepancy in the number of total airlines included in
Table 2-8 when compared with other tables in this report.
7 Most cargo is carried on aircraft that also carry passengers, and therefore the tonnage available for cargo must be
adjusted to account for the weight of the passengers carried.
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Major airlines account for 83 percent of RTM and 82 percent of ATM.
2.4 Air Transportation Industry Trends
Historically, air transportation industry profitability has been highly cyclical. Recently, however, a series
of largely unforeseen events this decade seriously disrupted the demand for air travel, which in turn
generated a more pronounced dip in the air transportation industries' financial health. Even prior to the
September 11, 2001 terrorist attacks, demand for air transportation, especially associated with business
travel, had slowed due to the weakening economy (ATA 2001; ATA 2002). As air travel finally started to
return to pre-September 11th levels in 2003, the war in Iraq and the Severe Acute Respiratory Syndrome
(SARS) outbreak significantly reduced international travel, which accounts for about 25 percent of U.S.
airline RPMs (ATA 2003; ATA 2004). Currently, as the industry began recovering from these events in
2005 and 2006, increasing fuel prices are weakening the upside of the financial cycle (ATA 2005; ATA
2006; ATA 2007; Heimlich 2008). This section examines how the air transportation industry has evolved
since its deregulation, and how it has adjusted to innovations such as the entry of low-cost carriers and the
use of secondary airports.
2.4.1 Deregulation of Airlines
Deregulation in 1978 brought many changes to the structure of the airline industry; among those were
open price competition, increasingly aggressive cost and capacity control measures, and the development
of the airlines' hub and spoke network system. While airlines existing during the regulated time (hereafter
referred to as "legacy" airlines)8 struggled to compete in the new free market, new entrants were able to
enter the market. These new carriers often held several advantages over existing carriers:
• Low overhead and infrastructure costs
• Ability to purchase only capital equipment that was needed
• Lack of pre-existing labor contracts allowed for outsourcing
However, by the late 1980s many carriers, both new and old, exited the market through merger or
bankruptcy as the industry struggled to adapt to the reality of an openly competitive market. This was a
period of unusually high rates of mergers and acquisitions for the U.S. economy as a whole as well as the
air transportation industry.
2.4.1.1 Development of Hub and Spoke Networks
Legacy carriers in general developed a competitive strategy organized around the concept of a "hub and
spoke network," while reducing point-to-point service because they found it less profitable (Kaps 2000).9
The concept is that airlines route passengers from many different points of origin and different
destinations through a single major airport ("airline hub") and use connecting flights to send them to their
various destinations. Legacy airlines also began to integrate regional carriers into carrier networks where
the regional airlines act as "feeders" for the hub. The regional airlines might be independently-owned
partners with, or wholly-owned subsidiaries of the major carrier.
8 Although Southwest Airlines started operations prior to deregulation, it is not considered a "legacy" airline because
it operates on a different business model.
9 The "hub" of a hub and spoke network developed by an airline for its operational purposes should not be confused
with the FAA definition of a hub used to allocate AIP funds.
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A hub and spoke network provides several advantages to airlines, including increased service frequency
and connectivity, and overall increased density of operations. Frequent service and connectivity are
attractive to passengers, and increased density of operations might allow the carrier to increase its load
factor and perhaps use larger aircraft with lower unit costs (Borenstein and Rose 2007; Holloway 2003).
Advantage might also be gained from decreased competition at hub airports (Borenstein and Rose 2007).
Conversely, hubs can result in high capital costs and poor resource utilization as the airline must equip the
hub to service large numbers of aircraft in a short period of time, then sit idle while waiting for the next
"bank" of flights to arrive (i.e., operational peaks associated with large numbers of aircraft arriving and
departing within a short period of time; Holloway 2003).
In the context of the deicing effluent guideline, a hub has potentially significant implications for airline
operations. Operational delays at a hub can ripple throughout an airline's entire network causing further
delays and missed connections. Furthermore, a "bank" of aircraft might need deicing in a short period of
time (Holloway 2003). Thus, collecting ADF-contaminated stormwater at an operational hub might be
more difficult, and airlines might be more sensitive to the implications of deicing operations to their
schedule.
2.4.1.2 Enter gen ce of Low-Cost Carriers
In recent years, a second generation of low-cost carriers has emerged as a strong rival to the legacy
airlines. Originally considered a passing trend, low-cost carriers began to enter the market better
capitalized and with lower costs in direct competition with legacy airlines during the 1990s (GAO 2004).
The low-cost giant Southwest Airlines, which does not utilize a hub and spoke system, is the best known
example of a successful low-cost carrier, although it started operating in 1971, prior to deregulation
(Belobaba 2005). Some of the major attributes of the "low cost" business model are generally considered
to include: no-frills, single class service at discount fares, use of a point-to-point route structure between
secondary airports, and rigorously cutting costs by using a single aircraft type and quick turn-around
times, thereby reducing maintenance costs and maximizing aircraft utilization.
From 1998 to 2003, the overall market share of passenger enplanements for low-cost carriers rose from
23 percent to 33 percent, and their presence in the 5,000 largest city-pair markets (e.g., New York -
Boston) increased from 32 percent to 46 percent over the same time period. Between 1999 and 2004, all
existing low-cost carriers gained market share while four of the six legacy carriers lost market share
(GAO 2004).
The emergence and success of low-cost carriers has caused legacy airlines to revise their business models
to help them compete in a market with lower priced fares. A 2006 U.S. Government Accountability Office
(GAO) analysis found that the median price for air travel has declined by almost 40 percent since 1980 after
adjustment for inflation. Some legacy carriers, such as Delta and United developed their own low cost
divisions (e.g., Song and Ted, respectively, both of which have been phased out), and there has been some
trend away from reliance of hub and spoke route structures.
Primarily, however, legacy carriers have relentlessly cut costs, especially in the years since September 11,
2001. Although cutting costs by about 14 percent between October 2001 and December 2003, the gap
between unit costs for legacy airlines and the low-cost carriers increased. GAO found that this disparity
increased from 2.1 cents per available seat mile in 2000 to 3.8 cents per available seat mile in 2003 (GAO
2004). The cost difference is attributable to two main factors:
• Higher labor costs for legacy airlines due to long-standing union contracts.
• Higher asset-related costs of legacy airlines due to an older, more diverse aircraft fleet.
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Since 2000, overall domestic airline capacity has grown by a modest 1.9 percent. All of the growth in
capacity has occurred among low-cost carriers and regional carriers, with low-cost carriers experiencing
capacity growth rates of 57 percent. This compares with a capacity loss of 20.6 percent since 2000 for
large legacy carriers (FAA 2007b). Due to these cuts in capacity, legacy airlines saw revenue passenger
miles (RPM) fall 10.4 percent and enplanements fall 22.3 percent over the same time period. At the same
time, low-cost carriers' RPM and enplanements increased by 71.1 percent and 47.9 percent, respectively
(FAA 2007b). Low-cost carriers posted operating profits of $911.6 million and net profits of $1.5 billion
in 2006 (FAA 2007b).
As the industry has evolved, two distinct types of large carriers have evolved: the legacy carriers, and the
low-cost carriers. The advent of low-cost carriers is seen as driving much of the recent expansion in the
industry, and growth is projected to continue at a healthy rate for the next decade (assuming recent
increases in fuel prices are transitory). In addition, the development of low-cost carriers has affected the
pattern of airport utilization, as will be discussed in the following section.
2.4.1.3 Effect on Airports Served
Deregulation of the airline industry meant that the legacy carriers could select their own routes and drop
flights to unprofitable locations (Wells 1996). Foreseeing potential financial challenges to rural and less
traveled airports after deregulation, the government developed a program called the Essential Air Service
to ensure communities' access to air travel. Smaller commuter airlines have replaced larger carriers in
providing service to these airports. Even with subsidies, which are reflected in reduced passenger fares,
these smaller commuter planes are less profitable and the GAO (2007b) found that these flights are the
first flights to be eliminated during times of financial downturns.
Conversely, smaller airports have implemented new strategies to diversify and differentiate themselves.
For example, low-cost airlines seek airports where delays tend to be minimal and quick turnaround is
possible (Carney and Mew, 2003). Secondary airports that are located in relatively close proximity to
large hub airports, or at least the large metropolitan areas served by large hub airports, are able to offer
lower rates and charges, higher reliability of operations, and lower average delays than large hub airports,
which makes them attractive to low-cost airlines. This is effectively creating new regional multi-airport
systems (Bonnefoy and Hansman 2007).10
The combination of low-cost carrier and secondary airport market has made flying more cost-efficient in
many markets. For example, as Southwest Airlines, considered the benchmark for the low fare carrier
industry, has expanded its route structure, traffic at secondary airports it serves has often doubled or
tripled, leading air industry experts to coin the phrase "the Southwest effect" to describe the phenomena
(Bennett and Craun 1993). The airline's service at Manchester, NH and Providence, RI has created two
attractive alternatives to Boston's Logan airport, a major hub, for air travel to and from the greater Boston
metropolitan area.
2.4.2 Cyclical Nature of Air Travel Demand
The airline industry has undergone significant change since its deregulation. Passenger traffic and, with it,
industry revenues, have expanded. However, expenses have grown just as fast and profits have become
increasingly cyclical (GAO 2006) as seen in Figure 2-3. Immediately following deregulation, which
10 Although these airports are not necessarily under the same operational control and do not coordinate plans.
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occurred in 1978, the industry experienced a drop in profit, but by the late 1980s the industry had been in
an upswing. However, by the early 1990s, the industry was once again on a downward financial trend due
to a global economic recession.
Although exacerbated by specific events, this profile cycle seems to be inherent in the industry (Morrison
and Winston 1995; Borenstein and Rose 2007). The GAO (2006) explained one reason for the profit
cyclically of airlines is that the industry has high fixed costs for its aircraft and a costly labor structure,
which makes it difficult for airlines to reduce costs when revenues drop from outside shocks, such has
high fuel costs or declines in business travel. By the mid 1990s the industry was showing positive
operating profits, and these are considered some of the best years for the industry (GAO 2006). However,
by 2000, expenses were again higher than revenue.
In fact, prior to September 11th the industry was already forecasting losses for 2001 (Belobaba 2005).
Among concerns facing the industry in early 2001 were system capacity constraints, passenger-perceived
poor quality of service, and concerns about anti-competitive actions by dominant airlines against new
entrants (Belobaba 2005). As will be discussed further in Section 2.7.2, there are a number of
characteristics for the airline industry that create this cyclical nature.
Dollars (in billions, 2005 Altars)
100
Deregulation
/ / / / / / / / / / / / / / / / / / / £ / / / / / / / / / £ / / / / / / / /
Year
Total operating iwenue
Total operating expenses
Operating profit or less
Figure 2-3. Cyclical Nature of Airline Operating Profits Since Deregulation
Source: GAP 2006
Though airports generate a large portion of revenue from the airlines through landing fees and passenger
facility charges, there is a growing trend to generate more revenue through non-airline sources such as
parking and concessions. The more revenue an airport generates through non-airline sources, the more
attractive the airport is to airlines (as fees to airlines tend to be lower), and the more stable the airport's
revenue stream will be (Kwan 2008). More discussion about airport revenues is provided in Section
2.6.2.
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2.4.3 Growth in Air Travel
Between 2000 and 2006, total domestic airline capacity (i.e., available seats) increased by only 1.9
percent, but enplanements (i.e., filled seats) increased by 6.2 percent (FAA 2007b). The FAA forecasts
growth in enplanements through 2020 at an average annual rate of 3.5 percent.
2.4.3.1 Airport Capacity Constraint
A growing issue for airports is airport congestion. While congestion is caused primarily by an increase in
flight operations, it is exacerbated by a concurrent change in demand composition (Carney and Mew,
2003). As airlines continue to differentiate themselves by increasing flight frequency on existing routes as
well as by creating new routes (primarily of the point-to-point service variety serviced by regional jets),
airports are struggling to keep pace. Airlines have more flexibility in adjusting their operational frequency
and equipment mix than airports, which must work with an infrastructure that is largely fixed in the short
term. This results in a disconnect between airline and airport operations and operational inefficiencies in
the air transportation system. For example, the number of flights at John F. Kennedy Airport in New York
City increased 41 percent from March 2006 to August 2007 without a corresponding increase in runways
or resources available to handle increased operations (McCartney 2007).
Adding capacity requires physical space, which many of the nation's airports simply do not have. Another
barrier is that many airports are built near environmentally sensitive areas, such as waterways, that would
make expansion costly and, in many cases, prohibited. New, large capacity airports could also be
constructed to address the demand issue, but environmental and space constraints make this option
unlikely to be the primary solution (Bonnefoy and Hansman 2007). As discussed in Section 2.4.1,
secondary airports have developed as viable alternatives for passengers willing to drive in order to avoid
flying out of more congested hubs.
2.4.3.2 Change in Airline Service
Given the current constraints of the airport system, a plausible solution might be the use of larger aircraft
by airlines. The larger aircraft could carry more passengers while using approximately the same airport
resources as a smaller aircraft. The historical trend, however, is for airlines to use smaller aircraft. The
contradiction stems from increased competition among airlines post-deregulation, which has generated a
greater demand for increased flight frequency under the hub and spoke network. Thus airlines are
utilizing smaller aircraft to meet demand when more frequent flights are offered.
Additionally, for the airlines an empty seat is a lost revenue opportunity. Even if the airline offers a
discounted fare on a flight that is not completely full, it still increases its revenue more than the additional
cost of flying that passenger. Average load factor, which is the percentage of available seats filled by
revenue passengers, have been rising as shown in Table 2-9. The data shows that airlines are experiencing
more activity by increasing the number of passengers per departures. By the third quarter of 2007, the
average passenger load factor was 82.3 percent (DOT 2007).
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Chapter 2. Profile of the
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Table 2-9. Operational Highlights of the U.S. Scheduled Service Airline Industry
(in millions except as noted)
Financial Statistics
Aircraft Departures
(thousands)
Passengers Enplaned
Revenue Passenger Miles
(RPMs)
Available Seat Miles
(ASMs)
Passenger Load Factor
(percent)
2001
8,888
622.1
651,700
930,511
70
2002
9,275
614.1
642,242
894,217
71.8
2003
10,848
646.5
656,938
893,941
73.5
2004
11,401
703.0
733,680
971,466
75.5
2005
11,558
738.3
778,563
1,002,735
77.6
2006
11,264
744.2
796,795
1,005,534
79.2
% Change
2001 to 2006
26.7%
19.6%
22.3%
8.1%
9.2 pts.
Source: ATA 2007a
2.4.3.3 Introduction of Regional Jets
An increase in the number of flights available has led to a concurrent increase in the number of nonstop
flights. According to Borenstein and Rose (2007), the number of markets that had nonstop service rose
nearly 70 percent between 1984 and 2005. This increase in nonstop service coincided with the
introduction of regional jets emerging in 1992 to replace older narrow-body jets and turboprops. Regional
jets are defined as aircraft that have capacities of less than 100 passengers; these smaller planes are often
more efficient than either small turboprops or larger jets on short-haul nonstop flights. Many features of
these new aircraft made them popular with airlines. They have shorter flight times with faster turnaround
and increased flight frequency of service than turboprop aircraft (Mozdzanowska et al 2003).
EPA's analysis of BTS data, as provided in Table 2-10, shows an overall growth trend in regional jet
departures from 2000 to 2006 for passenger flights, and during this period, the reliance on regional jets
relative to turboprops has increased significantly. In 2000, departures from turboprops were about 1.5
times as common as regional jet departures; however, in 2006, regional jet departures were approximately
2.5 times more common than turboprop departures.
Overall the FAA (2007 forecast) has seen a trend for legacy airlines to decrease aircraft size while
regional carriers have been increasing aircraft size. Regional carriers have been adjusting aircraft size to
provide capacity that complements market demand.11
Increased prevalence of regional jets may affect ADF usage since the aircraft has improved the financial
viability of operating from smaller airports. Therefore air traffic at these airports is increasing. The
highest growth in regional jet departures occurred before 2004, the year of EPA's deicing survey, so EPA
believes that the information reviewed for this analysis has been captured to reflect the changing aircraft
fleet composition.
Another type of jet that has recently been introduced to the market is the Very Light Jet (VLJ). According to FAA
(2006), the VLJ is a light weight, twin jet aircraft with a maximum take-off weight below 10,000 pounds. While
currently they do not make up a significant portion of the fleet, the GAO (2007c) estimates a fleet of 3,016 to 7,649
VLJ will be in the airways between 2016 and 2025. VLJs may become significant in the air taxi market segment,
and the FAA is currently deliberating the possibility of allowing VLJs to operate on scheduled services.
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Chapter 2. Profile of the
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2.5 Survey Methodology and Counts by Industry
For the proposed rule analysis, EPA used the Airport Deicing Questionnaire and the Airline Deicing
Questionnaire (hereafter referred to as surveys) to collect operational and economic data from a sample of
airports and airlines potentially affected by the rule. EPA used its authority under Section 308 of the
Clean Water Act to collect information that was not otherwise available, such as airport/airline-specific
deicing budget data.
EPA used these detailed data in the models used to project the impacts of the proposed effluent guideline
and to improve its understanding of the air transportation industry. The methodologies used to define the
sample frames for the airport and airline sectors of the industry differed, and will be discussed in turn
below. The rulemaking docket provides copies of the survey instruments (DCNs AD00354 and
AD00355) and detailed information regarding implementation of the surveys.
Table 2-10. Regional Jet Versus Turboprop Departures (Passenger Data)
Year
2000
2001
2002
2003
2004
2005
2006
Regional Jets
Number of
Departures
752,359
899,258
1,392,161
2,435,860
3,001,216
3,347,156
3,260,910
% Change from
Previous Year
NA
19.5%
54.8%
75.0%
23.2%
11.5%
-2.6%
Turboprops
Number of
Departures
,183,591
,058,617
,133,799
,752,518
,602,674
,414,656
,332,470
% Change from
Previous Year
NA
-10.6%
7.1%
54.6%
-8.6%
-11.7%
-5.8%
Source: BTS T-100 database
2.5.1 Airports
This section focuses on the airport survey, which collected information on ownership structure, financial
relationships with airlines, and funding sources for capital expenditures. Information to classify airports is
based on BTS T100 data (available at www.transtats .bts.gov) and the National Flight Data Center
Database (available at www.faa.gov/airports_airtraffic/airports/airport_safety/airportdata_5 010).
2.5.1.1 Sample Frame
EPA developed a sample frame design for the airport survey based on airport size and climate. Although
deicing operations are prevalent at colder climate airports, EPA needed to determine the extent that
airports in warmer climates also have anti-icing operations. For example, flights that originate at these
airports may land in airports with wintry weather conditions. Additionally, dry-weather deicing may also
be performed on some types of aircraft whose fuel tanks become super-cooled during high-altitude flight,
resulting in ice formation at lower altitudes and after landing. Thus all airports classified by FAA as large
and medium hubs, regardless of climate, were sampled with certainty. These large and medium hubs
account for 80 percent of commercial departures and enplanements. Five general aviation airports with at
least five cargo departures on average per day were also surveyed as a judgment sample to better
understand deicing/anti-icing operations at small airports with significant cargo-only service.
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EPA also selected all small and nonhub airports (excluding Alaskan airports) with at least 30,000 annual
jet departures. The remaining airports were stratified by the number of significant snow or freezing
precipitation days (SOFP) as determined by the NOAA data (see Figure 2-1). EPA selected 14.5 SOFP
days for stratification, and oversampled those airports with more than 14.5 SOFP days per year.
One medium hub airport in Alaska was sampled with certainty. EPA then selected a judgment sample of
small and nonhub Alaskan airports to better understand their deicing/anti-icing operations and economic
profile as a judgment sample. EPA chose airports based on activity that would capture the major climate
zones in Alaska (e.g., coastal). Due to its operational and financial structures, EPA analyzed the data
separately, which is discussed in Section 2.9.
2.5.1.2 Airport Count by Category
EPA distributed the Airport Deicing Questionnaire to the industry in April 2006. The questionnaire was
sent to atotal of 152 airports,12 which included all large and medium hub airports, all five airports
designated by EPA as general aviation/cargo airports, as well as a sample survey of all small and nonhub
airports. EPA also included judgment sample airports with specific treatment technologies and Alaskan
airports. The response rate for the Airport Questionnaire was 98 percent. Table 2-11 shows the
distribution of surveyed airports by size class.
Table 2-11. Airport Survey Sample Stratification
Airport Category1"
Large Hub
Medium Hub
Small Hub with > 30,000 Jet Departures
Small Hub < 30,000 Jet Departures
Nonhub
SOFP Days
NA
NA
NA
<14.5
>14.5
<14.5
>14.5
Total Population
33
35
6
38
24
99
134
Total # Sampled
33
35
6
6
9
13
31
Judgment Sample
General Aviation/Cargo
Alaska3
Specific Treatment Technologies
Total
NA
NA
NA
5
85
NA
459
4
11
4
152
a Airports included one medium, two small hubs, seven nonhubs, and one non-primary commercial service, from
a total population of 85 commercial service airports.
b Airport classifications may change from year-to-year because they are based on the number or percent of
passenger boardings at each airport. The number of airports by category differs in this table from Figure 2-1 and
Table 2-2 because they are based on classification at the time of stratification; the numbers in the previous table
represent the most current airport counts.
12 One hundred and fifty three airports were surveyed. However, one general aviation/cargo airport was located on a
military airport and therefore determined to be out of scope for this analysis.
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2.5.2 Airline/Airport Combinations
Once the airport selection was completed, EPA then identified the airlines that serve the sampled airports
based on information available in the BTS T100 data and the National Flight Data Center Database. The
resulting airline/airport combinations were then stratified into two groups: those with at least 20,000
annual departures and those airline/airport combinations with less than 20,000 annual departures. All
airlines with more than 20,000 annual departures at a surveyed airport received a questionnaire, as well as
a sample of airlines with more than 1,000 annual departures at each surveyed airport. Any airline that
reported a yearly departure rate of less than 1,000 jet flights (i.e., three flights per day) is unlikely to
generate a substantial impact on stormwater discharges related to deicing and thus EPA excluded these
airlines from the survey. EPA also limited the number of requests to any one airline to 20 airports or less
to reduce burden on the airline. EPA sent the airline survey to 58 airlines covering deicing operations at
54 airports. The response rate was 84 percent.
2.6 Airport Management
This section discusses in more detail the structure of airport ownership and financial management. It also
presents data showing the financial characteristics of different airport types.
2.6.1 Airport Ownership and Management
Commercial airports in the United States generally fall under one of two main forms of ownership: quasi-
governmental authorities (single purpose airport authorities or multipurpose port authorities) or
multipurpose governments (e.g., cities, counties, states). This section examines the distribution of
ownership types at airports throughout the United States.
The Transportation Research Board's analysis (2007) of the ownership structures of the nation's top 100
airports in 2005 (as determined by annual enplanements) is shown in Figure 2-4 below. Figure 2-4 also
compares ownership answers provided by the Section 308 survey data based on 2004 data. Both data sets
indicate that local governments (made up of city, regional, county and state governments) account for 58
percent of airport ownership. Authorities, which are quasi-local or regional governmental organizations,
own approximately 40 percent of airports. Airport authorities tend to be independent entities in which a
government official selects the group of commissioners that govern the airport.
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Top 100 Airports (2005) Surveyed Airports (2004)
Other
State 3%
7% ~" - >-"H!^^ State
11%
_ _____ Authority , _______
Regional / ^^ iH|^& 39% / ^V^.^A Authority
5% / ^•HHn / ^VHHHHI 41%
_., _ . - City or County ,
City or County --_____- *
46%
Figure 2-4. Airport Ownership
Source for Top 100 Airports: TRB 2007; Source for Surveyed: EPA Deicing Survey
As airline business models change, airport ownership structures may change as well. There is currently a
movement toward an increasingly commercial mindset in airport operations with growing interest in
allowing private ownership of commercial service airports. Currently, FAA regulations stipulate that
airport revenues cannot be used to fund off-airport projects. This law prohibits private owners from
making a profit for its shareholders, which is a major disincentive for private investors. In 1997, Congress
established a pilot program to allow FAA to explore privatization as a means to generate access to private
capital for airport improvement and development. Under the program, private companies may own,
manage, lease, and develop public airports. These entities would be allowed to divert revenue from the
airport (e.g., profit) and still qualify for federal financial assistance.
Aside from current restrictions, another issue working against private ownership is lack of access to low-
cost capital. Publicly owned airports can impose PFCs, apply for AIP grants,13 and issue tax-free
municipal bonds; privately owned airports do not have access to these funding sources. More discussion
about these funding sources is provided in the next section.
Stewart International Airport in New York privatized under the pilot program, but in 2005, the airport was
withdrawn from the program. During the same time period, several other airports also applied, but
ultimately withdrew their applications. FAA believed that airport owners proposed privatization as a
means to generate development capital rather than use available tax-exempt financing. During its review
of the program, FAA (2004a) found that all the airports that had applied for the pilot program were
operating with losses, which may have impaired its access to low cost financing. Currently, the City of
Chicago has applied for Midway International Airport's participation in the pilot program.
13 The FAA-managed AIP provides grants to public agencies and, in rare cases to private entities, for the planning
and development of public-use airports.
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While the anticipated trend toward full-scale privatization of airport operations has certainly stalled, it
does not mean that airports are shunning privatization altogether. Carney and Mew (2003) suggest that
airports are developing different arrangements, such as outsourcing certain operations to private firms,
such as concessions or parking, but the overall management of the airport remains in the public sector.
2.6.2 Airport Financial Management
This section provides a look at airport financial management, including the various components of airport
revenue streams, typical accounting practices and how they may factor into EPA's impact analysis, and
finally how estimates of net operating revenues (operating revenues less operating expenditures) may
inform EPA's impacts analysis.
2.6.2.1 Funding Methods
The financial and operational relationship between airlines and airport is defined in the airport use
agreement. This document specifies how the risks and responsibilities of running the airport will be
shared, how rates for using facilities and services are calculated, and how frequently these rates and
charges may be adjusted.
Airport financial management is fundamentally different from most other business enterprises, because
many airports have traditionally used a residual-cost approach to finances. Under this approach, the
airlines assume the financial risk of running the airport by agreeing to pay any costs of running the airport
not paid by non-airside sources of revenue. This approach became the standard before deregulation and is
still used by the majority of large commercial airports (Wells 1996). Since the airlines are assuming part
of the risk, they often enact "majority-in-interest" clauses, which requires the airport to consult and
receive approval by the airlines before undertaking capital expenditures. GAO (2001) found that majority-
in-interest clauses provide dominant airlines at an airport "veto" power, in effect, over large capital
projects that could increase capacity. A survey conducted in 1998, found that 84 percent of airport/airline
residual use and lease agreements include a majority-in-interest clause (FAA and OST 1999).
Under the alternative compensatory approach, the airport assumes the financial risk; airlines pay rates set
equal to their estimated cost of using the facility. Using the compensatory approach, there is no guarantee
the airport will cover costs; however, the airport can keep any surplus revenue over cost and accumulate
capital for future development. Only 20 percent of the airports surveyed in 1998 with a compensatory use
and lease agreement had a majority-in-interest clause in their agreements (FAA and OST 1999).
Many airports use a mixed approach of residual and compensatory funding, with some rates and charges
and some airline buy-in. Of the 213 weighted responses to this question from the EPA deicing survey, a
smaller percentage are using a pure residual cost method than a compensatory or mixed approach as
illustrated in Table 2-12.
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Table 2-12. Airport Funding Methods (2004)
Funding Method
Residual
Compensatory
Mixed
Other
Number of Weighted Respondents
41
78
73
21
Percent of Weighted Respondents"
18.8%
35.8%
33.5%
9.6%
""Percentages do not add to 100 because 5 weighted respondents did not answer this question.
Source: EPA Airport Deicing Questionnaire
Determining the financial risk of an airport depends on the number of carriers it hosts; those with one
primary carrier are more vulnerable to an unstable economy than those with competing airlines and
diversified market shares. Airports with smaller and fewer air carriers are even more vulnerable than
primary airports because their operations are more likely to be reduced in the case of an economic
downturn. As a result of the downturn in air transportation after September 11, 2001, airports that host
large carriers were seeing with increasing frequency a reduction in carrier hub presence and the breaking
of long-term lease agreements (DOT 2003).
Recently airports have been working to become more financially stable through reducing costs to carriers
and increasing their revenue. According to the U.S. DOT, they have taken part in various efforts to reach
this goal by: refinancing debt at lower interest rates, redirecting passenger facility charge (PFC) revenues
to reduce airline charges, reducing expenditures on non-essential operations, raising revenue by applying
for reimbursement on security costs, and increasing non-airside rates. The airports have also engaged in
adjusting income-sharing to increase the airlines' share and offering benefits to airlines by allowing them
additional time to repay underpayments (DOT 2003).
Often airport operating statements breakdown operating revenues and expenditures for key cost centers.
Typical cost centers might be:
• Airfield operations (e.g., runways, taxiways, aprons).
• Terminal area concessions (e.g., food and beverage services, car rentals, specialty shops,
personal services, amusements, advertising, ground transportation, hotels).
• Airline leased areas (e.g., ground equipment rentals, offices, ticket counters, cargo terminals,
hangers, operations and maintenance areas).
• Other leased areas (e.g., fixed-based operators (FBO), freight forwarders, government offices,
business in airport industrial parks, equipment and cargo terminals rented by non-airline
users).
Table 2-13 shows that of the 73 weighted respondents using a mixed approach, the majority (84.9
percent) use the residual-cost approach to determine airline fees for airfield operations based on the actual
cost of running these areas, while a much larger percentage of airports use a compensatory approach for
terminal concessions.
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Table 2-13. Portions of Revenue Collection Using Residual-Cost Approach When Airport Uses
Mixed Approach Overall
Method
Airfield operations
Terminal area concessions
Airline leased areas
Other leased areas
Number of Respondents
62
15
22
16
Percent of Respondents
84.9%
20.5%
30.1%
21.9%
Source: EPA Airport Deicing Questionnaire
2.6.2.2 Revenue Categories and Operating Profit
Commercial service airports are required to annually file standardized financial statements with FAA
(Form F-127). This section takes a closer look at the airport operating revenues and expenditures as
reported to the FAA. These statements request revenue data for the following categories:
Aeronautical Operating Revenue
• Landing fees
• Terminal/International arrival area rental or other charges
• Apron charge s/tiedowns
• FBO revenue (contract or sponsor-operated)
• Cargo and hangar rentals
• Aviation fuel tax retained for airport use
• Fuel sales net profit/loss or fuel flowage fees
• Security reimbursement
• Miscellaneous
• Other
Non-aeronautical Operating Revenue
• Land and non-terminal facilities
• Terminal - food and beverage
• Terminal - retail stores
• Terminal - other
• Rental cars
• Parking
• Miscellaneous
• Other
As discussed earlier, airline payments to the airport (e.g., landing fee, terminal rentals) are often
established in airport use agreements. The most common financial mechanisms include a square footage
charge for rented space and a landing fee based on aircraft weight. Signatory airlines are committed to
leasing airport resources for a fixed period of time.
Table 2-14 lists eight general categories of revenue generation. Large hubs generate the largest portion of
their revenue from landing fees (22.7 percent) and terminal rentals (24.5 percent). As hub size decreases,
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Chapter 2. Profile of the
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the proportion of revenue generation from these two sources steadily decreases down to 10.2 percent for
landing fees and 11.9 percent for terminal revenues for nonhubs. The top revenue generator for medium
and small hubs is parking (25.8 and 22.9 percent of total revenue generated, respectively). Nonhubs
generate the largest proportion of their total revenue from ground/land rentals (15.2 percent) and "other
aviation" fees (29.4 percent). Significant proportions of the "other aviation" revenue for nonhubs comes
from FBOs (5.4 percent), cargo and hangar rentals (7.8 percent), and fuel sales and flowage fees (10.2
percent). "Other aviation" fees and ground/land rentals are relatively small revenue generators for larger
hubs.
Table 2-14. Airside and Non-airside Operating Revenues and as a Percent of Total Revenues
Revenue Categories
Landing Fees
Terminal Rentals
Other Aviation
Ground/Land Rentals
In Terminal Concessions
Rental Cars
Parking
Other
Total
Total Revenue by Hub Size (millions)
Large
$1,865.5
$2,016.4
$753.7
$257.6
$875.0
$623.8
$1,318.0
$515.1
$8,225.0
Medium
$451.0
$511.5
$213.9
$81.3
$159.2
$274.4
$603.8
$49.4
$2,344.5
Small
$149.0
$191.1
$130.1
$91.8
$60.0
$151.2
$238.9
$32.2
$1,044.3
Non
$54.4
$63.5
$157.2
$81.5
$18.8
$63.1
$65.4
$31.3
$535.1
Percent Revenue by Hub Size
Large
22.7%
24.5%
9.2%
3.1%
10.6%
7.6%
16.0%
6.3%
100.0%
Medium
19.2%
21.8%
9.1%
3.5%
6.8%
11.7%
25.8%
2.1%
100.0%
Small
14.3%
18.3%
12.5%
8.8%
5.7%
14.5%
22.9%
3.1%
100.0%
Non
10.2%
11.9%
29.4%
15.2%
3.5%
11.8%
12.2%
5.8%
100.0%
Source: FAA AAS-400 CATS Report 127 by Hub Size for Year 2004
EPA further explored the revenue differences among airport hub sizes in Table 2-15. Average operating
revenues at medium hubs are 23.2 percent of those at large hubs; for small and nonhubs those figures are
7.2 percent and 1.1 percent respectively. Similarly, the revenue generation by airports through landing
fees is on par with operating revenues with average landing fees at medium hubs 20.0 percent of those at
large hubs; for small and nonhubs those figures are 4.8 percent and 0.7 percent respectively. The
difference among airport sizes is significant to this analysis in at least two ways. First, rates and charges
(e.g., landing fees) tend to be a key means for airports to pass compliance costs through to airlines.
Second, landing fees might also be indicative of an airport's market power when negotiating with airlines.
More discussion about the ability to pass the proposed rule's compliance costs on is found in Section
2.8.2.
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Table 2-15. Average Revenues and Expenditures by Hub Size, 2002-2006
Airport Count
Total Operating Revenues
As Percent of Large Hub Average
Landing Fees
As Percent of Large Hub Average
Concessions Revenues
As Percent of Large Hub Average
Parking Revenues
As Percent of Large Hub Average
Total Operating Expenses
As Percent of Large Hub Average
Net Operating Revenues
As Percent of Large Hub Average
Large Hubs
33
$259,059,243
-
$57,985,445
-
$40,486,606
-
$42,276,451
-
$165,811,794
-
$93,247,449
-
Medium Hubs
35
$60,033,358
23.2%
$11,600,777
20.0%
$10,496,019
25. 9%
$15,605,612
36.9%
$37,771,069
22. 8%
$22,262,289
23.9%
Small Hubs
25
$18,778,255
7.2%
$2,809,179
4.8%
$3,115,883
7.7%
$4,825,623
11.4%
$12,321,288
7.4%
$6,456,967
6.9%
Nonhubs
54
$2,789,776
1.1%
$387,957
0.7%
$383,742
0.9%
$495,553
7.2%
$2,722,125
1.6%
$85,835
0.1%
Source: EPA analysis of FAA Form 127 airport financial data. Surveyed airports only.
Finally, more than 75 percent of the airports sampled in the EPA Deicing Questionnaire indicated that
they received no direct operating subsidies from state, city, or county governments in 2004.
2.6.2.3 Cost Tren ds
For airports, much of the direct impacts from the events of September 11, 2001 are reflected in changes in
protocol and safety measures. FAA (2004b) found that airports experienced a decline in financial health
due to increased security costs combined with reduced revenue from decreased air travel. These airports
had substantial fixed costs that provided few options for quick reduction of operating costs. EPA
conducted a literature review, but found limited information regarding the direct financial impacts on
airports with the exception of changes to security procedures. Much of the literature discussed the
significant impacts to the airlines, which results in an indirect effect on airports (e.g., reduced collection
of landing fees and other passenger-based charges).
2.6.2.4 Capital Financing
If an airport implements enhanced deicing/anti-icing pads and other storm water environmental mitigation
projects, it will likely pay for the new infrastructure as a capital expenditure. The primary capital funding
sources available to airports (e.g., bonds, AIP grants, PFCs, state/local contributions) are discussed in the
following subsections.
2.6.2.4.1 Airport bonds
As publicly owned entities, airports do not access private equity markets and instead issue debt through
the municipal bond market. There are four principal types of bonds generally issued by airports to fund
capital expenditures (TRB 2007):
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• General obligation (GO) bonds
• General airport revenue bonds (GARBs)
• PFC-backed bonds
• Special facility bonds
GO bonds have been the primary capital financing tool in recent years for the nation's smaller airports;
GARBs, however, are most commonly used overall for financing airport infrastructure improvements
(TRB 2007). As most of the bonds issued by airports are municipal bonds, they are usually tax-exempt for
the purchasers. While many airlines have defaulted on their debt issuances, no airports have defaulted
(DOT 2003, Kaps 2000). Because revenue to pay the bond debt is based on airlines serving that airport,
bond investors recognize the connection between airline health and airport revenues (Schoenberger 2003).
2.6.2.4.2 AIP grants
Airport Improvement Program (AIP) grants are administered by the FAA and funded through aviation
user taxes. AIP grants are not equally available to all airports; in fact, there are at least six mechanisms for
granting AIP funds to airports:
• Entitlement funds
• Small airport funds
• "Set aside" funds
• State apportionments
• Nonprimary apportionments
• Discretionary funds
Prior to applying for AIP grants, airports must meet the eligibility requirements. The airport must be
included in the NPIAS and meet one of the following criteria:
• Publicly owned
• Privately owned but classified by FAA as a reliever airport
• Privately owned with a minimum of 2,500 annual enplanements
AIP funded projects must be directly related to the safety and construction or rehabilitation of airstrip-
related areas and activities. Aesthetic improvements to the grounds, hangars, offices, parking lots, or the
terminals are not eligible. For large and medium primary hub airports, AIP funds can cover up to 75
percent of costs (80 percent for noise reduction projects), and for small primary, reliever, and general
aviation airports, they can cover up to 95 percent of costs.
In FAA Order 5100.38C, Airport Improvement Program Handbook (effective June 28, 2005) FAA
includes aircraft ground deicing and anti-icing systems as eligible safety projects (FAA 2005b). Section
547(d) states:
At commercial service airports, construction or reconstruction of aircraft deicing, anti-icing,
and ice inspection facilities on the ground, including pavement, drainage, fluid collection, and
environmental mitigation to reduce storm water discharge contamination, is eligible when
designed in accordance with Advisory Circular 150/5300-14 [i.e., FAA design standards].
During fiscal year (FY) 2007, the FAA issued 2,022 AIP grants totaling more than $3.3 billion. EPA
reviewed grants made in 2005 and 2006 for aircraft deicing containment facility construction or
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rehabilitation. Table 2-16 depicts those airports receiving grants specifically related to deicing
containment.
Because demand for AIP grants is greater than AIP funds (GAO 2007) and airport sponsors must apply
for project-specific grants, a process that is time consuming and costly, EPA does not assume airports will
be able to use AIP grants to pay for projects to meet effluent guidelines.
Table 2-16. AIP Grants Awarded for Aircraft Deicing Related Projects
Airport
Akron-Canton Regional
Bandette International
Bangor International
Buffalo-Niagara International
Denver International
Detroit Metropolitan
Kansas City International
Morgantown Municipal
Scott Air Force Base/Midamerica
Toledo Express
Pittsburgh International3
2005 Grant
$5,000,000
$553,932
$1,384,222
$13,211,130
$2,950,000
$7,464,005
$1,018,589
$709,672
$746,767
2006 Grant
$5,000,000
$816,891
$3,450,000
$4,463,462
$861,735
$2,663,274
a For the design and permitting for environmental mitigation in conjunction with existing deicing treatment
plant.
Source: EPA analysis of FAA 2007d and 2008b
2.6.2.4.3 PFCs
Since the early 1990s, most of the nation's passenger service airports have been able to fund capital
development projects using a passenger facility charge (PFC). Approved airports are allowed to collect
PFC fees of up to $4.5014 for every enplaned passenger. The FAA manages the program and is authorized
to approve an airport's application to participate and the specific projects for which the collected money
will be used. Eligible PFC-funded projects include those that:
• Enhance safety or security of the national air transportation system.
• Reduce airport noise.
• Facilitate competition between or among air carriers.
Airlines collect the PFCs when tickets are purchased and forward the funds to the airports. PFC revenues,
which totaled more than $2.4 billion in 2006, can be applied to projects two ways: (1) "pay-as-you-go", in
which the revenues and interest are directly spent on capital projects, or (2) leveraged to repay debt (TRB
2007). Table 2-17 provides a break down of the PFC as a percent of the total operating revenue by hub
size.
14
There have been legislative efforts recently to increase the PFC (GAO 2007).
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Table 2-17. PFCs as Percent of Total Operating Revenues (2003-2006) and Total Value (2006)
FAA Hub
Size
Large
Medium
Small
Nonhub
PFCs as % of Total Operating Revenues
2003
17.7%
15.7%
13.1%
6.6%
2004
18.9%
16.8%
14.6%
7.1%
2005
19.4%
16.5%
15.4%
7.4%
2006
19.4%
17.0%
15.7%
7.0%
Total Value of PFCs
2006
$1,814,337,475
$388,841,623
$178,209,216
$62,144,102
% of Total PFC
Revenue in 2006
74%
16%
7%
3%
Source: EPA calculations on BTS Form 127 Airport Financial Data
The GAO found that large and medium hub airports participate at a higher rate than small airports for
various reasons. Of the total PFC funding, large airports receive the most benefit since the fee is based on
enplanements. As seen in Table 2-17, large airports received 74 percent of total PFC revenues. For the
small airports, revenues from the PFCs may be too low (i.e., too few enplanements) to offset the expected
costs of applying and administering the program. In an effort to combat this inequity, $0.50 of every
dollar up to 50 percent of the annual revenues collected by large airports is transferred to FAA to be
added to the general PFC fund. These PFCs are awarded to other commercial service airports to fund
capital investment projects (FAA 2007b).
As of May 1, 2008, the FAA had approved 372 airports to collect PFCs. Of these, 280 (75 percent) were
approved to collect at the maximum level of $4.50. Total approved PFC collections were approximately
$62.1 billion as of May 1, 2008, although actual collected amounts are less (FAA 2008d). These data
indicate that since most airports currently approved to collect PFCs are already doing so at the maximum
rate, the ability of PFC revenues to cover additional increased capital expenditures (whether directly or as
the revenue stream to cover bond issues) is questionable.
2.6.2.4.4 State and Local Contributions
The GAO (2007d) examined state and local government contributions to airports and found that they
contribute $0.7 billion of total annual airport capital funding of $13 billion annually (or 4 percent of the
total). The same GAO report also provides information on the distribution of the grant funds to various
airport categories as presented in Table 2-18. A majority of the state and local funding (57 percent) is
directed toward general aviation reliever airports.
Table 2-18. Distribution of State Funding
Airport Category
Large Hub
Medium Hub
Small Hub
Nonhub
Non-primary CS
General Aviation/Reliever
Percent of State Grants Received"
7%
7%
7%
7%
2%
57%
aThe report does not document the distribution of the remaining 13 percent of grants.
Source: GAO (2007d)
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2.6.2.4.5 Overview of Capital Funding
Annual capital expenditures by the nation's airports are substantial, and a variety of funding sources exist
to cover these expenditures. The GAO estimated the source of airport capital funding as listed in Table 2-
19. The report further stated that large and medium hub airports accounted for 72 percent of all capital
expenditure ($9.4 billion annually). Their finding that grants and state/local contributions make up a
smaller proportion of funding is consistent with EPA's survey responses.
Table 2-19. Sources of Airport Funding (2001-2005)
Funding Source
Airport bonds
AIP grants
PFCs
State and local contributions
Total
Average Funding
(billion, 2006 $)
$6.5
$3.6
$2.2
$0.7
$13
Percent of Total
Funding
50%
29%
17%
4%
100%
Source: GAO 2007d
For a more detailed look at this information by hub size, EPA examined the responses to its Airport
Deicing Questionnaire.15 The answers provided by surveyed airports were slightly different than what is
reported in aggregate in the GAO report. Table 2-20 below provides a breakdown of weighted responses
to the question of airport capital financing.
Table 2-20. Capital Expenditure Financing (2001-2005)
Hub Size
Large Hubs
Medium Hubs
Small Hubs
Nonhubs
Grants
AIP
13.7%
34.4%
55.7%
70.9%
Other
3.7%
5.7%
2.9%
8.4%
"Pay As You Go" Financed By:
PFCs
16.2%
18.3%
20.1%
7.2%
Rates and
Charges
8.0%
11.1%
9.5%
5.5%
Other
18.0%
10.9%
9.6%
21.3%
Airport
Bonds
46.8%
44.8%
20.8%
12.4%
Source: EPA's Airport Deicing Questionnaire
In EPA's survey responses, between 12 percent and 47 percent of respondents of capital expenditures
were financed with bonds in the previous five years, compared with GAO's estimate of 50 percent.
Airport bonds were the largest source of funds for large and medium hubs. The largest source of capital
funding reported by small hubs and non hubs were grants, the majority of which were AIP grants.
As shown in Figure 2-5, the GAO (2007d) found that airport projects planned for 2007-2011 exceed past
funding levels by approximately $1 billion annually. Although some of these projects are ineligible for
AIP grants ($5.8 billion), atotal of $8.2 billion of AIP eligible projects is larger than the historical AIP
funding of the five year period 2001-2005 at $3.6 billion. Some of difference is funded by other sources,
such as PFC ($2.2 billion) and airport bonds ($6.5 billion).
15 The specific question: "Using readily available information, characterize the percentage of capital expenditures at
this airport of the last five years accounted for by [the categories shown in part in the first column of Table 2.19]."
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As Figure 2-6 shows, the GAO (2007d) found that average annual planned development at larger airports
for 2007-2011 exceeds the average annual funding from 2001-2005 by approximately $600 million. From
2001-2005, larger airports collected an average of $9.4 billion each year while they plan to spend $10
billion each year from 2007-2011. Of the $10 billion in planned development costs, $5.7 billion (57
percent) is planned to go towards AIP ineligible projects. Funding through PFCs ($2.0 billion) and
airport bonds ($5.9 billion) will help fund the majority of these development projects.
Average Annual Fun
State and loca
$14 000 contnbutlons
$12,000 -
$10 000
$8,000 -
°00 -
$6,458
$2,000 -
on
(2006 dollars in millions)
Standards,
Capacity,
Terminal,
$5,295
2007-2011
Reconstruct-
ion security,
safety,
environment,
noise, $2,449
AIP Ineligible,
$5,738
1
(2006 dollars in millions)
Figure 2-5. Comparison of Past Airport Funding to Future Development Costs
Source: GAO 2007d
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Average Annual Funding, 2001-2005 Average Annual Planned Development, 2007-2011
Other access
$10,000 -,
$8,000 -
$6,000 -
$4,000 -
$2,000 -
$0
State and local
, . 10,000 -,
contributions, $9 424
$198
AIP, $1,327
PFCs, $1,976 $8>°°° -
$6,000 -
$4,000 -
GARBs,
$5,921
$2,000 -
fn
(2006 dollars in millions)
Terminal,
$1,118
Capacity,
$1,416
$10,010
standards,
$614
Reconstruct-
ion, security,
safety ,
environment,
$1,199
AIP Ineligible,
$5,663
(2006 dollars in millions)
Figure 2-6. Comparison of Larger Airports' Past Funding to Future Development Costs
Source: GAO 2007d
2.6.2.5 Net Operating Rev en ues
The FAA reported that airports have recovered financially from the difficulties of the early 2000s (Shaffer
2007). However, they also found a direct relationship between the size of the airport (measured by
passenger enplanements) and the net operating revenues of the airport. Large and medium-sized airports
consistently earn positive net revenues. FAA's review found them financially stable in large part because
of their ability to tap into funding sources beyond federal grants, such as GARBs and PFCs. However, it
goes beyond this; the ability of large and medium-sized airports to tap into bond markets is at least
partially a function of their ability to earn positive net revenues, that is, to earn revenues over and above
costs that can be used to pay for the bonds.
Although small hub and nonhub primary airports have returned to the financial health levels of the late
1990s, these airports are not as financially stable as their larger counterparts. FAA found that even with
the option to collect PFCs, many of these airports continue to rely on federal AIP grants for major capital
improvements (Shaffer 2007).16
16 This may be related to the variance in year-to-year passenger enplanements at these airports. Passenger
enplanements at smaller airports appears to vary more (relative to their average) than at larger airports. Thus, the
stream of revenues from PFCs may be too uncertain to be used to guarantee sufficient backing for a bond issue.
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2.6.3 Airport Finance and the Economic Impact Analysis
There are a number of distinguishing features of this industry that make the analysis different from the
type of analysis EPA would perform for a more traditional for-profit manufacturing industry. Almost all
potentially affected airports are publicly owned and operated by local, county, or state governments, or by
quasi-governmental authorities created to operate the airport. As governmental or quasi-governmental
entities, airports do not earn a profit or loss in the traditional financial sense; in fact, many airports have
been operated with the expectation that they will break even financially, with airline customers legally
required to cover expenditures in excess of costs.
In addition, airport capacity is constrained, especially in the short run, and the demand for large capital
expenditures necessary to maintain and expand U.S. airport network significantly exceeds supply.
Although airports have access to federal, state, and local government grants, and PFCs, it is not clear
these funds are available to meet capital expenditures associated with meeting effluent guidelines.
Airports will likely have to rely on the bond market and airline rates and charges. As the preceding
analysis shows, these are not equally available to all types of airports.
2.7 Airline Financial Management
2.7.1 Historical Overview of Airline Profitability
The year 2006 represented the first profitable year for the airline industry since 2000. Increased revenues
were attributed to "solid growth in passenger, cargo and ancillary revenues, and against a backdrop of 3.3
percent growth in real U.S. gross domestic product (GDP)" (ATA 2007b). Passenger revenues in 2006
were 0.75 percent of U.S. GDP, still well below the pre-September 11, 2001, share of 0.95 percent (ATA
2007b). While revenues increased in 2006, so did operational expenses. The increase in operational
expenses of 3.6 percent is largely attributed to higher fuel prices (which is discussed in Section 2.7.2.4).
Following September 11, 2001, major airlines cut the number of flights by 20 percent or more, and one
carrier ceased operations entirely (GAO 2001). As a result of decreased airline traffic, many airlines
grounded part of their existing fleet and delayed delivery of new aircraft that had been on order (FAA
2007). The largest effect on airlines following September 11, 2001, was an increase in operating costs.
This increase occurred for several reasons:
• Unit costs increased due to lower aircraft utilization, brought about by schedule reductions.
• Increased security requirements and associated delays decreased airline productivity.
• Both aircraft insurance and liability insurance costs increased substantially.
In addition to the costs above, airlines were also faced with the implementation of the Aviation Security
Infrastructure Fee (ASIF) to cover Transportation Security Administration screening costs (Belobaba
2005). The fee is directly passed to passengers at an amount of $2.50 added to the fare for the first two
legs of a flight in each direction (TSA 2004) (i.e., amaximum charge of $10 roundtrip).
In 2003, the airline industry suffered another sharp decrease in demand for flights, particularly to the
Asian market, due to the SARS crisis. Since SARS is spread through inhalation of airborne droplets,
primarily in areas of close contact with many people, it was of particular concern to airlines and airline
passengers. United Airlines saw scheduled revenue passenger miles decrease by about 6 percent in
March, 2003 compared with one year earlier; the airline's passenger load factor declined from 78 percent
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in March 2002 to 74 percent in March 2003. US Airways also saw declines in revenue passenger miles
(down 16 percent in March 2003 over March 2002) (Gola 2003).
Between 2001 and 2005, the airline industry incurred operating losses of nearly $28 billion (GAO 2006).
Table 2-21 lists various financial statistics for domestic operations only, by airline type over the five-year
period from 2002 through 2006. The majority of airlines posted negative operating profit and net
income.17 On average, only national, commuter and domestic cargo carriers earned positive operating
profits and only regional and domestic cargo carriers posted average positive net income from 2002 to
2006.
Table 2-21. Five-Year Average Financials for Domestic Operations by Airline Type
(2002-2006)
Airline Type
Major Carrier
National Carrier
Regional Carrier
Medium Regional Carrier
Commuter Carrier
Small Certified Carrier
Domestic Only All Cargo
Five- Year (2002-2006) Average Financials (in thousands)
Operating
Revenue
$6,188,971
$416,058
$46,735
$12,968
$31,488
$4,981
$544,950
Operating
Expenses
$6,404,253
$398,878
$47,228
$15,042
$26,916
$5,066
$528,641
Operating
Profit
-$215,282
$17,180
-$493
-$2,074
$4,571
-$85
$16,310
Net Income
-$622,568
-$13,490
$82
-$2,603
-$2,969
-$163
$24,073
Source: BTS Air Carrier Financial Reports (Form 41), Schedules P-l 1 and P-12.
By 2006, however, there were gains in all operating revenue categories, with the exception of the charter
market. Table 2-22 presents summary financial statistics for U.S. airlines, 2005-2006. Both operating
and net profit margins improved, with net profit becoming positive. Particularly important to the industry
are that the unit measurements of revenue per passenger mile (RPM), revenue per available seat mile
(ASM), and revenue per cargo ton mile all increased significantly, with gains of 5.7, 7.9, and 4.6 percent
respectively.
17 Operating profit represents the profit (loss) from air transportation-related activities only and does not include
non-operating income (expenses), nonrecurring items or income taxes. Net income represents the total profit (loss)
and includes operating profit (loss), non-operating income (expenses), nonrecurring items and income taxes.
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Table 2-22. Financial Highlights of the Airline Industry
(U.S. Airlines, scheduled service, in millions except as noted)
Operating Revenues
Passenger3
Cargo"
Charter
Other
Operating Expenses
Operating Profit (Loss)
Net Profit (Loss) b
2005
$151,255
93,500
20,704
6,074
30,976
150,828
427
-$5,782
2006
$163,824
101,208
22,544
5,562
34,510
156,279
7,545
$3,045
Change (%)
8.3
8.2
8.9
-8.4
11.4
3.6
1,668.1
-
Revenue per Passenger-Mile (0/RPM)a
Revenue per Seat-Miles (0/ASM)3
Revenue per Cargo Ton-Mile (0/RTM)3
Operating Profit Margin (%)
Net Profit Margin (%)
12.00
9.32
73.58
0.3
-3.8
12.69
10.06
76.99
4.6
1.9
5.7
7.9
4.6
4.3 pts.
5.7 pts.
a Scheduled service only.
b Excludes bankruptcy-related charges (reorganization expenses and fresh-start accounting
gains).
Source: ATA 2007b
Table 2-23 highlights overall changes in domestic operating profit and net income for large certificated
air carriers by type between 2002 and 2006. Although five-year average operating profits were negative
(see Table 2-21), most air carriers experienced growth in operating profit; only medium regional and
small certified carriers showed declining operating profit. Changes in net income from 2002 to 2006 were
more mixed; major, national, commuter and domestic cargo carriers posted improved net income
(although net income was still negative for major and national airlines), while regional, medium regional
and small certified carriers showed declining net income.
Despite the improved 2006 financial picture, in 2007, the Air Transport Association (ATA) reported that
because of the industry's high level of debt, airlines will continue to be extremely vulnerable to market
fluctuations, such as fuel prices and economic recession. During 2006, the higher jet fuel prices are
estimated to have added $8.9 billion to the industry's operating costs, virtually negating any cost saving
efforts that carriers made in reducing non-fuel related expenses during the year (Heimlich 2007).
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Table 2-23. Changes in Domestic Operating Profit and Net Income, 2002 to 2006
Airline Type
Major Carrier
National Carrier
Regional Carrier
Medium Regional Carrier
Commuter Carrier
Small Certified Carrier
Domestic Only All Cargo
Operating Profit
(in thousands)
2002
-$574,711
$1,747
-$1,959
-$1,199
-$9,173
$0
$0
2006
$239,115
$23,074
$1,340
-$8,426
$0
-$423
$42,785
Change
$813,827
$21,328
$3,299
-$7,227
$9,173
-$423
$42,785
Net Income
(in thousands)
2002
-$696,493
-$7,572
$1,645
-$2,361
-$35,761
$0
$0
2006
-$320,645
-$4,041
$205
-$9,083
$0
-$815
$90,054
Change
$375,847
$3,532
-$1,440
-$6,722
$35,761
-$815
$90,054
Source: BTS Air Carrier Financial Reports (Form 41), Schedules P-l 1 and P-12.
2.7.2 Factors in Airline Profitability
2.7.2.1 Industry Characteristics Affecting Profitability
Air transport is an intermediate product; that is, it is a product consumed so that another good (e.g.,
business meeting, leisure travel) can be obtained. Thus, the demand for air transport services is dependent
on demand for the underlying product (Holloway 2003). As an intermediate good, the airline industry
exhibits fixed capacity, sells a perishable product, and faces demand levels that vary both predictably and
stochastically (Borenstein and Rose, 2007).
While the industry itself has been deregulated, the majority of the infrastructure for air transportation
remains controlled by the government (Borenstein and Rose, 2007). Holloway (2003) believes this creates
an unusual dynamic between the publicly controlled airspace and airports and privately controlled
airlines. Holloway (2003) found airtransport demand is:
• Heavily influenced by output supply.
• Prone to market fluctuation impacts in the long run.
• Subject to imbalances in volume or timing of traffic flows.
Holloway (2003) suggested that approximately 80 percent of a scheduled carrier's costs can be considered
fixed in the short run. This translates into airlines not being able to quickly adjust to market changes.
Indeed, airline profits have exhibited greater fluctuations since deregulation, but Borenstein and Rose
(2007) believe this is due to both price inflation and the size of the industry. The observed fluctuations in
net income, however, are no more severe than during regulation. The volatility inherent in the airline
industry may be largely explained by two factors (Borenstein and Rose 2007; Morrison and Winston
1995):
• Fundamentals of the industry: quick and dramatic fluctuations in profit are driven by highly
volatile demand, high levels of fixed costs, and slow adjustment of supply;
• Strategic errors: changes in airline capacity can take years to implement (e.g., new aircraft
orders, expansion of airport facilities), thus the industry relies heavily on economic forecasts,
which means that their most important business decisions are based on the imperfect science
of economic forecasting done by each airline individually.
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Chapter 2. Profile of the
Air Transportation Industry
2.7.2.2 Factors Controlled by the Airlines
Many factors within the airline's control can affect profits. The major determinants of profitability are:
• Operating costs (e.g., employee compensation, fuel prices, maintenance expenses)
• Fares
• Network and operating characteristics
• Managerial characteristics
Operating costs have an inverse relationship to profits. An airline trade group, ATA publishes a quarterly
airline cost index based on the data provided to U.S. DOT on Form 41. As illustrated in Figure 2-7, the
highest percent of operating costs are labor and fuel, based on the most recent data available (ATA
2007b).
Transport-related
15%
Rents and
ownership
11%
Professiona
services
8%
Other operating
expenses
13%
Landing fees
2%
Labor
23%
Figure 2-7. Airline Operating Costs as Percentage of Total (2007)
Source: EPA analysis of ATA 2007b.
2.7.2.3 Labor Costs
Unions represent at least part of the labor force at all major U.S. airlines (GAO 2003). Contracts between
airlines and their unionized employees are conducted in accordance with the requirements of the Railway
Labor Act of 1936. Airline labor contracts do not expire, but instead have a date upon which parties can
request revised terms for a new contract. Labor costs accounted for over 40 percent of the unit cost
difference between legacy airlines and low cost airlines in 2003 (GAO 2004). Legacy airlines' high labor
costs are the result of a more senior workforce, higher pension costs, and work rules that differ from their
low-cost carriers. Union contracts can also make it more difficult for airlines to adjust labor costs to
changing market conditions. Legacy airlines that file for bankruptcy have been renegotiating union
contracts to reduce labor cost. Even with its younger staff and lower pay, labor costs are still a significant
portion of the low-cost carriers' operating expenses.
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2.7.2.4 Fuel Costs
The U.S. airline industry consumes approximately 19.5 billion gallons of jet fuel per year (ATA 2008a).
Fuel now exists as the largest contributor to airline costs, surpassing labor for the first time in 2006
(Heimlich 2007). As of May 2008, the ATA reported that almost 40 percent of the price of an airline
ticket goes to pay for fuel costs, as opposed to roughly 15 percent in 2000 (Maxon 2008). In terms of the
reduction in fuel related costs, efforts have been made to reduce consumption across the commercial side
of the industry with a 1.9 percent decrease in consumption from 2005 to 2006. Airlines have been cutting
costs through reduction of plane weight and drag. For example, airlines have reduced reserve fuel carried
by aircraft to reduce weight. Cutting heavy items from plane interiors, such as beverage carts, seats,
ovens, and extra potable water, has proven to save thousands of gallons of fuel annually (Heimlich 2007).
In FAA's forecast of air transportation (2007), they found that if the price of oil increased to more than
$100 per barrel, then the industry will experience major disruptions likely resulting in less capacity and
passenger demand, along with reduced market competition. In February 2008, Merrill Lynch, a global
financial management and advisory company, projected that if oil was available at $75 per barrel, then all
12 airlines analyzed would have a profitable year (Reed 2008). The company further suggested that oil
priced at $95 per barrel, would result in only five profitable airlines and a total industry loss of $322
million. At $110 per barrel, only two airlines would be profitable and industry losses would be $3.3
billion. The Energy Information Administration stated that in 2007, the average price for oil was $72 per
barrel in 2007 and their June 10, 2008 short-term forecast projected an average of $122 per barrel in 2008
and $126 per barrel in 2009 (EIA 2008).18
2.7.2.5 Lan ding Fees
In the third quarter of 2007 landing fees composed 1.9 percent ($653 million of $33.9 billion) of
operating costs, and since 1990, landing fees have composed of between 1.8 and 2.4 percent of operating
costs (ATA 2008a). Absolute costs have increased at a slow but steady rate increase from $1.25 billion in
1990 to $2.51 billion in 2006.
An FAA rule issued in 1996 set some guidelines for the structuring of landing fees (FAA 1996). Airports
had traditionally structured many of their landing fees based on weight of the aircraft, and the 1996 rule
did nothing to alter that. However, it did require that all landing fees must be offset by costs of completed
construction projects (not future or current projects) to avoid large revenue accumulation based on the
landing fees. The rule also allowed for a "peak pricing" system (as long as it is not discriminatory) in
which congested airports could charge carriers higher landing fees at the busiest times.
There is a growing move to use "peak pricing" to encourage airport customers to use alternative airports,
alter their flight schedules, or fly larger aircraft (GAO 2001). A proposed FAA rule issued in January
2008 (FAA 2008c) clarifies that airports did have the authority "to establish a two-part landing fee
structure consisting of both an operation charge and a weight-based charge, in lieu of the standard weight-
based charge." Additionally, the proposed rule allows airport managers the ability to offset a proportion
of the landing fees with current (in addition to already constructed) construction projects, and the ability
to offset their revenue from landing fees with construction costs of any other underutilized airports they
may own.
18 Prediction based on West Texas Intermediate crude oil market, which is slightly higher quality crude oil than the
OPEC basket (but typically no more than $2 per barrel higher). The price of jet fuel is primarily based on the
underlying price of crude oil (with additional costs imputed from the jet fuel crack spread), so as crude prices rise,
so do jet fuel prices (Heimlich 2006).
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In EPA's airport questionnaire, EPA asked airports to identify the landing fees for commercial air carriers
for 2004. Table 2-24 lists the weighted average of the responses according to hub size across five
categories. A signatory airline is an air carrier that has signed a long term commitment with the airport.
As shown in Table 2-24, signatory airlines often are provided with a reduced landing fee as a benefit of
the agreement.19 EPA found that landing fees for the nonhubs airports are much higher than the other hub
sizes.
Table 2-24. Landing Fees by Hub (S/1000 Ib landed weight)
Hub Size
Large
Medium
Small
Nonhub
Passenger Air
Carrier
Signatory
2.30
1.80
2.34
4.25
Passenger Air
Carrier Non-
Signatory
2.61
2.27
3.09
5.19
Cargo Air
Carrier
Signatory
2.31
1.89
2.43
3.86
Cargo Air
Carrier Non-
Signatory
2.65
2.25
2.80
4.94
Commuter/ Small
Commercial
Airlines
2.66
2.00
2.24
4.16
Source: EPA Deicing Questionnaire
EPA anticipates that airport costs associated with the deicing effluent guideline may be passed through to
the airlines in the form of higher landing fees.
2.7.3 Industry Concentration
Despite many of the legacy air carriers ceasing operations in the years following deregulation, the largest
carriers have retained market dominance. In 2005, with a combined market share of 66 percent, 9 of the
original 23 legacy carriers continue to serve the U.S. market (Borenstein and Rose 2007). Since 2005, and
the success of the US Airways and America West merger, there are continued rumors about proposed
legacy airline mergers due to overcapacity (Bailey 2006; Blanton 2008). In theory, these mergers would
consolidate overlapping operations on routes and airports, along with corporate overhead, in order to
reduce operating costs. The decline in the number of traditional carriers through bankruptcy or merger has
raised concerns among some observers that increasing market concentration might provide surviving
airlines with market power.
2.7.3.1 Market Power
Economists typically measure industry competitiveness by market share accounted by the largest four or
eight largest companies or an index such as Herfindahl that measures the number of "effective
competitors." Using such measures, the competitiveness of the airline industry has declined since
deregulation due to mergers. However, airlines do not really compete at the national level, but at the route
level. As Morrison and Winston (1995) pointed out:
The 1996 FAA rule mentioned above (FAA 1996) states that it is not considered a discriminatory process to
charge different rates for signatory and non-signatory airlines, "The prohibition on unjust discrimination does not
prevent an airport proprietor from making reasonable distinctions among aeronautical users (such as signatory and
non-signatory carriers) and assessing higher fees on certain categories of aeronautical users based on those
distinctions (such as higher fees for non-signatory carriers, as compared to signatory carriers)."
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Four effective competitors at the national level can operate in two very different ways: with
each having a monopoly share on one-quarter of the routes or each having a one-quarter share
on all routes. Although the number of airlines is the same either way, the second situation is
obviously more competitive because more airlines serve each route. Thus fewer effective
competitors at the national level does not necessarily mean that the industry is less
competitive.
Entry into a given route market is determined by existing competition on the route and how the route has
been integrated into both the entering carrier's and existing carriers' networks (Morrison and Winston
1995). Carriers are discouraged from entering a new route market if one of their competitors has a hub at
either the origin or destination of that route (Morrison and Winston 1995), therefore, reducing
competition on certain routes.
Many airline markets tend to exhibit oligopolistic behavior in that price changes initiated by any one of
the small number of competitors on a route are likely to bring a reaction in pricing by the other carriers
(Holloway 2003). This aspect of air carrier behavior has been readily observable in the last two or three
years as airlines struggle to cover increasing fuel costs. A carrier might announce a fare increase, then
watch to see if competitors follow the increase; if not, the initiating airline often quietly reduces its fares
to their previous level a few days later (see, for example: Grant, 2008; IHT, 2007; Reuters, 2007).
Holloway (2003) also noted that additional airline costs can feed into passenger fares through changes in
total fares (after all taxes and fees) even though base fares (advertised fares) might remain constant. An
example of this strategy is fuel surcharges after oil price spikes; the addition of a fuel surcharge increases
the total passenger fare. Thus airlines are able to increase revenues by increasing the total amount paid for
a ticket without actually increasing base fares.
In light of the unprecedented increases in jet fuel costs in 2008, airlines have increasingly made use of
surcharges to generate additional revenues without raising base fares. These include: fuel surcharges, fees
for checking a pet on board, making a phone reservation, checking a second piece of luggage, snacks and
meals, and the opportunity to select a window or aisle seat (Chen and Prada 2008; Hamman, 2008).
American Airlines has even added a new charge for checking the first piece of luggage; other airlines
have not made this move yet, but are considering it for the near future (Chen and Prada 2008).
In a 2005 report, GAO found that since 2000, the airline industry's excess capacity has greatly diminished
their pricing power. Profitability, therefore, depends on which airlines can most effectively compete on
cost, which relates back to the increased market share of low-cost carriers. With the changing landscape
of the airline industry, it suggests any legacy carrier exiting the industry would be replaced by a new low-
cost entrant, thus resulting in an overall lowering of fares. On the other hand, the exit of the major low-
cost carrier in the nation, Southwest Airlines, while it would affect a small percentage of overall
passenger traffic, would send overall fares upward (Morrison and Winston 1995).
2.7.3.2 Barriers to Exit
Bankruptcy has been a common occurrence in the U.S. airline industry. Borenstein and Rose (2007)
report that five of the top seven U.S. airlines (each having at least five percent of domestic market share)
have filed for Chapter 11 bankruptcy at least once. These airlines are Continental, US Airways, Delta,
United, and Northwest; all except Continental have filed for Chapter 11 since September 11, 2001 (ATA
2008b). The only two top-tier airlines that have yet to declare bankruptcy are American and Southwest
(Borenstein and Rose 2007).
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Chapter 11 bankruptcy allows a company to continue to operate while the company is protected from its
creditors and allowed to reorganize in an attempt to once again become a financially viable company after
its fresh start. Reorganization typically involves renegotiation of contractual (including union) and debt
obligations; creditors and others, such as a unionized labor force, have incentive to agree to
reorganization in the hopes that the reorganized company will be worth more than they would receive if
the company was shut down and its assets sold to repay creditors.
Many in the airline industry have argued that continued operation of insolvent airlines is at least partially
responsible for the financial instability of the industry as a whole (e.g., Crandall 1995, Kaps 2000,
Holloway 2003). The primary issue here is that Chapter 11 bankruptcy provisions act as a "barrier to
exit," allowing otherwise financially nonviable airlines to remain in operation to the detriment of the
industry as a whole.
The issue can largely be traced to the economics of operating an industry with high fixed costs (e.g.,
aircraft ownership and/or leases, infrastructure) and low marginal cost. Given that an airline is already
committed to undertaking a flight from one city to another, the marginal—or incremental cost of filling an
empty seat on that aircraft is relatively low (primarily the incremental fuel burn). This creates incentive
for airlines to reduce prices; as long as the ticket price exceeds marginal cost, the airline will make more
money—or lose less money—by filling that seat even if the ticket does not cover the allocated full costs
of providing that flight. This is exacerbated by the perishable nature of the product—the potential revenue
represented by an empty seat on flight can never be recovered by selling it at a later date.
Crandall (1995) aggressively states the case for the problems caused by a bankrupt airline remaining in
operation. Airlines operating under bankruptcy protection are able to operate at artificially low cost due to
restructured debt, renegotiated labor contracts, and other reduced obligations. Thus such airlines receive a
cost advantage over other airlines, and are able to offer even lower fares. Nonbankrupt airlines are faced
with an unpalatable choice between matching the lower fares, which are probably below that airline's full
costs, or maintaining fares that will cover costs but lose passengers. As discussed in the previous
paragraph, their incentive would be to follow the competition and reduce fares as well. Crandall
concludes that bankruptcy protection has resulted in ruinous fare wars, huge losses, high debt-to-equity
ratios, and low-grade investment securities for U.S. airlines.
Not all agree with this doomsday assessment of airline bankruptcy. According to Borenstein and Rose
(2007), very little happens to the market when a large player files for bankruptcy. Typically, an airline
will reduce fares immediately prior to filing bankruptcy. Competitors with healthier financial outlooks,
however, do not tend to follow suit with the price decrease and therefore the fare decrease is usually
temporary. Despite there being a lot of media attention paid to airline bankruptcy filings, it appears that
there is little impact on competitors or consumers (Borenstein and Rose 2007).
Crandall's discussion of the implications of barriers to exit and bankruptcy on the industry intuitively
makes sense. However, one can take the same logic that appears to be inherent in the nature of the airline
industry and argue that the problem of bankruptcy protection might be overstated. The incentive to fill
aircraft seats even at fares below fully allocated cost exists whether the carrier is bankrupt or not. Because
aircraft seats are a perishable product and the marginal cost of filling those seats is low, there will always
tend to be downward pressure on air fares as long as the market is competitive.
Furthermore, the value of an airline, even if bankrupt, is far greater than the value of its components: "the
value of an airline's assets—individual aircraft, buildings, ground leases, etc.—is substantially less than
the stream of cash flow which can be produced by using those assets in concert" (Crandall 1995). Thus,
whether an airline is protected by the courts or not, there are strong incentives for creditors (and
employees) to reach agreement to keep a vulnerable airline in operation.
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Finally, Crandall points out that renegotiated labor contracts give bankrupt airlines lower labor costs than
the nonbankrupt competition. However, since deregulation, the industry has seen a stream of low cost
start-ups, of which a majority do not have union labor, and all of which have lower labor costs (e.g., they
do not have pilots, mechanics, and other employees with 20 or more years of seniority because the airline
hasn't been in existence that long). Thus, low labor cost competition is not resulting solely from bankrupt
airlines.
In conclusion, the economics of the industry appear to be such that there is inherently downward pressure
on prices. With high fixed costs and low marginal costs, this provides incentive for airlines to offer fares
below fully allocated costs. Because many of an airline's costs may be associated with aircraft leases and
other long term financial commitments, there are incentives for those airlines to remain in operation for
long periods of time even if they cannot meet their full costs. Thus, although the importance of Chapter
11 bankruptcy provisions might be overstated in the financial performance of the industry, the underlying
economic fundamentals suggest there are inherent factors in operation that will always make the airline
industry a difficult financial environment.
2.8 Airport-Airline Interactions
2.8.1 Effect of Airline Bankruptcies on Airports
With financial instability being an inherent trait of the airline industry, it bears mentioning the impact
such instability has on airports. Borenstein and Rose (2007) found that while carriers do tend to reduce
service levels during bankruptcy, there are always other airlines willing to meet market demand. They
also found that in both small and large airports there is no statistically significant service effect when a
carrier at those airports declares bankruptcy. There is a small statistically significant effect at medium
airports, but "total service to the airport declines by less than half the number of flights that the filing
carrier offered before bankruptcy" (Borenstein and Rose, 2007:19).
2.8.2 Airport-Airline Cost Pass-Through Analysis
The ability of a supplier to pass through costs to the purchaser depends on the fundamentals of supply and
demand. The demand for aircraft deicing services-as well as the demand for airport services in general-is
derived from consumers' demand to travel from one place to another or to ship their cargo from one place
to another. In short, it is due to consumers' demand for air transportation that airlines demand services
from airports, such as landing slots and access to the terminal, apron, and hanger space necessary to
support their flight operations. Determining cost pass-through for deicing services thus involves not one,
but two pass-throughs: from airport to airline and from airline to passenger.
In perfectly competitive markets-with many small sellers and many small purchasers-the relative price
elasticities of supply and demand essentially determine cost pass-through. However, neither the market
for airport services nor the market for airline services can be described as perfectly competitive. Both
airports and airlines appear to have some ability to set prices, although this pricing power probably varies
with the type and location of the airport, and the size, type, and route structure of the airline. In the air
transportation industry, although cost pass-through might depend on market fundamentals in the long run,
in the short run it is subject to negotiation. Section 2.8.2.1 and Section 2.8.2.2 describe some of the
attributes that affect the determination of cost pass-through between airports and airlines and between
airlines and customers, respectively.
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2.8.2.1 Airports to Airlines
Historically, it has been something of a truism that all airport costs are eventually paid for by airlines and
airline customers. Airlines pay for airport operating costs through rates and charges. They also pay for
airport capital expansion either through aviation user taxes that formed the basis for AIP grants or by
providing the revenue stream to finance bond issues. These costs are then generally passed on to their
customers. In addition, airline passengers directly pay for airport costs through the airport revenue
streams from concessions, parking, and car rentals. In addition, much capital expenditure is now funded
through PFCs (which are added to ticket prices).20 Although these recent trends have modified airport
finance, the overall impression is still that in the long-run, a large percentage of airport costs are passed
through to airlines and airline passengers in the form of increased fees. However, in the short-run, cost
pass-through (CPT) from airports to airlines might be significantly smaller than 100 percent.
Although sparse, and more suggestive than definitive, available literature indicates that airports are able to
pass on costs to airlines. But there is a delicate balance to maintain, especially in the short run:
"A major consideration to be made by airport personnel at airline-served airports in
forecasting their projected revenues is that of how to charge the airport's major tenants, the
airlines. Because such charges impact heavily on the airport's revenue stream, it is important
to be fair to the tenants as well as to gain sufficient revenue to operate the airport and make
related major purchases" (Kaps 2000).
An analysis by the DOT supports this claim. DOT examined how the severe airline financial distress
following September 11, 2001, affected airports and looked at actions taken by airports to ensure their
own financial viability. Among the actions taken were the following:
"Reducing or refunding the effective rates that air carriers pay for airport facilities by
suspending or reducing airline rates and charges, under-recovering certain costs allowable
under airline agreements, contributing discretionary cash flow to reduce airline charges,
adjusting the income-sharing formula to enlarge the airline share, offering airlines additional
time to repay any underpayments of prior rates and charges, and consolidating unspent
construction fund amounts to refund airlines" (DOT 2003).
This indicates that the reality of the airlines' financial situation impeded pass-through of airport capital
expenditures to airlines.
In addition, the ability of airports to increase fees is dependent on the nature of the particular airport and
its relationship with the tenant airline(s). For example, airports with only one major airline are more
financially vulnerable and may be less willing to pass on capital costs to the airline if the airline is in
financial distress. Also, secondary airports are more vulnerable than primary airports because the services
at secondary airports are more readily suspended during times of financial difficulty for the airlines.
Increased competition at airports will lessen the likelihood that an airport will be dominated by a single
airline in the future (DOT 2003). In addition, airports compete among themselves to attract and retain
airline tenants by creating favorable working environments for the airlines. Anecdotally, some airports in
relatively close proximity to other significant airports have indicated to EPA that they are reluctant to
increase airline rates and charges for fear of losing traffic to competitors.
20 To the extent that PFCs increase the cost of air transportation, and therefore decrease the quantity of air
transportation purchased by consumer, airlines indirectly pay some cost of PFCs in the form of forgone revenues
(see Section 2.8.2.2).
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The DOT report also finds that airports turn to alternative revenue sources when trying to reduce costs on
airlines. Such alternatives may include altering staffing levels and benefits, reducing non-essential
business operations expenditures, and increasing parking rates. In strong financial markets when interest
rates are low, airports may also seek to refinance their outstanding debt, redirect PFC revenues to pay for
outstanding debt and/or reduce some airline rates and charges (DOT 2003).
In summary, the impression from analyzing the industry and its financial and market structure and
reviewing the literature, is that most airport costs, both capital and operating, will eventually be passed
through to airlines and/or their customers. However, this represents a long-run trend. In the short-run,
airports might face significant resistance to increased costs, especially when the airlines are in financial
distress. The years since the events of September 11, 2001, have largely been a period of financial distress
for airlines. As the price of oil continues to rise, it is not clear how much this financial stress on airlines
has eased. Thus, while costs might conceptually be passed through, it is not clear how much scope is
available for cost pass-through at this point in time.
Finally, cost pass-through from airports to airlines cannot be discussed without consideration of the
complexity of the airport sector. Airports vary considerably not only in their ability to pass through costs,
but their need to pass through costs as well. These differences appear to be systematically related to
airport size. Large airports have significant financial resources on which to draw, both from ability to
accumulate operating surpluses as well as their access to various capital funding programs. Smaller
airports have much more limited financial resources. It is difficult for them to generate operating
surpluses, and they appear to be much more dependent on various grant programs to fund capital projects.
These two issues: financial resources generated through operations, and through participation in
government programs, are discussed in detail in the following two sections.
2.8.2.1.1 Review of Operational and Financial Characteristics of Airports
If an airport is constrained in its ability to pass through costs to airlines, then its ability to implement a
regulatory option will largely be a function of its financial resources in the absence of significant
additional revenues. These resources include the ability of an airport to access capital markets to fund the
initial capital expenditure; if costs can be passed through, capital markets should be easier to access since
a revenue stream is available to fund the incurred debt.
The potential for airports to pass through costs to airlines is at least partially a function of the financial
resources the airport can call upon. The difference in the scale of operations, and hence their access to
financial resources is significant. Table 2-25 compares average operational data by airport hub size. The
implications of this table are clear; even medium hub airports, the second largest category of airports after
large hubs, operate at a fraction of the scale at which large hubs operate:
• Average departures at a medium hub are less than 30 percent and enplanements are less than
24 percent of the average large hub figure.
• For small hubs, departures are less than 12 percent and enplanements less than 7 percent of
the average large hub figure.
• For nonhubs, departures are less than 4 percent and enplanements less than 1 percent of the
average large hub figure.
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Table 2-25. Average Departures and Enplanements by Hub Size, 2002-2006
Airport Count
Departures
As Percent of Large Hub Average
Enplanements
As Percent of Large Hub Average
Large Hubs
33
190,093
-
15,285,072
-
Medium Hubs
35
56,313
29.6%
3,589,355
23.5%
Small Hubs
25
21,849
11.5%
1,023,525
6.7%
Nonhubs
54
6,244
3.3%
118,173
0.8%
Source: EPA analysis of BTS T-100 airport operations data. Surveyed airports only.
The consequences of the difference in operational scale are reflected in average airport revenues and
expenditures. Average operating revenues at medium hubs are 23.2 percent of those at large hubs; for
small and nonhubs those figures are 7.2 percent and 1.1 percent respectively (see Table 2-15, Section
2.6.2.).
The differences between airport size classes in landing fees are significant in at least two ways. First, rates
and charges (e.g., landing fees) tend to be a key means for airports to pass-through compliance costs to
airlines. Second, landing fees might also be indicative of an airport's market power when negotiating with
airlines.
• Average landing fees at medium hubs are 20.0 percent of those at large hubs; for small and
nonhubs those figures are 4.8 percent and 0.7 percent respectively.
• Landing fees at these airports are smaller relative to large hub landing fees than are
departures; for example, medium hub departures are 29.6 percent of those at large hubs but
landing fees are only 20.0 percent of those at large hubs. This most likely reflects the weaker
passenger demand at these airports in two ways:
o Airlines tend to fly smaller aircraft into smaller airports (e.g., regional jets rather than
Boeing 737s), and
o Airlines may be more willing to reduce or withdraw services at these airports if fees
become too large, thus constraining an airport's ability to raise fees.
In addition, airports are often able to accumulate reserves for capital expenditure programs through
concession and parking revenues, which are also related to the scale of passenger service at the airport.
Table 2-15 also shows that revenues from these sources are relatively small at smaller airports,
particularly nonhubs. These revenue sources can be particularly valuable to an airport because airlines
have less influence on rate setting for concessionaires and how those revenues will be used than they do
over landing fees and terminal and gate rents.
Finally, capital expenditures can be funded out of net operating revenues. To the extent that operating
revenues exceed operating expenditures, airports can accumulate the difference in its capital accounts.
EPA compared operating revenues with operating expenses by airport type over five years to determine
airports' ability to accumulate reserves for capital projects out of operating surpluses. These results are
presented in Table 2-26. Large, medium and small hub airports appear to have the ability to accumulate
reserves. Nonhub airports, however, spend more than they take in from operating revenues, meaning they
may have to find alternative funding sources just to finance their day-to-day operations. It appears clear
that nonhubs do not have significant internal financial resources to draw on to support capital projects.
Furthermore, this limits their access to bond markets, as GARBs typically require that net revenues
exceed annual debt service by at least 25 percent.
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Table 2-26. Ratio of Airport Operating Expense to Revenues, 5-Year
Average (2002-2006)
FAA Classification
Large Hubs
Medium Hubs
Small Hubs
Nonhubs
Ratio of Operating Expenses to
Operating Revenues
0.65
0.64
0.76
1.42
Source: FAA Form 127 data as compiled by EPA.
2.8.2.1.2 Airport Capital Improvement Programs and Financing Sources
Average capital expenditures and significant sources of funding for capital expenditures are summarized
in Table 2-27. On average, capital improvement programs at smaller airports tend to be relatively small
scale, on the order of $5 million for nonhubs to $15 million for small hubs. It should be noted that these
capital programs must cover replacement of current capital stocks such as fire-fighting equipment, radar,
lighting, communications and other equipment, resurfacing of runways, and similar projects; they do not
necessarily represent expansion programs.
Table 2-27. Average Capital Expenditure and Financing by Hub Size, 2002-2006
Airport Count
Total Project Expenditures
As Percent of Large Hub Average
PFC Revenues
As Percent of Large Hub Average
Grant Receipts
As Percent of Large Hub Average
Bond Indebtedness
As Percent of Large Hub Average
Total Indebtedness
As Percent of Large Hub Average
Large Hubs
33
$177,874,771
-
$48,059,002
-
$22,809,305
-
$1,335,074,774
-
$1,418,440,732
-
Medium Hubs
35
$39,616,089
22.3%
$9,561,662
19.9%
$10,716,828
47.0%
$253,756,033
19.0%
$268,293,030
18.9%
Small Hubs
25
$14,705,868
8.3%
$3,012,540
6.3%
$7,010,565
30.7%
$57,327,526
4.3%
$59,921,343
4.2%
Nonhubs
54
$4,956,860
2.8%
$334,152
0.7%
$3,679,966
16.1%
$2,631,704
0.2%
$4,223,407
0.3%
Source: EPA analysis of FAA Form 127 airport financial data. Surveyed airports only.
Table 2-27 demonstrates that nonhub airports in particular do not rely on debt financing of capital
programs. This is largely an implication of the operating income figures discussed above; these airports
do not have the revenue streams necessary to support large amounts of debt. Furthermore, PFCs are not a
large source of funds for these airports; they do not have the passenger flow that will generate significant
PFC revenues.
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Smaller airports are much more heavily dependent on grants to fund capital expenditures than are large
hubs. For example, departures, enplanements, operating revenues and expenditures, capital expenditures,
indebtedness, and PFC revenues for nonhubs are all less than about 3 percent of the same figures at large
hubs. The single exception to that rule is grant receipts; grant receipts at nonhubs are 16 percent of grant
receipts at large hubs. In fact, grant receipts comprise 74 percent of capital project expenditures at
nonhubs, 48 percent at small hubs, 27 percent at medium hubs, and about 13 percent at large hubs.
Clearly, smaller airports are highly dependent on grants to pay for capital expenditures. These grants must
fund replacement of necessary existing capital plant, not just new capital expenditures. Since funding of
grants, especially AIP grants, is low relative to the demand for those grants, only the highest priority
projects tend to get funded at smaller airports.
In summary, it appears that in the short run, at least, the largest airports have the most ability-or
leverage-to pass through costs to airlines. They also have the best access to other means of funding
capital construction programs. Small airports are the most vulnerable to changes in airline service, and
thus have little market power to enable them to pass through costs to airlines. In addition, the smallest
group of potentially affected airports, small hubs and nonhubs, has the fewest alternatives for funding
capital programs; nonhubs in particular appear to be almost entirely dependent on AIP grants for capital
expenditures.
2.8.2.2 Airlines to Passengers
The ability of airlines to pass through costs to passengers in the form of higher ticket prices depends
largely on market specific factors such as the desirability of an airport as a final destination, whether a trip
to that final destination is for business or pleasure, and whether other airports with acceptable standards of
airline service are close to that destination. If an airport serves a highly desirable final destination, with a
high percentage of business travel, and there are no alternative airports nearby, airlines might be able to
pass through significant costs to their passengers. Conversely, if customers are flying to airports primarily
as a means to get elsewhere (e.g., connecting flights), if multiple airlines serve that airport, or if there are
other airports just as suitable for that purpose, customers will be less willing to pay higher ticket prices,
and airlines will thus be less able to pass through costs on flights using that airport.21
Very few studies examine or try to estimate the intensity of demand for services at specific airports. A
number of studies have measured the intensity of demand for airline services in general. EPA used two
papers (FAA 1995, Button 2005) that contained extensive literature reviews of studies of the price
elasticity of demand for air transportation. The price elasticity of demand evaluates the responsiveness of
consumers to changes in product price and is defined as the percentage change in quantity demanded (in
this case, air travel) caused by a given percentage change in price (in this case, airfare).
Although details may vary, the price elasticity of demand for business travel is generally less elastic than
for non-business travel (e.g., vacation travel). That is, there will be a relatively small reduction in business
travel compared to non-business travel in response to any given change in fares. If a business person has
to be at a certain location on a certain date, those travel plans are unlikely to change if fares increase.
Conversely, a person traveling for vacation has no need to be at a specific location on a specific date; a
vacation traveler might respond to fare increases by changing destination, mode of travel, or perhaps even
choosing not to travel. Second, the price elasticity of demand is less elastic for long trips than short trips.
21 In another context, the importance of these factors is recognized when airports issue bonds. Airports perform
analyses of these underlying demand fundaments, which become important components in determining bond ratings
and prices.
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The reasoning is similar to that for business travel: if fares increase, short trips might be feasible by car or
train, while those alternatives will be less attractive for long trips.
Econometric studies have estimated price elasticities of demand for air travel ranging from -0.26 for long-
haul business travel (a 10 percent increase in fare reduces travel by 2.6 percent), to about -4.5 for short-
haul non-business travel (a 10 percent increase in fare reduces travel by 45 percent) (FAA 1995, Button
2005). Analysts frequently use values of about -0.9 for business travel, and from -1.5 to -2.0 for
nonbusiness travel (FAA 1995, Button 2005).
Price elasticities of demand are of more than academic interest; they have significant implications for
supplier income when prices change. If demand is inelastic (that is, if the price elasticity of demand lies
between 0.0 and -1.0), then a fare increase will increase supplier revenues; the percentage reduction in
demand is smaller than the percentage increase in fare, thus overall supplier revenues increase. If demand
is elastic (that is, if the price elasticity of demand is from -1.0 to -oo), then a fare increase will trigger such
a large reduction in demand that supplier revenues decrease. Vacation travel appears to account for a
larger share of passengers than business travel (with the exception of certain destinations and times of the
year), suggesting that if airlines try to pass through costs to their customers, revenues will decline.
The exact impact of a fare increase on airlines will depend on airline specific factors such as flight
destinations, overall route structure, frequency of departures, and a number of other factors that lead
customers to choose one airline over another. The impact will also depend on other supply characteristics.
If supply is very inelastic (e.g., in a supply-demand diagram, the supply curve is very steep or vertical),
airlines will not change the number of seats offered for sale in the short run if the costs of offering those
seats for travel increases. In this case, cost pass-through will be zero; there will be no increase in fare and
no decrease in passengers carried, but cost per seat will increase and operating profit will fall by the same
amount. Conversely, if supply is elastic (e.g., in a supply-demand diagram, the supply curve is very flat or
horizontal), airlines will pass through 100 percent of costs. This will cause passengers to reduce the
number of seats purchased, and revenues will fall.
Data on the price elasticity of supply of airline seats are not readily available. However, at least in the
short run, supply appears to be very inelastic. Airline tickets have become something of a commodity,
where passengers largely base their choice on ticket price. This acts to drive prices down to a low level.
The incentives for airline behavior driving this result were discussed in detail under "Barriers to Exit"
(see Section 2.7.3.2). The results of this price competition might be observed in the recent behavior of
airlines in reaction to rising fuel costs. With airline fuel costs projected to increase by 50 to 70 percent in
2008, airlines have found it difficult to raise fares, at least in the short run. Announced fare increases by
one airline have not been followed by others, forcing the airline raising its fares to return them to their
initial level. While airlines have recently started charging or increasing fees for checked bags, phone
reservations, and in-flight meals and snacks, these fees are expected to cover only a fraction of increased
fuel costs. Thus, it appears that at least in the short run, it is difficult in today's business climate for
airlines to pass through a significant percentage of costs to their passengers.
In the long run, however, airlines must cover all costs to remain in operation, and will adjust capacity to
meet demand. That is, the long run supply curve for air transportation is much flatter. Due to the lack of
specific information, EPA will examine the impacts of cost increases on air carriers under two alternative
assumptions. First, EPA will assume supply is perfectly inelastic in the short run. This results in zero
percent cost pass-through regardless of the price elasticity of demand, and airline operating income will
fall by the total amount of costs incurred. Alternatively, EPA will assume supply is perfectly elastic. In
this case, 100 percent of costs are passed through, and the primary impact on airlines will result from the
reduction in demand and hence revenues caused by the fare increase.
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2.9 Alaska
Aviation in Alaska is significantly different from aviation in the other 48 states in the continental United
States. Approximately 90 percent of the State of Alaska is not serviced by roads, so aviation is important
to the State's infrastructure and basic way of life. Alaska has six times as many pilots per capita and 16
times as many aircraft per capita compared with the rest of the United States (State of Alaska 2008a).
With the exception of Juneau International Airport, the State of Alaska owns all the airports, which are
divided into two distinct systems:
• The Alaska International Airport System—Ted Stevens Anchorage International Airport
(only medium hub in Alaska) and Fairbanks International Airport (small hub).
• The Alaska Rural Airport System (RAS)—256 rural airports scattered throughout the State.
Juneau International Airport (small hub) is owned by the City and Borough of Juneau, and operated as a
major enterprise fund of the local government. As such, it is considered to be a self-sufficient component
of the City/Borough of Juneau (City and Borough of Juneau, 2004).
Table 2-28 shows the number of departures of commercial services leaving Alaska from 2002-2006. After
a large 15 percent increase in departures in 2003, there was a small but steady decline in total departures
for the following three years with the exception of Ted Stevens Anchorage. Despite decreasing number of
departures from 2004 to 2006, passenger enplanements increased during that time as shown in Table 2-
29. This data correlates with the increased number of passengers per departure—9.3 in 2003 to 11.1 in
2006 (Table 2-30).
Another indication of how different Alaska aviation is from the rest of the United States is that Alaska has
many small airlines that operate only in Alaska. Based on analysis of BTS T100 data, there are 37 airline
carriers which have at least 97 percent of their total flights depart from Alaskan airports; furthermore, 32
of these 37 carriers operate exclusively within the state (i.e., 100 percent of their departures are within
Alaska). While some of these 37 airlines have very few departures per year (i.e., eight airlines have fewer
than 525 departures per year), 14 of these 37 airlines had more than 10,000 departures from Alaska in
2006. The top three airlines in terms of Alaskan departures include:
• Hageland Aviation Service (76,522 Alaskan departures [99.99 percent of the airline's total
departures]) .
• Grant Aviation (46,217 Alaskan departures [100 percent of airline's total departures]).
• Peninsula Airways (42,690 Alaskan departures [99.96 percent of the airline's total
departures]).
In addition, these 37 airlines tend to be more reliant on propeller-driven aircraft; at least 83 percent of
these airlines' departing aircraft are propeller driven and most rely on a much higher percentage. Even
national carriers tend to use propeller planes for their Alaskan departures. Delta, Continental, and United
Airlines all had between 700 and 1,000 departures from Alaska, all of which were propeller-powered
aircraft. This reliance on propeller-driven aircraft illustrates just some of the differences of air
transportation in Alaska: smaller aircraft, frequent short hops, frequent bad weather, and dirt runways
with little ground support at many airports (see, for example Carey, 2007). However, the key feature of
air transportation in Alaska is that it provides the primary outside access to many towns and villages that
cannot be reached by road.
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Table 2-28. Commercial Service Aircraft Departures (Alaska)
Airport Type
Large Hub
Medium Hub
Small Hub
Nonhub
Non-primary
Total
Number
of Hubs
0
1
2
23
61
87
Number of Departures
2002
0
74,838
43,080
146,443
158,134
422,495
2003
0
83,211
50,870
170,748
180,129
484,958
2004
0
90,641
51,169
163,656
169,440
474,906
2005
0
95,607
44,232
169,212
157,323
466,374
2006
0
99,607
41,204
167,229
153,038
461,078
Annual Growth Rates
2003
NA
11.19%
18.08%
16.60%
13.91%
14.78%
2004
NA
8.93%
0.59%
-4.15%
-5.93%
-2.07%
2005
NA
5.48%
-13.56%
3.39%
-7.15%
-1.80%
2006
NA
4.18%
-6.85%
-1.17%
-2.72%
-1.14%
Source: EPA analysis of BTS T-100 data
Table 2-29. Commercial Service Passenger Enplanements (Alaska)
Airport Type
Large Hub
Medium Hub
Small Hub
Nonhub
Non-primary
Total
Number
of Hubs
0
1
2
23
61
87
Passenger Enplanements
2002
0
2,431,444
762,589
1,087,004
389,962
4,670,999
2003
0
2,305,462
777,376
1,104,889
409,063
4,596,790
2004
0
2,489,946
821,885
1,172,959
424,615
4,909,405
2005
0
2,640,210
828,461
1,203,034
426,115
5,097,820
2006
0
2,598,569
834,338
1,227,718
435,003
5,095,628
Annual Growth Rates
2003
NA
-5.18%
1.94%
1.65%
4.90%
-1.59%
2004
NA
8.00%
5.73%
6.16%
3.80%
6.80%
2005
NA
6.03%
0.80%
2.56%
0.35%
3.84%
2006
NA
-1.58%
0.71%
2.05%
2.09%
-0.04%
Source: EPA analysis of BTS T-100 data
Table 2-30. Commercial Service Aircraft Passengers per Departure (Alaska)
Airport Type
Large Hub
Medium Hub
Small Hub
Nonhub
Non-primary
Total
Number
of Hubs
0
1
2
23
61
87
Passengers per Departure
2002
0
32.5
17.7
7.4
2.5
11.1
2003
0
27.7
15.3
6.5
2.3
9.5
2004
0
27.5
16.1
7.2
2.5
10.3
2005
0
27.6
18.7
7.1
2.7
10.9
2006
0
26.1
20.2
7.3
2.8
11.1
Annual Growth Rates
2003
NA
-14.72%
-13.67%
-12.82%
-7.91%
-14.26%
2004
NA
-0.85%
5.11%
10.76%
10.35%
9.06%
2005
NA
0.53%
16.61%
-0.80%
8.08%
5.74%
2006
NA
-5.53%
8.11%
3.26%
4.94%
1.11%
Source: EPA analysis of BTS T-100 data
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2.9.1 Alaska International Airport System
The State operates the Alaska International Airport System as a separate major enterprise. It is considered
a self-sufficient component of the State government, which can issue its own debt in the form of revenue
bonds. Thus the two airports: Ted Stevens Anchorage International Airport and Fairbanks International
Airport operate similar to the other state government-run airports in the United States.
2.9.2 Alaska Rural Airport System
The RAS is the other major component of the Alaskan aviation system, but it operates much differently
from the International Airport System. The 256 airports of the RAS range from small municipal airports
to simple dirt landing strips. The RAS is not a self-sufficient government unit, and the rural airports
actually lose money every year. However, due to the nature of transportation in the State of Alaska, it is
vital that these airports remain in operation despite being unprofitable.
The Alaska Department of Transportation and Public Facilities (DOT&PF), as well as local or tribal
governments are responsible for operating RAS airports. According to the DOT&PF, airports in the state
are funded through a combination of user fees, state, local, or tribal funds, and federal funds. RAS airports
have limited opportunities for generating revenue. In fact, these airports have found it difficult to finance
the increased federal security mandates since September 11, 2001. The DOT&PF has limited funds to
perform additional O&M at many of the state's RAS airports.
2.9.2.7 RAS Airport Funding
According to Roger Maggard, Statewide Airport Development Manager for the RAS, almost every RAS
capital project is funded through AIP grants. As the RAS loses money each year, they do not (and would
not be able to) issue any bonds and therefore do not carry debt. Instead, to ensure continued operation, the
RAS is heavily subsidized by the State government and local sponsors. Maggard estimated that the State
of Alaska provides $23 to $24 million annually to cover RAS operating costs. These airports only
generate between $3 and $4 million in revenues. These revenues are not received from typical sources, as
there are no passenger facility charges and rarely any concessions or even building space to rent. The
revenues are primarily comprised from land leases for aviation or non-aviation purposes (Maggard 2008).
The RAS does receive approximately $1 to $2 million per year from the State Legislature for various
projects. However, because this funding is spread over the 256 rural airports, it does not cover the total
capital costs of necessary projects. Although there is the possibility of the Legislature approving
appropriations from the General Fund to finance projects in the RAS, this appears highly unlikely and the
RAS can not assume that any money will be available through this avenue (Maggard 2008).
2.9.2.2 AIP Spending
Since most capital projects within the RAS are funded through the AIP, EPA examined the number and
type of projects being funded over the past couple of fiscal years. Table 2-31 shows overall project counts
and dollar amounts for AIP-funded projects at primary and non-primary airports within the RAS.
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Table 2-31. Alaska Rural Airports AIP Spending Plan
Primary Airports
Non-Primary Airports
Total
FY 2006
Number of
Projects
19
27
46
Funding
Amount
$80,899,778
$66,100,891
$147,000,669
FY 2007
Number of
Projects
20
27
47
Funding
Amount
$40,714,125
$81,020,189
$121,734,314
FY 2008
Number of
Projects
30
37
67
Funding
Amount
$75,394,000
$143,814,950
$219,208,950
As of December 12, 2007. Spending plan figures contain entitlement and discretionary funded AIP projects.
Source: EPA calculations based on State of Alaska 2007
The majority of projects and money spent (or planned for) in 2007 and 2008 are at non-primary airports
within the RAS. Four primary categories of projects are included in the AIP spending plan:
• Airfield projects
• Buildings
• Equipment
• Airport Planning
A breakdown of AIP spending by project type, combined for primary and non-primary airports is
provided in Table 2-32. The majority of AIP funded projects in the RAS, in terms of dollars spent, are
airfield projects. These included runway and apron improvements and construction, runway surfacing,
and general airfield upgrades. Most projects fall into the equipment category, though the amount spent is
relatively small compared with airfield projects. Equipment projects include the purchase of new and
replacement equipment such as snow blowers, deicing vehicles, plows, and other heavy machinery.
Airport planning and buildings costs round out the projects funded through the AIP.
Table 2-32. Total AIP Spending by Project Type - Alaska Rural Airport System
Airfield Projects
Buildings
Equipment
Airport Planning
Airfield Projects
Buildings
Equipment
Airport Planning
Airfield Projects
Buildings
Equipment
Airport Planning
FY 2006
Number of Projects
16
o
J
19
8
Number of Projects
15
2
16
14
Number of Projects
25
6
28
8
Funding Amount
$129,502,657
$6,076,086
$6,394,670
$5,027,256
FY 2007
Funding Amount
$98,548,553
$7,990,066
$4,985,520
$10,210,175
FY 2008
Funding Amount
$195,584,250
$10,480,000
$8,618,000
$4,526,700
Percent of Total Project Funding
88.1%
4.1%
4.4%
3.4%
Percent of Total Project Funding
81.0%
6.6%
4.1%
8.4%
Percent of Total Project Funding
89.2%
4.8%
3.9%
2.1%
Source: EPA calculations based on State of Alaska 2007.
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All AlP-funded projects require state and local sponsors provide 6.25 percent of funding, of which the
state covers half and local or tribal governments contribute the remaining. The figures in Tables 2-31 and
2-32 above represent total project costs.
2.9.2.3 Oth er Fun ding Issues
As mentioned above, the RAS is heavily subsidized by the State of Alaska. However, detailed
information on the State's funding of the RAS has been difficult to obtain since it is not a specific line
item in DOT&PF's budget, as seen in Table 2-33, which represents the publicly available budget.
Table 2-33. FY 2001 Capital & Operating Budget for the AK DOT&PF
Budget Category
Measurement Standards
Planning/D&C
Administration
State Equipment Fleet
International Airports
Marine Highways
Maintenance & Ops
Capital Budget
- Federal
- General Fund
- Hwy Working Capital Fund
- Int'l Airport Revenue Fund
- AHFC Fund
- Capital Improvement Program
Designated Receipts
Investment Loss Trust Fund
Amount (in thousands)
$3,350.90
$4,982.80
$11,697.00
$21,742.30
$41,465.20
$103,086.70
$87,081.40
$756,130.40
$643.2
$60.2
$11.8
$22.5
$5.9
$1.5
$9.1
$1.9
Percent of Total Budget
0.30%
0.50%
1.10%
2.10%
4%
10%
8.40%
73.60%
Source: DOT&PF 2000
2.9.2.4 Operation and Maintenance
The daily O&M at rural airports is handled in different ways, depending on the size of the airports. For
the larger airports, O&M tasks are handled by staff from the DOT&PF; for other airports along the major
highway system, these tasks are handled by the same crews that tend to the highways. For smaller rural
airports, maintenance jobs (such as snowplowing) are generally contracted out to local residents (DOTPF
2000). Routine maintenance needs for the entire Alaskan airport system (both International and Rural) is
estimated at $39 million per year, and the budget available to cover these costs for the airport system has
not kept pace with inflation.
2.9.3 Alaska and the Economic Impact Analysis
Since the majority of Alaskan airports are operated as part of a RAS, EPA has reviewed them separately
in Chapter 5.
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CHAPTER 3
ECONOMIC IMPACT METHODOLOGY
This chapter presents the methodology EPA used to analyze and estimate the economic impacts of an
effluent guideline on airport deicing operations. The unusual aspect of this effluent guideline is that the
airport is likely to purchase and install treatment systems or implement best management practices to
control discharges, but the airlines may pay for a significant proportion of those changes.
Section 3.1 reviews funding sources available to airports to finance capital improvements, and describes
how EPA chose to model airport capital finance and annualization of compliance costs. Section 3.2
presents the methodology EPA used to project economic and financial impacts to airports as a result of
those compliance costs. Section 3.3 provides the method by which compliance costs incurred by airlines
are estimated, assesses the baseline financial condition of the airline industry, and presents benchmarks
for determining if compliance costs passed through from airports to airlines can be considered "small."
Finally, Section 3.4 lists cited references.
3.1 Financing Capital Expenditures and Compliance Cost Annualization
In this section, EPA discusses how airports might finance capital programs and its implications for the
annualization of capital costs. Section 3.1.1 reviews alternative means of airport financing of capital
expenditures, and concludes that, for the purpose of this analysis, the most useful approach is to assume
airports will use bond financing. Section 3.1.2 provides basic information regarding airport bonds, while
Section 3.1.3 outlines EPA's method for estimating the annualized cost of capital expenditures using
bonds. Section 3.1.4 compares how financial impacts to industry might differ depending on the means
used to fund capital expenditures.
3.1.1 Financing Methods for Capital Expenditures
Projected airport compliance costs are of two distinct types: operating and maintenance (O&M), and
capital; the proposed effluent limitations guideline (ELG) will result in most affected airports incurring a
combination of the two. EPA expects that significant capital expenditures are likely to be financed using
tax-exempt General Airport Revenue Bonds (GARB). According to the Air Transport Association (ATA),
95 percent of all airport debt issued since 1982 has been in the form of GARB (ATA, 2005a). To issue
GARB, an airport needs to demonstrate that it has a revenue stream to support payment of interest and
principal. EPA assumes that the revenue stream would be in the form of increased rates and charges; this
assumption will be further discussed below. According to the Federal Tax Code, O&M expenses cannot
be funded through debt financing and would therefore be paid out of current operating income.
Other funding sources exist for airports, such as Airport Improvement Program (AIP) grants from Federal
Aviation Administration (FAA), state grants, Passenger Facility Charges (PFC), commercial paper, "pay-
as-you-go" supported by airport rates and charges, or (assuming the capital expenditures are not too large)
the airport's capital improvement fund (GIF). However, in addition to the predominance of GARB as a
means of paying for airport capital expenditures, there are practical reasons for assuming these alternate
forms of funding are less likely to be utilized.
The lowest cost alternative for funding capital expenditures is clearly AIP or other grants. However:
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• Demand for AIP grants exceeds availability, and airports may already have committed
anticipated AIP grants well into the future.
• State and other grants appear to be a relatively small source of capital funding.
• Switching AIP grants from an existing program to pay for deicing-related capital
expenditures would require FAA approval, and entail additional work and expense. Also,
FAA may be reluctant to permit such changes, since many AIP grants are for high priority
safety and capacity-related projects.
Although it is more likely that PFCs may be used to fund capital expenditures than AIP grants, it cannot
be generally assumed that airports will use those either because:
• PFCs require FAA approval on a project-specific basis, and, like AIP grants, tend to be
committed well into the future.
• There is a maximum PFC that an airport may charge ($4.50); as of May 1, 2008, 280 of the
372 airports (75 percent) approved by FAA to collect PFCs were charging the maximum rate
(FAA 2008).
Furthermore, PFCs can be used as the revenue source to support a GARB issue. In such a case, if a capital
program is economically achievable using rates and charges to support GARB, it should also be
affordable if the GARB can be supported using PFC revenues.
One of the primary drawbacks to funding capital expenditures through short-term commercial paper or
pay-as-you-go is practical. It is more difficult to manage a project with uncertain revenue streams; a bond
issue smoothes expenditure and revenue streams. In fact, commercial paper may commonly be used in the
short run to fund a project until it can be rolled into a larger bond issue (Taylor, 2005). Pay-as-you-go has
the advantage that it does not increase airport debt, and may therefore be used when an airport may be
close to a debt ceiling or similar constraint that would make it reluctant to issue new debt.
The primary advantage of using GARB over alternative sources of finance is that because they are a form
of municipal bond, income to bond holders is tax exempt. This has been estimated to result in effective
interest rates two percentage points lower than alternative non-tax exempt capital sources to bond issuers
(CBO 1999). Although airports ostensibly do not pay interest if capital projects can be funded through
grants instead of issuing bonds, airports do incur an opportunity cost: using an AIP grant to finance
deicing-related capital expenditures means the AIP grant cannot be used for funding other capital
programs. Thus, an airport would probably have to fund the other project using GARB or some other
interest bearing source, or would have to postpone the project. In either case, the airport incurs an
opportunity cost, which is best represented by the interest rate associated with issuing bonds.
For these reasons, EPA believes the financing of capital costs associated with the deicing effluent
guideline is best represented by using a model based on GARB to assess the financial impacts of
increased capital expenditures on airports. For those airports that choose to use alternative sources, then
the GARB model still provides a reasonable estimate of the opportunity cost of using these alternative
sources to finance capital expenditures.
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3.1.2 General Airport Revenue Bonds
EPA assumes airports will issue tax-exempt, fixed coupon rate serial GARB to fund capital expenditures.
To issue GARB, airports will incur additional costs associated with:
• Feasibility consultant
• Bond counsel
• Underwriting
• Bond insurance
• Rating agency
These costs can run from 0.5 percent to 3 percent of the total bond issue (Mullins and Kumar, 2006).
Many bond issuance costs are relatively fixed (e.g., the cost of bond counsel will tend to be relatively
invariant with respect to the size of the bond issue). If the bond issue is relatively small, these costs may
compose such a large percentage of the bonds issued that they exceed the interest savings associated with
the tax-exempt status of GARB. In practice, there tends to be a lower limit to the size of a bond issue,
although it is not necessarily clear what that limit may be. Some airports do not seriously consider bond
financing unless they reach a threshold such as $50 million (Taylor, 2005). Other airports, however, have
issued bonds for relatively small amounts: for example, Greater Rockford issued $1.7 million in General
Obligation Bonds, and Albany issued $14.5 million in GARB. In addition, airports may combine multiple
capital projects to make it worthwhile funding them with bonds. Combining multiple projects into a
single bond issue reduces the relatively fixed issuance costs as a percent of the bond issue.
Market conditions may result in bonds selling at a discount or premium from their face value. This
changes the effective interest rate the issuer pays relative to the nominal coupon rate. At the time of the
initial sale, the issuer may receive more or less than the face value of the bond; because the nominal
coupon rate is fixed, the issuer pays the same interest on a larger or smaller amount of debt, thus changing
the effective interest rate. EPA did not attempt to project potential GARB discounts or premiums, and set
the effective nominal interest rate equal to the nominal coupon rate. The issuer always pays the nominal
coupon rate regardless of any premium or discount earned on the initial sale, or any changes in value in
the secondary market.
Bond issues can be insured against default, and investors are therefore willing to accept a lower interest
rate on such a bond issue. Thus, the airport can borrow at lower cost if its bonds can be insured
(essentially, the bond issuer takes on the AAA bond rating of its insurer). However, the issuer would
weigh the lowered cost of capital achieved through bond insurance against the additional cost of
purchasing the insurance (Spumberg, 2006). The airport will only insure its bonds if the insurance
premiums are smaller than the interest savings from the lower coupon rate. EPA will assume bond issues
are uninsured; the cost of the rule will be lower to the extent that airports will be able to obtain insurance.
3.1.3 Annualization of Capital Costs using GARB
EPA calculated the annual principal and interest payments of a bond issue equal to the estimated capital
costs of collecting and treating ADF-contaminated stormwater. Capital costs were increased by 3 percent
to account for bond issuance costs. EPA used the nominal coupon rate from the airport's most recent bond
issue for this analysis. This was obtained from the airport's Comprehensive Annual Financial Report
(CAFR) that EPA collected as part of its survey. If no rate was available for an airport, EPA used the
median nominal coupon rate from airports for which it was available. Among airports receiving EPA's
survey:
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• Nominal coupon rates range from 2.04 to 9.37 percent, with a median of 5.25 percent and an
average of 5.26 percent.
• Deflating the nominal rates using the average Consumer Price Index (CPI) from 2002 through
2006 (2.31 percent) results in real rates that range from 0.0 to 6.9 percent, with a median of
2.87 percent and an average of 2.89 percent.
The low effective real rates reflect the significance of the tax-exempt nature of GARB.
The second key decision in modeling the financing of capital expenditures using GARB is the number of
years until bond maturation. The maximum period for which GARB might be issued is determined by the
service life of the asset plus 3 years, up to a total of 30 years. EPA analyzed three different technological
bases for aircraft deicing fluid (ADF) capture: (1) glycol recovery vehicles (GRVs), (2) plug and pump
(combined with GRVs), and (3) deicing pads (see Section 4, and the Technical Development Document
for further details). EPA reviewed expected service lives of these technologies, plus additional required
components, and found:
• Glycol recovery vehicles (GRVs) have expected service lives of approximately 10 years.
• Plug and pump technologies have expected service lives of approximately 10 years.
• Deicing pads have expected service lives of approximately 20 to 30 years.
Additional major components include:
• Holding tanks and associated piping have expected service lives of approximately 20 years.
• Anaerobic fluid bed (AFB) treatment has an expected service life of approximately 20 years.
• Engineering and monitoring costs associated with updating the Stormwater Pollution
Prevention Plan (SWPPP) must be performed every 5 years.
Based on this information, EPA modeled the bond issue by calculating the net present value (NPV) of
capital expenditures over 20 years, incorporating equipment replacement as necessary. For example, if an
airport is modeled as purchasing GRV and plug and pump technologies, capital costs are incurred in year
1 and year 11; if the airport is modeled as installing deicing pads, capital costs are only incurred in year 1.
In all cases, the NPV of capital costs are annualized over 20 years to allow direct comparison between
options despite differing service lives. To the extent that the actual service life of deicing pads exceeds 20
years, annualizing technologies over 20 years will bias the results against deicing pads. That is, after 20
years the airport will need to replace GRV and plug and pump technologies, but may be able to postpone
replacement of a the deicing pad for as many as 10 more years. Because of uncertainty concerning the
service life of deicing pads beyond 20 years, EPA selected a 20 year annualization period.
In addition to annual debt payments (the annualized NPV of the bond issue), each airport also incurs
annual O&M costs. Each component specified under an option has O&M costs associated with it in
addition to its capital cost. Also, certain airports are expected to incur costs annually because of the
requirement to switch from using urea to the more costly potassium acetate for airfield deicing. An
airport's annual O&M costs under each option is therefore the sum of O&M costs for each component
specified under that option.
The cost basis for the economic and financial impact analyses described below consists of:
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• Annual debt payments estimated as the annualized NPV of capital costs (including
replacement of capital equipment if necessary), which will be used to determine if the airport
can continue to service its debt after the proposed rule is promulgated (see Section 3.2.2).
• Annual operating costs estimated as the sum of the annual O&M costs associated with each
component specified under an option, which will also be used to determine if the airport can
continue to service its debt after the proposed rule is promulgated (see Section 3.2.2).
• Total annualized costs estimated as the sum of annual debt payments plus annual operating
costs, which will be used to project airport revenues based on the revenue test (see Section
3.2.1) and potential impacts to airlines if compliance costs are passed through from airports
(see Section 3.3).
3.1.4 Comparison of Impacts under GARB, AIP Grants and PFCs
Should an airport choose to use AIP or PFC funds to finance capital expenditures, impacts will differ
from expenditures financed through increased rates and charges. The effect of using an AIP grant to pay
for deicing-related infrastructure improvements would likely be the delay in an alternative project for
which the AIP grant was originally slated. Thus, there is an opportunity cost, which is measured by the
cost of capital, but no direct effect on rates and charges, and no compliance costs to be passed on to
airlines or their passengers. However, as mentioned above, AIP grants tend to be accounted for well into
the future and it would be highly speculative to assume the FAA would authorize whole-scale changes in
the use of these grants to meet the requirements of this effluent guideline. EPA will assume AIP grants
are not available for effluent guideline-related capital projects; if they become available, the cost of the
proposed regulation should be lower than projected by EPA.
In the case of PFCs, the availability of funding is not clear cut. Not all airports eligible for PFCs use them,
and not all airports that use PFCs are at the maximum allowable rate. In some ways funding the project
through PFCs should not differ substantially from rates and charges. Many airports designate PFCs as the
dedicated revenue stream to secure GARB.
Funding capital expenditures with PFCs should result in lower impacts to airports than using rates and
charges to support GARB. Servicing the debt associated with capital expenditures does not directly enter
the airport's rates and charges using PFCs. While costs of the rule might be passed on to airlines and their
customers whether financed through rates and charges or PFCs, the impacts of the two funding
mechanisms will differ. If capital improvements are funded through rates and charges, then airlines will
directly incur increased operating costs, some (or all) of which may be passed through to passengers in
the form of increased ticket prices. To the extent that passengers react to increased ticket prices by flying
less, airlines may also incur decreased revenues depending on the price elasticity of demand for travel to
that airport.
Should an airport use PFCs to finance capital expenditures, passenger cost of air transportation services
will increase. PFCs are added directly to ticket prices, collected by the airline, and transferred to the
airport. Although the PFC charge is listed on the ticket separately from the fare, there is no evidence that
passengers differentiate the PFC component from the total cost of purchasing the ticket when making
their travel decisions. Presumably an increase in the total cost of purchasing a ticket attributable to an
increased PFC will affect their travel decision in the same way as an identical increase in the total cost of
purchasing a ticket attributable to increased landing fees. In such a case, passenger response, and the
impact on airline revenues should be identical under both funding mechanisms. However, PFCs do not
directly increase airline operating costs.
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3.2 Economic Impact Analysis of Airports
As discussed in the Industry Profile, airports are generally non-profit government or quasi-government
(e.g., port authorities) enterprise funds. Thus, the impact of compliance costs resulting from an effluent
guideline on airport income is not equivalent to that of a for-profit private sector business, nor can it be
analyzed in the same manner using the same benchmarks.
EPA has identified two measures to judge the economic achievability of the proposed rule on affected
airports:
• Ratio of annualized compliance costs to operating revenues
• Debt service coverage ratio
The number (and/or percent) of entities incurring annualized compliance costs exceeding 1 percent of
operating revenues is a frequently used standard of judging economic achievability. EPA uses it for small
business impact analyses, impact analyses where cash flow or net income measures are not available, and
screening analyses. It is also a measure often used by other agencies for impact analyses.
3.2.1 Ratio of Annualized Compliance Costs to Operating Revenues
EPA's Guidelines for Preparing Economic Analyses (2000b) specifically presents the "revenue test," that
is, the ratio of annualized compliance costs to operating revenues, as the relevant method to measure
impacts of programs that directly affect government and not-for-profit entities. The airports potentially
affected by this rule are owned directly by the government (e.g., city, county, or state), or by a quasi-
governmental not-for-profit port authority.22 Thus, this is an appropriate measure of impacts for airports
affected by the deicing effluent guideline.
EPA therefore compared the ratio of total annualized compliance costs (costs) to total operating revenues
(revenues) for each airport to determine the impact of the selected options on airport revenues. By EPA
guidance (EPA 2000b),23 when:
• 0 percent < (estimated annualized compliance costs/revenues) < 1 percent: the option is
generally considered affordable for the entity.
• 1 percent < (estimated annualized compliance costs/revenues) < 3 percent: the option may be
considered affordable if only a few entities are affected and the majority incur costs less than
one percent of revenues.
• 3 percent < (estimated annualized compliance costs/revenues): the option is considered to be
placing a heavy burden on the entity.
Two issues need to be resolved to apply these guidelines to this proposed rulemaking effort. First, the
guidance suggests an option is affordable if only a few entities incur costs exceeding 1 percent or 3
percent of operating revenues. The only relevant guidance EPA found for determining what might be
22 One surveyed airport, Airborne Airpark, is privately owned and is a private use facility; the revenue test would not
be appropriate for this airport. However, Airborne Airpark is not expected to be affected by the proposed regulation.
23 The EPA guidance cited here was developed from EPA's small business regulatory flexibility guidance. However,
in this guidance (i.e., EPA 2000b), the guidelines apply to all affected entities, not just small entities.
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considered an appropriate measure of "a few entities" in this context was its Final Guidance for EPA
Rulewriters: Regulatory Flexibility Act as amended by the Small Business Regulatory Enforcement
Fairness Act (2006). This guidance states that it can be presumed there is not a significant impact to a
substantial number of small entities if fewer than 100 small entities or less than 20 percent of affected
small entities incur costs exceeding 3 percent of revenues.
The purpose of the Regulatory Flexibility Act as amended by the Small Business Regulatory Enforcement
Act (hereafter jointly referred to as RFA) is to prevent the imposition of unnecessary and
disproportionately burdensome demands upon small entities (EPA 2006). This is because small entities
are presumed to be more vulnerable to regulatory impacts than larger entities. Therefore, EPA believes
that (on the basis of its RFA guidance) if a substantial number of small entities would not be significantly
affected by a proposed rulemaking option, then applying the same standard to large entities, which are
less vulnerable to economic impacts, demonstrates that a substantial number of large entities are also not
significantly affected. Thus, for the purpose of this rulemaking effort, EPA has determined:
• If fewer than 100 entities, or less than 20 percent of affected entities incur compliance costs
that are less than 3 percent of operating revenues, then the option is considered affordable.
Second, under the Clean Water Act (CWA), EPA is setting effluent guidelines for airport deicing
operations based on the best technology available to industry that is economically achievable (CWA
Section 304(b)(2)). For the purpose of this rulemaking effort, EPA assumes that if an option is
determined to be affordable on the basis of the revenue test as described above, then the option will also
be considered "economically achievable."
To apply the revenue test to airports, EPA used the sum of 2004 aeronautical and non-aeronautical
operating revenues reported by airports on FAA Form F-127 (Operating and Financial Summary) as the
measure of airport operating revenue for this analysis. The estimation of annualized compliance costs was
described in Section 3.1.3, above, and the Technical Development Document (EPA 2009).
3.2.2 Debt Service Coverage Ratio
In order to be able to issue debt in the form of GARB to finance capital expenditures, an airport must
maintain good financial standing. Indeed, airports operated by quasi- governmental port authorities have
financial requirements written into the controlling documents that establishing and governing the
authority. These generally include limitations on the airport's debt service coverage ratio (DSCR); if the
DSCR does not remain above a certain threshold, the authority will be default on its debt. Although this
threshold might vary in general, the applicable standard among airports affected by the rule is that the
DSCR must remain above 1.25.
EPA therefore examined the impact of the rule on each affected airport's DSCR. The DSCR is defined as:
Net Revenues nre
DSCRpre= . g .
Debt Servicepre
Analysis of airport financial data presented on FAA Form 127 demonstrated that an airport's DSCR could
not, in general, be estimated from this information. Therefore, EPA requested the airport's current debt
service coverage ratio, and the net revenues and debt service used to calculate that ratio on the survey.
EPA also verified that all airports projected as incurring capital costs under the proposed option do use
bonds to finance capital expenditures.
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EPA estimated post-regulatory DSCR in two ways: assuming 100 percent of costs are passed through to
airlines in the form of higher rates and charges, and assuming zero percent of costs are passed through to
airlines.
Assuming 100 percent cost pass-through, post-regulatory DSCR is calculated as:
Net Revenuespre + Incremental Landing Fee Revenues - Incremental Operating Costs
pos Debt Servicepre + Annualized Bond Payment
Assuming zero cost pass-through, post-regulatory DSCR is calculated as:
Net Revenuespre - Incremental Operating Cost
Debt Servicepre + Annualized Bond Payment
The DSCR threshold that an airport must meet is specified in the statute creating the airport authority, or
the standard that otherwise applies to the relevant airport owner, such as the county or municipal
government. For all affected airports for which EPA was able to document the DSCR, the standard is
1.25. Thus, an airport will be evaluated as impacted if its pre-regulatory DSCR is greater than 1.25 and its
post-regulatory DSCR is less than 1.25.
An airport will not necessarily see its financial health significantly weakened if the airport's post-
regulatory DSCR falls below the 1.25 threshold. Rates and charges could be raised by a larger amount,
debt might be restructured, and airports may have opportunities to pay for capital expenditures without
incurring debt (e.g., "pay-as-you-go" funded through rates and charges or passenger facility charges
(PFC)). This may help a marginal airport stay within its financial limitations. However, exceeding this
threshold would constitute a potentially significant financial impact, and the economic achievability of the
proposed rule might be questionable for that airport.
3.3 Economic Impact Analysis of Airlines
EPA measured impacts to airlines by directly comparing estimated airline compliance costs with three
different airline income measures: operating revenues, operating profit, and net income. In general,
impacts to income are best measured at the level of operating profits or net income; if expenditures
consistently exceed revenues, a business will eventually have to close down even when not facing
compliance costs, and as such would be considered a baseline closure facing no impacts. Thus, there is a
relatively clear dividing line for determining if compliance costs can or cannot be borne by the airline.
However, because so many airlines had negative operating profit and/or net income over the years
analyzed (see Section 2.7.3.2 on barriers to exit), EPA would not be able to project impacts for a large
percentage of potentially affected airlines. EPA therefore chose to include operating revenues as a third
measure of income to use in the analysis to get a more complete picture of the impacts of the rule.
3.3.1 Airline Cost Extrapolation
All airline costs associated with compliance are operating costs. Costs are expected to be incurred in the
form of increased rates and charges, and will vary with the airline's level of operations at that airport.
These costs reflect the annualized portion of airport capital costs, but airlines do not directly incur capital
costs in this analysis.
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Each airline's compliance costs are directly estimated for each surveyed airport that the airline serves, and
extrapolated to estimate costs incurred at airports that were not surveyed. EPA assumes airports will
primarily finance costs incurred in complying with the effluent guidelines through increased landing fees.
Because landing fees are typically assessed on the rated landed weight of each aircraft, the landing fees
paid by any single airline at an airport are a function of the type and number of landings by that airline's
aircraft at the airport.
The BTS T-100 database records airport departures by airline and aircraft type. Augmenting these data
with rated landed weight by aircraft type (in general, obtained from the FAA Aircraft Characteristics
Database), EPA estimated the total landed weight for each airline providing service at each surveyed
airport. EPA then allocated compliance costs at each airport based on airline share of total landed weight;
if an airline accounted for 10 percent of landed weight at an airport, it is assumed to incur 10 percent of
that airport's compliance costs. The distribution of projected airline impacts will thus differ from actual
airline impacts to the extent that airports pass through costs using a different mechanism. Should airports
increase terminal rents instead of landing fees, for example, the airline impacts will depend on its share of
total airport terminal rents rather than its share of landed weight. Perhaps more significantly, if an airport
chooses to fund its capital expenditures solely through PFCs, then capital costs will be borne by passenger
airlines (indirectly through their impact on the demand for air transportation services) but not cargo-only
airlines.
Total airline costs are calculated by summing estimated costs at each airport for all airports served. If an
airport was selected from a sample stratum rather than selected with certainty (i.e., all large and medium
hubs, and small hubs with more than 30,000 annual departures), then that airport's projected compliance
costs are multiplied by its survey weight before allocating its costs to airlines. EPA allocated costs to
large and small U.S. certificated carriers, U.S. commuter air carriers, and foreign-flag carriers, but not air
taxis, general aviation or military aircraft.
3.3.2 Baseline Air Carrier Financial Condition and the Impact Analysis
EPA obtained airline operating revenue, operating profit, and net income data from BTS.24 In performing
economic impact analyses for an ELG, EPA has typically used estimated compliance costs and baseline
cashflow or net income to perform a "closure" analysis. In such an analysis EPA projects the affected
entities' discounted compliance costs and cashflow over the period of analysis; if an entity's pre-
regulatory discounted cashflow is positive, and its post-regulatory discounted cashflow is negative (i.e.,
projected pre-regulatory discounted cashflow less discounted compliance costs), the entity would be
projected to close as a result of the effluent guideline. In this context, EPA ideally would analyze each
airline's routes, and a "closure" means an airline would stop serving a specific route or airport pair.
However, this type of analysis is problematic for the airline industry:
• Airline decision-makers do not generally base service decisions on the finances of a specific
route or airport, but how that route/airport fits into the airline's entire route structure; changes
at one airport may affect the financial viability of other routes and other airports (Holloway,
2003).
24Large and small certificated carriers report financial data to BTS using Form 41, Schedules P-ll and P-12. These
data are publicly available and were downloaded from the BTS website. Commuter airlines report financial data to
BTS using Form 298C. These data are confidential for three years after the reporting period; EPA obtained these
data from BTS and is required to maintain confidentiality. Thus, data for commuter air carriers are only reported in
the aggregate, and not on an airline-specific basis.
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• If the impact of the ELG at a specific airport is large, airlines have alternatives to halting
service at that airport; they could use smaller aircraft or otherwise reduce service to that
airport without eliminating it.
• Airline cost and revenue data are only available at the airline level, not at the level of specific
routes or airports.
• As discussed in the Industry Profile (Sections 2.4.2 and 2.7), airline profitability has been
highly cyclical. When the Preliminary Data Summary was published in 2000 (EPA 2000a),
the industry was just completing perhaps its most profitable period in its history; when this
rulemaking commenced, the industry was experiencing some of its worst financial years in its
history. Projecting air transportation business cycles in any robust manner, especially starting
from the most recent data points, is highly problematic.
• Over the period of analysis, from 2004 through 2006, 40 to 50 percent of airlines for which
EPA obtained financial data reported negative net income (see Table 5-11) and 34 to 47
percent reported negative operating profit. In addition:
o 12 of 19 major airlines (those earning more than $1 billion in annual revenues) reported
negative net income in 2004 and 7 of those major airlines still reported negative net
income in 2006;
o the "Big Six" "legacy" carriers, which account for over 60 percent of domestic capacity
and 50 percent of domestic passengers, earned negative net and operating income in both
2004 and 2005 (FAA, 2006); four of the "Big Six" operated under Chapter 11 bankruptcy
protection at some point during some of this period.25
EPA defines a "baseline closure" as an affected business entity for which baseline net income (or
cashflow) is negative; baseline closures are excluded from an analysis of post-compliance net income (or
cashflow). Under this definition, if EPA was to employ a closure analysis for the purposes of this ELG
(which it is not), 12 of 19 major airlines would be considered baseline closures for the purpose of
comparing compliance costs with income, including some of the most important passenger airlines in the
U.S.26
3.3.3 Airline Impacts I: Compliance Costs and Airline Revenues
For the reasons enumerated in Section 3.3.2, EPA chose not to utilize a traditional "closure" methodology
to project regulatory impacts to airlines.
Instead, EPA performed a series of analyses to characterize airline impacts and ability to bear the costs
associated with the proposed rule. For each year of the 2004 through 2006 time period, EPA compared
the ratio of airline compliance costs to:
25 The "Big Six" legacy carriers are: American, Continental, Delta, Northwest, United, and US Airways. US
Airways merged with America West in 2005 (America West acquired US Airways although the airline operates
under the US Airways name). In 2008, Delta and Northwest announced plans to merge and continue to operate
under the Delta name. United has explored mergers with Continental and US Airways, although both initiatives
appear to have fallen through.
26 In addition,, EPA guidance states that if a discharger is not profitable prior to a regulation, it may not claim
substantial impacts would occur as a result of the regulation (e.g., EPA's Interim Economic Guidance for Water
Quality Standards (1995), cited in EPA 2000b).
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• Operating revenues for all U.S. large certificated, small certificated, and commuter air
carriers that reported data to BTS. This includes:
o 129 of 146 (88 percent) U.S. carriers with operations at surveyed airports in 2004, no
financial data were available for 17 air carriers;
o 122 of 143 (85 percent) U.S. carriers with operations at surveyed airports in 2005, no
financial data were available for 21 air carriers;
o 119 of 139 (86 percent) U.S. carriers with operations at surveyed airports in 2006, no
financial data were available for 20 air carriers.
• Operating profit for all U.S. large certificated, small certificated, and commuter air carriers
that reported data to BTS and for whom operating profit was positive. This includes:
o 68 of 146 (47 percent) U.S. carriers with operations at surveyed airports in 2004, 61
carriers reported negative operating profit;
o 66 of 143 (46 percent) U.S. carriers with operations at surveyed airports in 2005; 56
carriers reported negative operating profit;
o 78 of 139 (56 percent) U.S. carriers with operations at surveyed airports in 2006; 41
carriers reported negative operating profit.
• Net income for all U.S. large certificated, small certificated, and commuter air carriers that
reported data to BTS and for whom net income was positive. This includes:
o 65 of 146 (45 percent) U.S. carriers with operations at surveyed airports in 2004, 64
carriers reported negative operating profit;
o 62 of 143 (43 percent) U.S. carriers with operations at surveyed airports in 2005; 60
carriers reported negative operating profit;
o 71 of 139 (51 percent) U.S. carriers with operations at surveyed airports in 2006; 48
carriers reported negative operating profit.
Because 49 to 55 percent of airlines could not be evaluated under the more stringent operating profit and
net income metrics, EPA based its evaluation of impacts on operating revenues:
• 0 percent < (estimated annual compliance costs/operating revenues) < 1 percent: the option is
generally considered affordable.
• 1 percent < (estimated annual compliance costs/operating revenues) < 3 percent: the option
may be considered affordable if only a few entities are affected and the majority incurs costs
less than one percent of revenues.
• 3 percent < (estimated annual compliance costs/operating revenues): the option is considered
to be placing a heavy burden on the entity.
This essentially applies the same standards to for-profit entities as it does to non-profits organizations and
government entities (EPA 2000b; EPA 2006):
• If fewer than 100, or less than 20 percent of affected airlines incur compliance costs that
exceed 3 percent of operating revenues, then the option is considered affordable.
For those airlines with positive operating profit and/or positive net income, the analysis can be treated like
a closure analysis:
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• If estimated annual compliance costs exceed operating profit, or if estimated annual
compliance costs exceed net income): the option is not affordable; essentially the airline
would be projected to shutdown as a result of the regulation.27
EPA analyzed projected airline compliance costs relative to operating profit and net income and presents
the results of the analysis in this EA. However, because of the limitations described above in applying a
closure analysis to the airline industry, especially in its current baseline financial condition, EPA is not
basing its determination of economic achievability on this analysis.
Finally, when interpreting the results of the airline impact analysis, the context of the baseline financial
condition of the airline industry should be remembered. These results do not measure affordability based
on a relatively well defined outcome using a clearcut decision criterion, but rather attempt to determine if
compliance costs are affordable in the sense that they are "small" relative to airline income.
3.3.4 Airline Impacts II: Compliance Costs and Demand for Air Transportation Services
The analysis of airline impacts described in the previous section does not account for airlines passing
through compliance costs to their passengers in the form of higher airfares. As discussed in the Industry
Profile (Section 2.8.2.2), the ability of airlines to pass through costs incurred attributable to this effluent
guideline (assuming 100 percent of these costs are passed through from airports to airlines) is unclear. For
example, fuel comprises about 40 percent of airline operating costs and fuel prices have been rising at an
average annual rate of 24 percent from 2002 through 2007, yet airlines have been notably unable to
increase fares in response.
Because of the large number of routes flown by many airlines, as well as the multiple fares frequently
offered on those routes, EPA did not attempt to estimate an "average price" for air travel, instead, EPA
used the same metrics the industry uses to measure capacity, utilization, and revenues:
• Available seat-miles (ASM) is the industry's basic measure of capacity (or supply of airline
transportation services) for passenger service; a single ASM is equal to one passenger seat
(empty or filled) flown one mile, thus a carrier's ASM are calculated by multiplying the
number of seats flown on a route by route distance, then aggregating ASM over all routes
flown.
• Revenue passenger miles (RPM) is the industry's basic measure of production (or the
quantity of air transportation services sold) for passenger service; a single RPM is equal to
one revenue-paying passenger carried one mile, thus a carrier's RPM are calculated by
multiplying paying passengers by the number of miles each was flown, then summing over
all passengers flown.28 RPM is not the same as:
27 The analysis of compliance costs relative to operating profit and net income does not account for tax shields on
compliance costs; these tax shields would lower the burden of the regulation on these airlines but would not
substantially affect the results of the analysis.
28 Dividing RPM by ASM results in another commonly reported measure, the airline's "load factor;" essentially load
factor measures the percentage of available seats filled by paying customers (weighted by miles flown).
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• Revenue per passenger mile, or yield. An airline's yield is calculated by dividing total
passenger revenue by total RPM. This measures revenue earned per RPM flown.29
Similar metrics exist for cargo-only air carriers where the relevant analog to passenger/seat-mile is cargo
ton-miles.
EPA accessed BTS Air Carrier Summary Data, Schedule T-l to obtain ASM, available ton-miles (ATM),
RPM, and revenue ton-miles (RTM) data for potentially affected airlines. These measure the quantity
supplied and quantity demanded of air transportation services. Dividing operating revenues by RPM or
RTM, as appropriate, measures the average unit price customers paid for those services. Thus, these
measures provide the essential components of a partial equilibrium supply-demand model for each
affected airline.
In addition to price and quantity data, EPA requires estimates of the price elasticity of supply and demand
to project airline impacts using this model framework. Economists use demand elasticities to measure the
"responsiveness" of consumers' willingness to purchase a product resulting from a change in that
product's price; supply elasticities measure the responsiveness of producers' willingness to sell the
product in response to a change in product price. To eliminate ambiguities in interpretation due to units of
measure, elasticities are measured as the percentage change in quantity demanded (or supplied) resulting
from a given percentage change in price. Thus elasticities are scalable, and can be transferred from one
study to another (assuming that underlying supply and demand conditions have not changed so
dramatically that the market is no longer in the "neighborhood" of the measured elasticity).
3.3.4.1 Price Elasticity of Demand
To determine the price elasticity of demand, EPA reviewed two papers (FAA 1995, Button 2005) that
contained extensive literature reviews of studies of the price elasticity of demand for air transportation.
Two factors appear to be most significant in determining the price elasticity of demand: the reason for
travel, and the length of the trip. Although details between studies vary, the price elasticity of demand for
business travel is generally less elastic than for non-business travel (e.g., vacation travel). That is, there
will be a relatively small reduction in business travel compared to nonbusiness travel in response to any
given change in fares. If a business person has to be at a certain location on a certain date, those travel
plans are less likely to change if fares increase than for an analogous leisure traveler. A person traveling
for vacation has less need to be at a specific location on a specific date; a vacation traveler might respond
to fare increases by changing destination, mode of travel, or perhaps even choosing not to travel. Second,
the price elasticity of demand is less elastic for long trips than short trips. The reason is the availability of
substitutes; if fares increase, short trips might be feasible by car or train, while those alternatives will be
considerably less attractive for long trips.
Econometric studies have estimated price elasticities of demand for air travel ranging from -0.26 (a 10
percent increase in fare reduces travel by 2.6 percent) for long-haul business travel, to about -4.5 (a 10
percent increase in fare reduces travel by 45 percent) for short-haul nonbusiness travel (FAA 1995,
Button 2005). Analysts frequently use values of about -0.9 for business travel, and from -1.5 to -2.0 for
nonbusiness travel (FAA 1995, Button 2005). With approximately 30 to 40 percent of passenger
29 The next step in analyzing airline operations would be to multiply yield by load factor to measure revenue per
ASM; this can be directly compared with cost per ASM, and the impact of the proposed rule on the margin between
cost per ASM and revenue per ASM could be examined. However, as is the case for operating profit, cost per ASM
exceeds revenue per ASM for many potentially affected airlines, and therefore this additional step does not provide
analytically useful information.
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enplanements accounted for by business travel, EPA selected an overall price elasticity of demand for air
transportation services of-1.5; that is, if ticket price increases by 10 percent, the quantity of air travel
services purchased will decline by 15 percent. This value is especially significant because if the price
elasticity of demand is smaller than -1.0 (i.e., -1.0 < elasticity < -oo, as is -1.5), then an increase in ticket
price will not only decrease the number of passengers, but will decrease revenues earned from those
passengers as well.
A projected reduction in air travel resulting from the proposed effluent guideline does not incorporate all
implications of increased air fares. Different transportation modes are composed of different bundles of
attributes, such as price, convenience, comfort, speed, and safety. Thus, if a traveler changes
transportation mode in response to an increase in airfares, the bundle of attributes purchased will change.
Travel by commercial air carrier is perhaps the safest widely-available transportation mode. Therefore,
switching from air transportation to automobile transportation, for example, will result in increased risk of
injury or fatality per passenger-mile traveled. Thus, the projected reduction in RPM resulting from
potential increased air fares may result in increased injuries and fatalities to the extent travelers choose to
undertake their trip using a different mode. This will be affected by the traveler's willingness to travel by
different modes in response to the increased air fare, and the distance traveled. EPA did not evaluate this
implication of the potential increase in air fares resulting from the ELG.
3.3.4.2 Price Elasticity of Supply
The effect of the proposed effluent guideline on the price and quantity of air transportation services sold
depends not only on the price elasticity of demand, but the price elasticity of supply as well. For the
purpose of this analysis, EPA chose to assume the price elasticity of supply is infinite, that is, the supply
curve for air transportation services is a horizontal line when looking at a traditional supply-demand
graph. This represents a worst case scenario: 100 percent of compliance costs are passed through to
customers in the form of increased air fares. This assumption results in the largest decrease in RPMs
purchased by customers, and thus the largest decrease in air carrier revenues resulting from the effluent
guideline (given that the price elasticity of demand is smaller than -1.0). In this case, average ticket prices
increase by an amount equal to compliance costs divided by RPM. This covers the costs of compliance,
but airline income decreases indirectly due to the reduction in airline revenues caused by the decreased
quantity of air transportation services purchased.
It can be shown that the analysis described in Section 3.3.3 above is equivalent to the analysis described
in this section under an alternate assumption that the price elasticity of supply is equal to zero (perfectly
inelastic), that is, the supply curve for air transportation services is a vertical line when looking at a
traditional supply-demand graph. This represents a scenario where zero percent of compliance costs are
passed through to customers in the form of increased air fares. In this case, airline income decreases
directly by an amount equal to the compliance costs passed through from airports to airlines. There is no
reduction in airline revenues or quantity of air transportation services purchased.
Thus, although EPA did not explicitly model the specific price elasticity of supply of air transportation
services, implicitly EPA modeled bookend scenarios: 100 percent cost pass-through and zero percent cost
pass-through. The true impacts on the market for air transportation services will fall somewhere between
these two extreme cases. If the modeling results demonstrate that the impacts of the ELG are "small"
under both scenarios, then the impacts will also be small using the actual value for the price elasticity of
supply (if it were known).
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3.3.4.3 Calculation of Impacts
The price elasticity of demand (8d) is expressed in terms of percentage changes: the percent change in
quantity demanded divided by the percentage change in price.
( A quantity demanded./
% A quantity demanded ^ /baseline quantity demanded
% A price [A price/
^ /baseline price
Using data on compliance costs, baseline revenue, and baseline RPM, EPA estimated the percentage
increase in price necessary to cover the compliance costs of the proposed regulation for each airline. The
measure of each airline's fares (perhaps more accurately described as "unit price") used in this analysis is
"yield," that is, revenue per RPM. Yield is determined by dividing passenger revenues by total RPM. As
discussed in Section 3.3.4.2, assuming that supply is perfectly elastic with respect to a change in price is
equivalent to assuming 100 percent of compliance costs are passed through to customers. Therefore, the
required change in air fares is calculated by dividing each airline's total compliance costs by its RPM.
(total compliance costs /
I /RPM
%Aprice = -
total revenues/
/RPM
Because many airlines did not report passenger revenue data separate from total revenue to BTS, EPA
used total airline revenues for this process instead of passenger revenues to allow for consistent
estimation. This modification does not affect the estimated reduction in revenues caused by the effluent
guideline, but does underestimate the reduction in RPM by a small amount.30
Using the estimated percentage change in price, the price elasticity of demand, and baseline RPM, EPA
calculated the decrease in quantity of air transportation services demanded resulting from the price
increase as:
-A quantity demanded = sd x(%Aprice) x (baseline quantity demanded)
or
-ARPM = ed x(%Aprice) x(RPM)
since demand for air transportation is measured in terms of RPM.
EPA then estimated the reduction in each airline's revenues associated with the decrease in RPM:
A revenues=- A RPM x \ total revenuG^M
30 For those airlines that provided both total revenue and passenger revenue data, basing the calculation on total
revenues resulted in an estimated reduction in RPM that was less than 2/100ths of a percent smaller (relative to
baseline) than the estimate based on passenger revenues alone.
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The final step of this analysis is to project the relative size of the impacts if incurred in the form of lost
revenue rather than increased costs. The same issues associated with measuring impacts that were listed in
Section 3.3.2 are equally valid under this scenario. Hence, EPA evaluated impacts using essentially the
same method:
• 0 percent < (A revenues/operating revenues) < 1 percent: the option is generally considered
affordable.
• 1 percent < (A revenues/operating revenues) < 3 percent: the option may be considered
affordable if only a few entities are affected and the majority incurs costs less than one
percent of revenues.
• 3 percent < (A revenues/operating revenues): the option is not generally considered
affordable.
The same analysis was performed for cargo-only airlines based on revenue per RTM instead of yield.
3.3.4.4 Impact on Reduction in Demand for Air Transportation Services on Airport Revenues
The airport finance model is based on raising capital through selling bonds. The revenue stream to pay off
the bonds is through increased landing fees, which are a function of aircraft landed weight. Landed weight
is determined for each aircraft type, and is not the result of physically weighing each aircraft. Therefore,
an airport will earn the same revenue from an aircraft carrying 100 passengers as it will if the same
aircraft type carries 101 passengers. Thus, in this model framework, an increase in ticket prices that
results in decreased passenger enplanements will affect airline revenue but not airport revenue (although
there could be a decline in airport concession and other revenues not modeled).
If the impact of the ELG on passenger demand is large, it is possible that airlines could use smaller
aircraft to service the airport, and/or reduce service frequency. This would result in a decrease in airport
revenues, and could also impact PFC revenues used to fund other airport capital projects, if any.
3.4 References
ATA. 2005a. Airline Handbook. Chapter 7: Airports. Air Transportation Association. Downloaded from
www.airlines .org/about/. April 27, 2005.
ATA. 2005b. Economics: Annual Revenues and Earnings: U.S. Airlines - All Services. Downloaded
from www.airlines.org/econ/. September 20, 2006.
ATA. 2005c. 2005 ATA Economic Report. Downloaded from www .airline s. org/econ/. September 20,
2006.
Boyd, 2006. Airline Industry Bankruptcies: Facts v. Myths. The Boyd Group. Downloaded from
www.aviationplanning.com/asrc20. March 29.
Button, Kenneth. 2005. The taxation of air transportation. Center for Transportation Policy, Operations
and Logistics, School of Public Policy, George Mason University. April.
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CBO. 1999. Financing Small Commercial-Service Airports: Federal Policies and Options. CBO Paper.
Congressional Budget Office. April.
FAA. 2008. Passenger Facility Charge Monthly Reports. May 1. Available online at
http://www.faa.gov/airports_airtraffic/airports/pfc/monthly_reports/ (accessed May 21, 2008).
FAA. 2006. FAA Aerospace Forecast Fiscal Years 2006-2017. Federal Aviation Administration, Office
of Policy and Plans, downloaded from www.faa.gov/data_statistics/aviation/aerospace_forecasts/2006-
201II, September 21.
FAA. \995.Reportto Congress: Child restraint systems. Volume 1. Federal Aviation Administration,
May.
Hill, Phil. 2006. Role of the Feasibility Consultant: Airport Financings. Presentation by Phil G. Hill of
Ricondo & Associates at the AAAE Airport Finance and Bond Symposium. New York, New York. June
26-27.
Holloway, Stephen. 2003. Straight and Level: Practical Airline Economics (2nd ed.). Aldershot: Ashgate
Publishing.
Mullins, Crystal, and Deevana Kumar. 2006. Airport Revenue Bond Financing Options. Presentation by
Crystal Mullins and Deevana Kumar of JPMorgan at the AAAE Airport Finance and Bond Symposium.
New York, New York. June 26-21.
Page, Sasha. 2005. Tweaking or Transforming Airport Performance. Presentation by Sasha Page of
Infrastructure Management Group at the AAAE Rates and Charges Workshop. Washington, DC.
April 5-6.
Spumberg, Howard. 2006. Financial Guaranty Insurance. Presentation at the AAAE/JPMorgan Airport
Finance and Bond Symposium. New York, New York. June 26-21.
Taylor, Elizabeth. 2005. Meeting with Elizabeth Taylor and Catherine Weatherall of MassPort, and Cal
Franz, ERG. September 13.
U.S. EPA. 2009. Technical Development Document for Proposed Effluent Limitation Guidelines and
Standards for the Airport Deicing Category. EPA-821-R-09-004.
U.S. EPA. 2006. Final Guidance for EPA Rulewriters: Regulatory Flexibility Act as amended by the
Small Business Regulatory Enforcement Fairness Act. U.S. Environmental Protection Agency.
November.
U.S. EPA. 2000a. Preliminary Data Summary: Airport Deicing Operations (Revised). U.S. Environmental
Protection Agency. EPA-821-R-00-016.
U.S. EPA. 2000b. Guidelines for Preparing Economic Analyses. U.S. Environmental Protection Agency.
EPA240-R-00-003. September.
Walsh, Tom. 2005. Financial Accounting Framework. Presentation by Tom Walsh of Leigh Fisher
Associates at the AAAE Rates and Charges Workshop. Washington, DC. April 5-6.
July 2009 3-17
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Economic Analysis for Proposed Effluent Limitation Guidelines Chapter 4. Pollution Control Options
and Standards for the Airport Deicing Category
CHAPTER 4
POLLUTION CONTROL OPTIONS
4.1 Effluent Limitation Guidelines and Standards
The Federal Water Pollution Control Act (commonly known as the Clean Water Act [CWA, 33 U.S.C.
§1251 et seq.]) establishes a comprehensive program to "restore and maintain the chemical, physical, and
biological integrity of the Nation's waters" (§101(a)). EPA is authorized under sections 301, 304, 306,
and 307 of the CWA to establish effluent limitation guidelines and pretreatment standards of performance
for industrial dischargers. The standards EPA establishes include:
• Best Practicable Control Technology Currently Available (BPT). Required under section
304(b)(l), these rules apply to existing industrial direct dischargers. EPA establishes BPT
effluent limitations based on the average of the best performances of facilities within the
industry, grouped to reflect various ages, sizes, processes, or other common characteristics.
EPA may promulgate BPT effluent limits for conventional, toxic, and non-conventional
pollutants.
• Best Available Technology Economically Achievable (BAT). Required under section
304(b)(2), these rules apply to existing industrial direct dischargers. BAT represents the
second level of stringency for controlling direct discharge of toxic and nonconventional
pollutants. In general, BAT effluent limitation guidelines represent the best economically
achievable performance of facilities in the industrial subcategory or category. The factors
considered in assessing BAT include the cost of achieving BAT effluent reductions, the age
of equipment and facilities involved, the process employed, potential process changes, and
non-water quality environmental impacts including energy requirements, and such other
factors as the EPA Administrator deems appropriate.
• Best Conventional Pollutant Control Technology (BCT). Required under section 304(b)(4),
these rules apply to existing industrial direct dischargers, and represent an an additional level
of control, after BPT, for conventional pollutants. BCT limitations must be established in
light of a two-part "cost-reasonableness" test.
• Pretreatment Standards for Existing Sources (PSES). Required under section 307. Analogous
to BAT controls, these rules apply to existing indirect dischargers, whose discharges flow to
publicly owned treatment works (POTWs). PSES are designed to prevent the discharge of
pollutants that pass through, interfere with, or are otherwise incompatible with the operation
of POTWs.
• New Source Performance Standards (NSPS). Required under section 306(b), these rules
apply to new source industrial direct dischargers for all pollutants. NSPS reflect effluent
reductions that are achievable based on the "best available demonstrated control technology."
New facilities have the opportunity to install the best and most efficient production processes
and wastewater treatment technologies. As a result, NSPS should represent the most
stringent controls attainable through the application of the best available demonstrated control
technology.
• Pretreatment Standards for New Sources (PSNS). Required under section 307. Analogous to
NSPS controls, these rules apply to new source indirect dischargers (whose discharges flow
July 2009 4-1
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Economic Analysis for Proposed Effluent Limitation Guidelines Chapter 4. Pollution Control Options
and Standards for the Airport Deicing Category
to POTWs). Such pretreatment standards must prevent the discharge of any pollutant into a
POTW that may interfere with, pass through, or may otherwise be incompatible with the
POTW. EPA promulgates PSNS based on best available demonstrated technology for new
sources.
In this proposed effluent limitation guidelines for the aircraft anti-icing/deicing industry, EPA intends to
promulgate BAT and NSPS standards.
4.2 Technology Basis for Deicing Options
EPA does not mandate technologies when establishing effluent limitation guidelines and pretreatment
standards. However, EPA evaluates various technology options in order to base the limitations on
demonstrated technologies and to evaluate the economic impact of the cost of those technologies on the
regulated industry. If airports and/or airlines can find less costly ways to meet the limits, as they are free
to do, then the analysis based on these technologies will be an overestimate. This section briefly describes
the pollution control technologies evaluated for the aircraft anti-icing/deicing effluent guideline.
Most aircraft deicing fluid (ADF) is applied to aircraft through pressurized spraying systems, either
mounted on trucks that move around an aircraft, or on large fixed boom devices. Airlines typically
purchase ADF in concentrated form and dilute it with water prior to spraying. Most applied ADF is Type
I fluid, which does not adhere to aircraft surfaces. Consequently Type I ADF is available for discharge
due to dripping, overspraying, tracking and shearing during takeoff. Once the ADF has reached the
ground, it will then mix with precipitation, as well as other chemicals found in airport stormwater. (These
chemicals typically include aircraft fuel, lubricants and solvents, and metals from aircraft and utilty
vehicles.) This wastestream enters an airport's storm drain system. At many airports, the storm drains
discharge directly to waters of the United States with no treatment.
The ADF application process has presented a challenge for airports attempting to manage their deicing
stormwater streams. The airlines' process of applying ADF to aircraft through high pressure spraying,
combined with their typical practices of spraying the aircraft outdoors in multiple large unconfined
spaces, results in pollutants being dispersed over a wide area and entering storm drains at multiple
locations. EPA has identified several technologies that are available to collect and manage the ADF
wastestream, which are described in Sections 4.2.1 through 4.2.3. After collection, the ADF must be
treated to numeric limits; EPA evaluated anaerobic fluidized bed (AFB) biological treatment as the basis
for the treatment component of the effluent guideline (Section 4.2.4). More detailed information about the
collection and treatment technologies described here is contained in the Technical Development
Document (EPA 2009).
4.2.1 Glycol Recovery Vehicle
A glycol recovery vehicle (GRV) is a truck or trailer-based device that utilizes a vacuum mechanism to
gather stormwater contaminated with ADF resulting from deicing operations. A GRV is a modular
technology, in that collection capacity can be increased by using additional units, without the
complicating factors of in-ground construction associated with some other technologies. An airport can
easily increase its overall ADF collection capacity by purchasing larger and/or additional units. EPA
estimates that GRVs typically capture approximately 20 percent of the applied ADF.
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Economic Analysis for Proposed Effluent Limitation Guidelines Chapter 4. Pollution Control Options
and Standards for the Airport Deicing Category
4.2.2 Plug and Pump
The plug-and-pump collection system involves alterations to an airport's existing storm drain system
infrastructure in combination with GRVs to contain and collect ADF-contaminated stormwater. Drainage
system modifications involve the placement of temporary blocking devices at storm drain inlets, and/or
installation of shutoff valves at one or more points in the storm sewer system. Before a deicing event
begins, airport personnel activate the blocking devices, which trap the ADF-contaminated stormwater in
the collection system. After the deicing activity ceases, vacuum trucks pump deicing stormwater from the
storm sewer system. EPA estimates that plug and pump systems which incorporate GRVs may capture
approximately 40 percent of the applied ADF.
4.2.3 Centralized Deicing Pads
A centralized deicing pad is a facility on an airfield built specifically for aircraft deicing operations. It is
typically a paved area adjacent to a gate area, taxiway, or runway, and constructed with a drainage system
separate from the airport's main storm drain system. It is usually constructed of concrete with sealed joints
to prevent the loss of sprayed ADF through the joints. A pad is specially graded and captures and routes
highly contaminated runoff to storage ponds or tanks, from which the deicing stormwater can be sent to
on-site or off-site treatment. Central deicing pads minimize the volume of deicing wastewater by
restricting deicing to very small areas, and managing the captured wastewater through a dedicated drain
system. EPA estimates that central deicing pads allow airports to capture about 60 percent of the sprayed
ADF.
In developing cost estimates for installing centralized deicing pads, EPA did not impute an opportunity
cost for the use of airport land taken by the pads. EPA believes that the airports projected to install
deicing pads to meet a 60 percent capture requirement for ADF will be able to install the pad(s) on their
current property without purchasing additional land. Furthermore, deicing pads will need to be installed
within the existing structure of runways, aprons, and taxiways. Because of FAA-mandated restrictions on
structure heights and clearances, EPA believes airports cannot use those sites for building terminals, cargo
facilities, maintenance buildings or other structures. Thus these sites have few, if any, alternative uses that
would create an opportunity cost for using the site to construct a deicing pad.
EPA acknowledges that airport use of deicing pads increases the complexity of operations during winter
weather. However, these complexities are not inherently insoluble. Of the 14 airports EPA expects will
have to meet the 60 percent capture requirement under the selected option (see table below), seven
already use deicing pads, two have completed installation of pads since the deicing survey was
administered (Cleveland-Hopkins and Washington Dulles), and one is installing pads for use on at least
some operations (Chicago-O'Hare). Thus, workable solutions to these operational complexities must be
available, although EPA has no means of estimating costs associated with this additional complexity.
Furthermore, EPA believes that as long as deicing pads do not reduce the number of departures per hour
below the limit caused by the weather itself, then the cost of delays is attributable to the bad weather, not
the deicing pads. Although some aircraft might be delayed if they lose their spot in the queue, then these
costs are offset by the benefit to aircraft that move up in the queue (although those aircraft may not be
owned by the same carrier). Therefore, EPA did not estimate costs for potential delays that might be
caused by deicing pads.
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Economic Analysis for Proposed Effluent Limitation Guidelines Chapter 4. Pollution Control Options
and Standards for the Airport Deicing Category
4.2.4 Anaerobic Fluid Bed Biological Treatment
The AFB treatment system uses a vertical, cylindrical tank in which the ADF-contaminated stormwater is
pumped upwards through a bed of granular activated carbon at a velocity sufficient to fluidize, or
suspend, the media. A thin film of microorganisms grows and coats each granular activated carbon
particle, providing a vast surface area for biological growth. The anaerobic microorganisms that develop
occur naturally in sediment, peat bogs, cattle intestines, and even brewer's yeast. These microorganisms
provide treatment of the ADF-contaminated stormwater. AFB treatment system by-products include
methane, carbon dioxide, and new biomass. Effluent from the AFB can be discharged to a local publicly
owned treatment works (POTW) or, in most cases, directly to surface water. EPA selected AFB biological
treatment for further evaluation since it represents the best technology currently in use by airports to treat
deicing stormwater prior to direct discharge.
4.3 Analyzed Options
For the purpose of analyzing effluent guideline options, EPA chose different technology bases to apply to
different sizes of in-scope airports. Thus, to analyze option 3, for example, a very large airport might be
costed for installing a centralized deicing pad, but a smaller airport expected to achieve a lower capture
rate might be costed for GRVs. Table 4-1 summarizes the technology options considered for each
industry subcategory. The first column indicates the option number that appears in the cost and impact
tables in the following chapters. The second column contains the airport subcategory definition; the third
column describes the goal of the option; and the last column provides a description of the technology
considered.
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 4. Pollution Control Options
Table 4-1. BAT Options for Primary Commercial Service Airports with more than 1,000 Annual
Jet Departures
BAT Option
1
2
o
3
4
Airport Criteria
< 10,000 departures
> 10,000 departures
< 10,000 departures
> 10,000 departures
< 10,000 departures
> 10,000 departures,
< 460k gallons of ADF
> 10,000 departures,
> 460k gallons of ADF
< 460k gallons of ADF
> 460k gallons of ADF
Option Description
Discontinue urea usage
Capture 20% ADF,
treat to numeric limit;
discontinue urea usage
Discontinue urea usage
Capture 40% ADF,
treat to numeric limit;
discontinue urea usage
Discontinue urea usage
Capture 20% ADF,
treat to numeric limit;
discontinue urea usage
Capture 60% ADF,
treat to numeric limit;
discontinue urea usage
Capture 20% ADF,
treat to numeric limit;
discontinue urea usage
Capture 60% ADF,
treat to numeric limit;
discontinue urea usage
Technology
Product substitution
Glycol Recovery Vehicles;
AFB Biological Treatment;
Product substitution
Product substitution
Glycol Recovery Vehicles;
Block & Pump;
AFB Biological Treatment;
Product substitution
Product substitution
Glycol Recovery Vehicles;
AFB Biological Treatment;
Product substitution
Deicing Pads;
AFB Biological Treatment;
Product substitution
Glycol Recovery Vehicles;
AFB Biological Treatment;
Product substitution
Deicing Pads;
AFB Biological Treatment;
Product substitution
4.4
References
U.S. EPA. 2009. Technical Development Document for Proposed Effluent Limitation Guidelines and
Standards for the Airport Deicing Category. EPA-821-R-09-004.
July 2009
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Economic Analysis for Proposed Effluent Limitation Guidelines Chapter 5. Economic Impact Analysis Results
and Standards for the Airport Deicing Category
CHAPTER 5
ECONOMIC IMPACT ANALYSIS RESULTS
This section presents the projected economic impacts resulting from the costs of complying with the
proposed effluent limitation guidelines (ELG) for aircraft anti-icing/deicing operations. The impacts are
estimated using the methodology outlined in Sections 3.
Section 5.1 presents the national costs for the options described in Section 4. Section 5.2 presents
estimated impacts on airports, while Section 5.3 outlines the estimated impacts on airlines. Although
airports will directly incur the costs of the rule, it is likely that many of the compliance costs will be
passed through to airlines in the form of higher rates and charges, hence the need to evaluate potential
impacts to both sectors. Section 5.4 presents impacts on the air transportation market. Just as airports
might pass through costs to airlines, airlines might pass those costs through to their customers in the form
of increased fares. Higher fares will affect the demand for air transportation services, hence the need to
evaluate impacts to air transportation markets. Finally, Section 5.5 summarizes the impacts under the
proposed rule. A more detailed analysis of impacts on small business entities within the industry is
presented in Section 6.
5.1 National Compliance Costs
Capital costs were annualized using each airport's nominal bond rate for its most recent General Airport
Bond (GARB) issue. This was converted to a real rate using an average annual inflation rate of 2.3
percent over the last 5 years. The median nominal discount rate for costed airports was 5.25 percent
(range: 2.04 to 9.37 percent), which is equivalent to 2.87 percent (range: 0.0 to 6.9 percent) after
accounting for inflation. Costs were annualized over 20 years.
Included in this analysis are 114 airports, weighted to represent 218 commercial service airports in the
U.S. that both exceed 1,000 jet departures annually and perform deicing. This includes 8 Alaskan airports
within the scope of this rule.1
Table 5-1 presents projected costs for all options examined under this rulemaking effort; EPA selected
Option 3 as its proposed option. EPA projects that under Option 3, affected airports will incur $701.7
million in (unannualized) present value of capital costs over the 20 year analytic period using the
technologies described in Section 4. The net present value of capital costs is presented to allow a fair
comparison between technologies such as glycol recovery vehicles (GRV) and plug and pump that will
require replacement within the 20 year analytic period and deicing pads, which are expected to last at
least 20 years before replacement or resurfacing.
Assuming that airports will use the Option 3 technologies to meet the effluent limitations (see Chapter 4
and TDD), which EPA is proposing to industry as the best available technologies (BAT), the annual
operating and maintenance (O&M) costs are estimated at $45.9 million for a total annualized cost of
$91.3 million (2006 dollars). This figure for the cost of Option 3 technologies includes the cost of using
potassium acetate instead of urea to deice airfields. Seventy of 218 in-scope airports are expected to incur
costs under this proposal.
1 The eight in-scope Alaskan airports were individually selected for analysis rather than selected through random
sampling, and therefore were assigned survey weights of 1.0.
July 2009 5-1
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 5. Economic Impact Analysis Results
Option 2, primarily composed of airports required to meet the 40 percent aircraft deicing fluid (ADF)
capture and treatment rate, is the most expensive option despite capital costs that are 40 percent smaller
than Option 3. This is due to the high annual O&M costs of running plug and pump technologies.
Table 5-1. Estimated Option Costs for In-scope Airports (millions, 2006 dollars)"
Option
1
2
3
4
Airports
Incurring Costs
67
75
70
121
Present Value of
Capital Costsb
$299.5
$435.2
$701.7
$848.7
Annualized
Capital Costsb
$19.2
$28.0
$45.4
$54.9
Annual O&M
Costs
$17.1
$82.1
$45.9
$50.0
Total Annualized
Costs
$36.4
$110.1
$91.3
$105.0
a An estimated 218 airports are in-scope.
b Cost estimates and annualization calculations performed assuming a 20-year time horizon.
5.2 Airport Impacts
This section presents projected impacts of the proposed ADF effluent guidelines on potentially affected
airports in three ways. First, EPA reviews the distribution of costs incurred by airports; these results are
summarized in Section 5.2.1. Second, EPA examined the ratio of compliance costs to operating revenues
(the "revenue" test) to determine the relative impact of the proposed rule on airport operating income. The
results of this test are presented in Section 5.2.2. Third, because EPA expects that many, if not most,
airports will finance capital expenditures resulting from the proposed rule through the issuance of General
Airport Revenue Bonds (GARBs), EPA analyzed the potential impact of the rule on each airport's debt
service coverage ratio to determine if the rule would affect the ability of airports to use debt financing.
This analysis is described in Section 5.2.3.
5.2.1 Distribution of Projected Compliance Costs
Table 5-2 presents a summary of estimated annualized cost for airports in-scope for the airport deicing
effluent guideline. Of the 218 airports expected to be in-scope, 68 to 122 are projected to incur costs
under the examined options, with 71 (33 percent) projected to incur costs under the proposed Option 3.
Although average annualized compliance costs per airport under Option 3 are $1.3 million (for those
airports that incur costs), three-fourths of these airports are projected to incur average annualized costs
less than $772,000 (3
$215,000.
rd
Quartile), and half of them are projected to incur annualized costs less than
July 2009
5-2
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 5. Economic Impact Analysis Results
Table 5-2. Summary Cost Statistics for In-scope Airports
Option
1
2
3
4
Number of In-scope
Airports (218)
Costs
= $0
150
142
147
96
Costs
>$0
68
76
71
122
Compliance Cost Statistics (thousands, 2006 dollars)
Average
$538
$1,445
$1,290
$860
Max
$5,296
$10,611
$18,649
$18,649
75th
Percentile
$631
$1,836
$772
$462
Median
$103
$338
$214
$207
25th
Percentile
$39.6
$40.5
$40.5
$92.7
Mina
$1.1
$1.1
$1.1
$1.1
a All airports in the lowest cost quartile are projected to only incur costs associated with replacing urea with
potassium acetate, hence the projected compliance costs for these airports are identical under all four options.
Table 5-3 presents a list of all airports projected to incur annualized compliance costs in the highest cost
quartile under each option. The table includes the airport weight, which is a necessary component of the
analysis resulting from the statistical survey methodology. EPA took a sample of small hub and nonhub
airports for the survey. Because their selection was through a sample of all relevant airports, the selected
airports represent not only themselves, but also other airports with similar characteristics (i.e., hub status
and SOFP days) that did not receive a survey. The number of airports represented by each of the
surveyed airports is characterized by a survey weight greater than 1.0. EPA took a census of all large and
medium hub airports, therefore these airports all have a weight of 1.0; that is, they represent themselves
but no other airport. For the purpose of this analysis, the weight is applied to the impacts resulting from
the compliance costs. Thus, the entry in Table 5-3, Option 1, for Fort Wayne International (FWA; last
row of Option 1), shows that EPA projects 1.968 airports represented by Fort Wayne International will
incur annualized compliance costs of $771,950 under that option.
5.2.2 Revenue Test Analysis
EPA compared the ratio of total annualized compliance costs (costs) to total operating revenues
(revenues) for each airport to determine the impact of the selected options on airport revenues. Table 5-4
presents the results of this analysis for all in-scope airports. As discussed in more detail in Section 3.2.1,
EPA selected the following benchmark to determine the economic achievability of the proposed option:
• If fewer than 100, or less than 20 percent of affected airports incur compliance costs that
exceed 3 percent of operating revenues, then the option is considered affordable.
As shown in Table 5-4, under most options the majority of airports incur compliance costs that are less
than one percent of total operating revenues. Under the proposed option, 80 percent of in-scope airports
are projected to incur costs less than 1 percent of revenues, while 11 airports (5 percent) are projected to
incur costs exceeding 3 percent of revenues. Under Option 4, however, approximately 26 percent of all
affected airports incur compliance costs greater than 3 percent of total operating revenues.
July 2009
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 5. Economic Impact Analysis Results
Table 5-3. Airports in Top Quartile of Projected Compliance Costs
Airport ID
Option 1
EWR
BOS
JFK
LGA
MEM
CLT
CMH
GSO
RDU
ANC
MHT
SLC
SAT
JNU
FWA
Option 2
EWR
JFK
GSO
BOS
LGA
ABQ
SAT
RDU
CMH
MEM
ROA
FWA
PDX
CLT
JNU
OKC
Airport
Newark Liberty Intl
General Edward Lawrence Logan Intl
John F Kennedy Intl
La Guardia
Memphis Intl
Charlotte/Douglas Intl
Port Columbus Intl
Piedmont Triad International
Raleigh-Durham Intl
Ted Stevens Anchorage Intl
Manchester
Salt Lake City Intl
San Antonio Intl
Juneau Intl
Fort Wayne International
Newark Liberty Intl
John F Kennedy Intl
Piedmont Triad International
General Edward Lawrence Logan Intl
La Guardia
Albuquerque Intl Sunport
San Antonio Intl
Raleigh-Durham Intl
Port Columbus Intl
Memphis Intl
Roanoke Regional/Woodrum Field
Fort Wayne International
Portland Intl
Charlotte/Douglas Intl
Juneau Intl
Will Rogers World
City
Newark
Boston
New York
New York
Memphis
Charlotte
Columbus
Greensboro
Raleigh/Durham
Anchorage
Manchester
Salt Lake City
San Antonio
Juneau
Fort Wayne
Newark
New York
Greensboro
Boston
New York
Albuquerque
San Antonio
Raleigh/Durham
Columbus
Memphis
Roanoke
Fort Wayne
Portland
Charlotte
Juneau
Oklahoma City
State
NJ
MA
NY
NY
TN
NC
OH
NC
NC
AK
NH
UT
TX
AK
IN
NJ
NY
NC
MA
NY
NM
TX
NC
OH
TN
VA
IN
OR
NC
AK
OK
Hub
Status
L
L
L
L
M
L
M
S
M
M
M
L
M
S
N
L
L
S
L
L
M
M
M
M
M
N
N
M
L
S
S
Survey
Weight
1.000
.000
.000
.000
.000
.000
.000
.000
.000
.000
.000
.000
.000
.000
.968
.000
.000
.000
.000
.000
.000
.000
.000
.000
.000
2.192
.968
.000
.000
.000
.000
Unweighted
Annualized Option
Costs (2006 dollars)
$5,295,639
$4,314,131
$2,989,495
$2,881,334
$1,817,216
$1,801,980
$1,407,423
$1,329,637
$1,217,679
$920,130
$859,222
$812,625
$803,880
$802,221
$771,950
$10,611,384
$9,773,961
$7,869,615
$7,141,413
$6,440,436
$5,763,624
$4,803,894
$4,084,649
$3,772,577
$3,771,478
$3,680,432
$2,624,045
$2,467,448
$2,379,805
$2,202,074
$2,201,594
July 2009
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 5. Economic Impact Analysis Results
Table 5-3. Airports in Top Quartile of Projected Compliance Costs
Airport ID
ORF
MHT
OMA
TOL
XNA
RNO
Option 3
IAD
ORD
EWR
BOS
LGA
JFK
CLE
MEM
CLT
CMH
GSO
RDU
ANC
MHT
SLC
SAT
JNU
Option 4
IAD
ORD
EWR
BOS
LGA
JFK
CLE
MEM
Airport
Norfolk Intl
Manchester
Eppley Airfield
Toledo Express
Northwest Arkansas Rgnl
Reno/Tahoe International
Washington Dulles International
Chicago O'Hare Intl
Newark Liberty Intl
General Edward Lawrence Logan Intl
La Guardia
John F Kennedy Intl
Cleveland-Hopkins Intl
Memphis Intl
Charlotte/Douglas Intl
Port Columbus Intl
Piedmont Triad International
Raleigh-Durham Intl
Ted Stevens Anchorage Intl
Manchester
Salt Lake City Intl
San Antonio Intl
Juneau Intl
Washington Dulles International
Chicago O'Hare Intl
Newark Liberty Intl
General Edward Lawrence Logan Intl
La Guardia
John F Kennedy Intl
Cleveland-Hopkins Intl
Memphis Intl
City
Norfolk
Manchester
Omaha
Toledo
Fayetteville/Springdale
Reno
Washington
Chicago
Newark
Boston
New York
New York
Cleveland
Memphis
Charlotte
Columbus
Greensboro
Raleigh/Durham
Anchorage
Manchester
Salt Lake City
San Antonio
Juneau
Washington
Chicago
Newark
Boston
New York
New York
Cleveland
Memphis
State
VA
NH
NE
OH
AR
NV
DC
IL
NJ
MA
NY
NY
OH
TN
NC
OH
NC
NC
AK
NH
UT
TX
AK
DC
IL
NJ
MA
NY
NY
OH
TN
Hub
Status
M
M
M
N
S
M
L
L
L
L
L
L
M
M
L
M
S
M
M
M
L
M
S
L
L
L
L
L
L
M
M
Survey
Weight
1.000
1.000
1.000
2.092
1.880
1.000
1.000
.000
.000
.000
.000
.000
.000
.000
.000
.000
.000
.000
.000
.000
.000
.000
.000
1.000
.000
.000
.000
.000
.000
.000
.000
Unweighted
Annualized Option
Costs (2006 dollars)
$1,799,215
$1,494,223
$1,466,449
$1,314,759
$1,203,584
$1,073,440
$18,648,634
$16,875,404
$11,277,252
$9,569,474
$6,238,884
$6,029,642
$1,838,249
$1,817,216
$1,801,980
$1,407,423
$1,329,637
$1,217,679
$920,130
$859,222
$812,625
$803,880
$802,221
$18,648,634
$16,875,404
$11,277,252
$9,569,474
$6,238,884
$6,029,642
$1,838,249
$1,817,216
July 2009
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 5. Economic Impact Analysis Results
Table 5-3. Airports in Top Quartile of Projected Compliance Costs
Airport ID
CLT
CMH
GSO
RDU
ANC
MHT
SLC
SAT
JNU
FWA
ROA
OMA
OKC
FCA
RAP
Airport
Charlotte/Douglas Intl
Port Columbus Intl
Piedmont Triad International
Raleigh-Durham Intl
Ted Stevens Anchorage Intl
Manchester
Salt Lake City Intl
San Antonio Intl
Juneau Intl
Fort Wayne International
Roanoke Regional/Woodrum Field
Eppley Airfield
Will Rogers World
Glacier Park Intl
Rapid City Regional
City
Charlotte
Columbus
Greensboro
Raleigh/Durham
Anchorage
Manchester
Salt Lake City
San Antonio
Juneau
Fort Wayne
Roanoke
Omaha
Oklahoma City
Kalispell
Rapid City
State
NC
OH
NC
NC
AK
NH
UT
TX
AK
IN
VA
NE
OK
MT
SD
Hub
Status
L
M
S
M
M
M
L
M
S
N
N
M
S
N
N
Survey
Weight
.000
.000
.000
.000
.000
.000
.000
.000
.000
.968
2.192
.000
.000
3.141
3.108
Unweighted
Annualized Option
Costs (2006 dollars)
$1,801,980
$1,407,423
$1,329,637
$1,217,679
$920,130
$859,222
$812,625
$803,880
$802,221
$771,950
$621,450
$531,593
$521,244
$491,061
$462,389
July 2009
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 5. Economic Impact Analysis Results
Table 5-4. Compliance Costs as Percent of Operating Revenues, In-scope Airports
Option
1
2
3
4
Number
%
Number
%
Number
%
Number
%
Total
Annualized
Costs (millions
of 2006
dollars)
$36.4
$110.1
$91.3
$105.0
Total
Airports in
Scope
218
Number of Airports with Ratio of Compliance Costs
to Operating Revenues:3
Less than or
equal to 1%
178
81.9%
165
75.6%
174
80.1%
130
59.7%
Greater than 1%,
but less than or
equal to 3%
27
12.5%
30
13.8%
29
13.4%
25
11.4%
Greater
than 3%
9
4.2%
20
9.2%
11
5.1%
58
26.6%
a Financial impacts to 3 airports under Options 1-3, and 5 airports under Option 4 could not be analyzed because
compliance costs are greater than $0 but data on operating revenues are not available. All 5 airports are owned by
the Alaska Department of Transportation and Public Facilities Rural Aviation System, which does not charge user
fees nor does it maintain airport-specific revenue data.
Table 5-5 presents, for each option, all airports projected to incur annualized compliance costs greater
than 3 percent of airport operating revenues. In this table, the survey weight indicates that, for example,
1.968 airports represented by Fort Wayne International are projected to incur annualized compliance costs
that compose 6.82 percent of operating revenues.
5.2.3 Debt Service Coverage Ratio Analysis
EPA analyzed the impact of the proposed options on the ability of the airport owner to service the
incurred debt under EPA's assumption that airports will finance capital projects by issuing GARBs.
Among the estimated 218 in-scope airports, there are several multi-airport authorities that own more than
one potentially affected airport. For these multi-airport authorities, debt is issued at the ownership level,
not at the airport level. In these cases, EPA estimated the potential debt incurred by all airports owned by
that authority. Table 5-6 presents the multi-airport authorities that own airports surveyed by EPA, and
their airports.
July 2009
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 5. Economic Impact Analysis Results
Table 5-5. Airports with Projected Annualized Costs Exceeding 3 Percent of Operating Revenues
Airport ID
Airport
City
State
Hub
Status
Survey
Weight
Unweighted
Annualized
Option Costs
(2006 dollars)
Cost as % of
Operating
Revenues
Option 1
JNU
ROA
FWA
GSO
XNA
FAI
Juneau Intl
Roanoke Regional/Woodrum Field
Fort Wayne International
Piedmont Triad International
Northwest Arkansas Rgnl
Fairbanks Intl
Juneau
Roanoke
Fort Wayne
Greensboro
Fayetteville/Springdale
Fairbanks
AK
VA
IN
NC
AR
AK
S
N
N
S
S
S
1.000
2.192
1.968
1.000
1.880
1.000
$802,221
$621,450
$771,950
$1,329,637
$350,557
$254,484
20.43%
9.12%
6.82%
4.76%
3.87%
3.14%
Option 2
JNU
ROA
GSO
FWA
TOL
XNA
ABQ
SAT
CMH
ORF
RDU
OMA
OKC
MEM
MHT
FAI
Juneau Intl
Roanoke Regional/Woodrum Field
Piedmont Triad International
Fort Wayne International
Toledo Express
Northwest Arkansas Rgnl
Albuquerque Intl Sunport
San Antonio Intl
Port Columbus Intl
Norfolk Intl
Raleigh-Durham Intl
Eppley Airfield
Will Rogers World
Memphis Intl
Manchester
Fairbanks Intl
Juneau
Roanoke
Greensboro
Fort Wayne
Toledo
Fayetteville/Springdale
Albuquerque
San Antonio
Columbus
Norfolk
Raleigh/Durham
Omaha
Oklahoma City
Memphis
Manchester
Fairbanks
AK
VA
NC
IN
OH
AR
NM
TX
OH
VA
NC
NE
OK
TN
NH
AK
S
N
S
N
N
S
M
M
M
M
M
M
S
M
M
S
1.000
2.192
1.000
1.968
2.092
1.880
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
1.000
$2,202,074
$3,680,432
$7,869,615
$2,624,045
$1,314,759
$1,203,584
$5,763,624
$4,803,894
$3,772,577
$1,799,215
$4,084,649
$1,466,449
$2,201,594
$3,771,478
$1,494,223
$254,484
56.07%
53.99%
28.20%
23.18%
17.82%
13.28%
9.98%
9.88%
6.23%
6.05%
5.58%
4.67%
4.31%
3.61%
3.29%
3.14%
Option 3
JNU
ROA
FWA
IAD
GSO
XNA
ORD
FAI
Juneau Intl
Roanoke Regional/Woodrum Field
Fort Wayne International
Washington Dulles International
Piedmont Triad International
Northwest Arkansas Rgnl
Chicago O'Hare Intl
Fairbanks Intl
Juneau
Roanoke
Fort Wayne
Washington
Greensboro
Fayetteville/Springdale
Chicago
Fairbanks
AK
VA
IN
DC
NC
AR
IL
AK
S
N
N
L
S
S
L
S
1.000
2.192
1.968
1.000
1.000
1.880
1.000
1.000
$802,221
$621,450
$771,950
$18,648,634
$1,329,637
$350,557
$16,875,404
$254,484
20.43%
9.12%
6.82%
6.20%
4.76%
3.87%
3.25%
3.14%
July 2009
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 5. Economic Impact Analysis Results
Table 5-5. Airports with Projected Annualized Costs Exceeding 3 Percent of Operating Revenues
Airport ID
Airport
City
State
Hub
Status
Survey
Weight
Unweighted
Annualized
Option Costs
(2006 dollars)
Cost as % of
Operating
Revenues
Option 4
JNU
FCA
CWA
HVN
RAP
AVP
HTS
ROA
ATW
FWA
EVV
BIS
IAD
ILM
GSO
LCK
XNA
ORD
FAI
Juneau Intl
Glacier Park Intl
Central Wisconsin
Tweed-New Haven
Rapid City Regional
Wilkes-Barre/Scranton Intl
Tri-State/Milton J. Ferguson Field
Roanoke Regional/Woodrum Field
Outagamie County Regional
Fort Wayne International
Evansville Regional
Bismarck Muni
Washington Dulles International
Wilmington Intl
Piedmont Triad International
Rickenbacker International
Northwest Arkansas Rgnl
Chicago O'Hare Intl
Fairbanks Intl
Juneau
Kalispell
Mosinee
New Haven
Rapid City
Wilkes-Barre/Scranton
Huntington
Roanoke
Appleton
Fort Wayne
Evansville
Bismarck
Washington
Wilmington
Greensboro
Columbus
Fayetteville/Springdale
Chicago
Fairbanks
AK
MT
WI
CT
SD
PA
WV
VA
WI
IN
IN
ND
DC
NC
NC
OH
AR
IL
AK
S
N
N
N
N
N
N
N
N
N
N
N
L
N
S
N
S
L
S
1.000
3.141
3.016
5.029
3.108
2.682
8.089
2.192
2.484
1.968
5.104
3.868
1.000
6.039
1.000
4.366
1.880
1.000
1.000
$802,221
$491,061
$390,791
$115,249
$462,389
$376,169
$184,475
$621,450
$461,455
$771,950
$297,531
$199,586
$18,648,634
$311,247
$1,329,637
$197,148
$350,557
$16,875,404
$254,484
20.43%
15.43%
14.09%
13.98%
12.95%
9.54%
9.41%
9.12%
7.86%
6.82%
6.67%
6.61%
6.20%
5.98%
4.76%
4.46%
3.87%
3.25%
3.14%
July 2009
5-9
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 5. Economic Impact Analysis Results
Table 5-6. Multi-Airport Authorities
Owner Name
City of Chicago
City of Houston
Columbus Regional Airport Authority
County of Sacramentob
Hawaii State Airports Division13
Metro Washington Airport Authority
Port Authority of NY and NJ
State of Alaska Airport System
State of Alaska Rural Aviationb
Wayne County Airport Authority
Airports Owned
Chicago O'Hare3
Chicago Midway3
William P Hobby3
George Bush Intercontinental3
Port Columbus International3
Rickenbacker International3
Sacramento International3
Sacramento Mather
Lanai
Kahului
Honolulu International
Kona International at Keahole
Washington Dulles International3
Ronald Reagan Washington National3
Newark Liberty International3
John F Kennedy International3
La Guardia3
Stewart International3
Ted Stevens Anchorage International3
Fairbanks International3
Bethel3
Ketchikan International3
Sitka, Rocky Gutierrez3- c
Nome3
Ralph Wien Memorial3
Aniak
Deadhorse
Cold Bay
Wiley Post- Will Rogers Memorial
Detroit Metropolitan Wayne County3
Willow Run
3 Airport EPA has estimated will be in-scope of the proposed regulation.
b Additional airports are owned by this authority but are not included in the list because they were not
surveyed and EPA determined they are unlikely to be in-scope of the proposed regulation.
0 Sitka, Rocky Gutierrez Airport did not receive an EPA survey, but based on publicly available data
EPA believes it will be in-scope and analyzed it based on data for other Alaskan airports.
EPA presents the results of the DSCR analysis separately for multi airport authorities (Table 5-7) and
single airport owners (Table 5-8). EPA found that of the 10 multi-airport authorities responsible for 31
airports shown in Table 5-6, 9 authorities accounted for 21 airports that are in-scope of the proposed rule.
All results for multiple airport authorities are unweighted because each airport was individually identified
and therefore does not represent any other airports but itself with respect to ownership. EPA aggregated
projected costs for all in-scope airports under that ownership and analyzed them using the owning
organization's debt service coverage ratio obtained from its Comprehensive Annual Financial Report. The
remaining 93 (unweighted) in-scope airports (representing 193 airports) were evaluated individually as
single-owner airports. For single airport owners, the survey weights cannot be considered statistically
reliable because the survey was not stratified on the basis of ownership.
July 2009
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Economic Analysis for Proposed Effluent Limitation Guidelines Chapter 5. Economic Impact Analysis Results
and Standards for the Airport Deicing Category
Because the airport survey was not stratified by airport ownership, EPA cannot present summary results
encompassing the 218 airports determined to be in-scope of this rule. That is, EPA cannot use the survey
weights to present on a basis completely consistent with the estimated 218 in-scope airports: (1) the
number of airports operated by single-airport owners, (2) the number of multi-airport systems, (3) the
number of airports operated by those multi-airport systems, and (4) the number of airports that are
impacted by the rule. For example, EPA identified both the surveyed airports that belong to multi-airport
systems and the total number of airports (and the identity of those airports) belonging to those same
systems. Comparing the surveyed airports with the airports known to be owned by the system
demonstrates that the survey weights are not entirely representative of multi-airport ownership patterns.1
However, because of the large number of single airport operators, and the relatively small number of
multi-airport authorities, EPA believes the weighted airport results presented in the lower half of Table 5-
8 are generally reflective of the relative frequency of single airport ownership. In addition, the combined
results of the unweighted multi-airport authority analysis and the weighted results for the single airport
owners are broadly representative of impacts under this analysis.
Table 5-7 presents the results of the debt service coverage ratio (DSCR) analysis for multi-airport
authorities potentially affected by the airport deicing effluent guideline. A standard DSCR threshold is
1.25; that is, revenues available for debt service must be at least 125 percent of debt service, or the airport
owner will be in default on its debt.2 Therefore, if an airport or multi-airport authority had a pre-
regulatory DSCR greater than or equal to 1.25, but a post-regulatory DSCR less than 1.25, EPA projects
that the airport or airport authority will be significantly impacted by the regulation. At a minimum, EPA
expects the airport's bond rating would be downgraded, making it more difficult for the airport to use debt
financing in the future and requiring payment of higher interest rates. The DSCR analysis was performed
alternately under the following assumptions: (1) 100 percent of compliance costs will be passed through
to airlines in the form of higher rates and charges (which will still affect the owner's DSCR by increasing
debt service requirements but not net revenues, see Section 3.2.2); (2) 50 percent of compliance costs will
be passed through to airlines; and (3) worst-case scenario, no compliance costs will be passed through to
airlines.
1 For example, the Port Authority of NY and NJ owns four in-scope airports: LaGuardia, John F. Kennedy
International, Newark Liberty International (each of which has a survey weight of 1.0), and Stewart International
(with a survey weight of 2.9). Clearly the Port Authority does not own the 2.9 airports represented by Stewart, it
only owns Stewart International. However, it cannot be determined if the additional 1.9 airports represented by
Stewart are owned by multi-airport authorities or single airport operators.
2 As recently as June 2003, Forbes (2003) documented that no airport has defaulted on a bond issue; EPA has found
no reports of airport bond defaults since that date. Thus it is difficult to determine what will happen if an airport
defaults on a bond issue. Default on municipal bonds is rare; unlike corporations, municipalities in default
(including public authorities) are almost never liquidated, defaulted municipal bonds have high recovery rates, and
most bond issuer resume debt payments (see, for example, Moody's 2002; Public Bonds 2004). The most likely
result of default appears to be that the airport would receive lower ratings on future bond issues, making it more
difficult to sell debt and requiring higher interest rates.
July 2009 5-11
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 5. Economic Impact Analysis Results
Table 5-7. Projected Impacts to Debt Service Coverage Ratio of Multi-Airport Authorities
Incurring Costs for Various Cost Pass-Through Assumptions (unweighted)
Option
1
2
3
4
Multi-
Airport
Authorities
Incurring
Costs3
5
5
6
6
Airports
Incurring
Costs3
11
11
13
16
Authorities
Incurring
Costs that
Cannot be
Analyzed13
1
1
1
1
Airports
Incurring
Costs that
Cannot be
Analyzed3
3
3
3
5
Number of Authorities with
Pre-Regulatory DSCR > 1.25 and
Post-Regulatory DSCR <1.25
100% CPT
0
0
0
0
50% CPT
0
0
0
0
0%CPT
0
0
0
0
3 A total of 9 multi-airport authorities own 21 airports that are in-scope of the rule. These columns present the
number of authorities and airports that are projected to incur costs under the proposed rule.
b One multi-airport authority, the Alaska Department of Transportation and Public Facilities Rural Aviation System,
which owns 5 airports projected to incur costs under the proposed option, could not be analyzed.
0100% CPT: 100 percent of airport compliance costs are passed through to airlines in the form of higher rates and
charges; 50% CPT: 50 percent of airport compliance costs are passed through to airlines; 0% CPT: no costs are
passed through to airlines.
Table 5-8 presents the projected impact of the rule on the ability of the owners of single airports to
finance their debt. Assuming zero cost pass-through to air carriers, two airports (unweighted, three
airports using survey weights) are projected to incur costs that would result in their post-regulatory DSCR
falling below the threshold that indicates default under the proposed Option 3. However, one of these
airports (Memphis International; MSCAA 2007) completed installation of a deicing pad after the survey
was submitted, and therefore would presumably incur lower than projected compliance costs. Under the
proposed regulation, no single airport owners are projected to be in danger of default assuming 100
percent of compliance costs are passed through to airline customers.
Table 5-8. Projected Impacts to Debt Service Coverage Ratio of Single Airport Owners Incurring
Costs for Various Cost Pass-Through Assumptions
Option
Airports
Incurring Costs"
Airports
Incurring Costs
Not Analyzed
Owners with Pre-Regulatory DSCR > 1.25 &
Post Regulatory DSCR < 1.25
100% CPT
50% CPT
0% CPT
Unweighted
1
2
3
4
29
34
30
39
3
3
3
10
0
1
0
0
1
3
1
1
2
5
2
2
Weighted
1
2
3
4
54
62
55
99
6
6
6
42
0
1
0
0
1
4
1
1
3
7
3
3
3 93 surveyed single-owner airports are in-scope with weights representing 192 airports. Survey weights are not
statistically reliable for determining number of single airport owners; however, EPA believes the weights
generally reflect the relative frequency of potentially affected single airport owners.
July 2009
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 5. Economic Impact Analysis Results
5.2.4 Impacts on Alaskan Airports
EPA determined that the impact of projected compliance costs on airports in the state of Alaska should be
analyzed separately due to the unique nature of the airport system in the State. The State of Alaska owns
and operates two separate airport systems: the International Airport System (IAS) and the Rural Airport
System (RAS).
5.2.4.1 Impacts on the Alaska International Airport System
The IAS consists of Ted Stevens Anchorage International Airport and Fairbanks International Airport.
The IAS is considered a separate major enterprise fund of the State of Alaska, and is considered to be a
self-sufficient component of the State government. The IAS issues its own debt in the form of revenue
bonds. In short, the IAS operates as many other government-run airports in the United States.
Table 5-9 shows the impact of projected compliance costs on the two airports of the Alaska IAS. Under
the proposed option, total projected compliance costs for the Alaska IAS are $1.2 million, or 1.29 percent
of total annualized compliance costs for the option. Ted Stevens Anchorage International Airport incurs
projected compliance costs that are 1.11 percent of its total operating revenues, while Fairbanks
International Airport incurs projected compliance costs that are 3.14 percent of total operating revenues.
Table 5-9. Impacts on the Alaska International Airport System (IAS)
Option
1
2
o
3
4
Total Annualized
Option Costs
(millions of 2006
dollars)
$36.4
$110.1
$91.3
$105.0
IAS Total
Annualized Option
Costs (millions of
2006 dollars)
$1.2
$1.2
$1.2
$1.2
IAS Costs
as % of
Total
3.23%
1.07%
1.29%
1.12%
IAS Airports with Ratio of Compliance
Costs to Total Operating Revenues:
Less than
or equal
to 1%
0
0
0
0
Greater than 1%,
but less than or
equal to 3%
1
1
1
1
Greater
than 3%
1
1
1
1
5.2.4.2 Impacts on the Alaska Rural Airport System
The RAS consists of 256 rural airports scattered throughout the State (State of Alaska 2008). The RAS is
not a self-sufficient government unit, and the rural airports lose money every year. However, due to the
nature of transportation in the State of Alaska, it is vital that these airports remain in operation despite not
being profitable. Operation of airports within the RAS falls on the Alaska Department of Transportation
and Public Facilities (DOT&PF), as well as on local or tribal governments. According to the DOT&PF,
airports in AK "are funded through a combination of user fees, state, local, or tribal funds, and federal
funds" (DOTPF 2008). However, the rural airports have very limited opportunities for generating
revenue, and the system is largely reliant on state subsidies to pay O&M costs at these airports.
Table 5-10 presents the impact of projected compliance costs on five rural airports in the Alaska RAS that
EPA determined would be affected by the proposed rule (Bethel, Ketchikan International, Sitka Rocky
Gutierrez, Nome, and Ralph Wien Memorial). Because data on the revenues of individual airports within
the RAS could not be obtained, EPA used the estimated yearly contribution of $23 to $24 million by the
State of Alaska to cover the operating costs of the RAS (Maggard 2008). Under the proposed option,
projected compliance costs for the five RAS airports together total $1.4 million (1.54 percent of total
option costs). The RAS is expected to incur compliance costs representing 6.25 percent of the State's
July 2009
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 5. Economic Impact Analysis Results
contribution to airport operations.3 EPA has concluded that it is likely that the state of Alaska would be
required to increase its subsidy to the RAS to pay for the required capital improvements under its current
system of funding.
Table 5-10. Impacts on the Alaska Rural Airport System (RAS)
Option
1
2
3
4
Total Annualized
Option Costs
(millions of 2006
dollars)
$36.4
$110.1
$91.3
$105.0
RAS Total
Annualized
Option Costs
(millions of 2006
dollars)
$1.4
$4.3
$1.4
$1.5
RAS Costs
as % of
Total
3.85%
3.87%
1.54%
1.43%
Ratio of Compliance Costs to State
Operating Costs of RAS Airports:
Less than or
equal to 1%
0
0
0
0
Greater than
1%, but less
than or equal
to 3%
0
0
0
0
Greater than
3%a
3
3
3
5
a Represents the number of airports projected to incur costs under the specified option; however, the RAS as a whole
will incur compliance costs exceeding 3 percent of system operating costs.
5.3 Airline Impacts
To project compliance costs potentially passed through to airlines, EPA estimated total landed weight of
commercial service airlines at each surveyed airport, and the percentage of landed weight at that airport
accounted for by each airline serving it. Assuming landing fees per thousand pounds landed weight
increase by the same amount for all aircraft and airline types serving that airport, then compliance costs
incurred by airlines at each airport will be in proportion to their percentage of landed weight at that
airport. For the purposes of the analysis presented in this section, EPA assumes 100 percent of annualized
compliance costs are passed through to airlines from airports in the form of higher landing fees, as
opposed to other possibilities such as terminal fees. Increased costs passed through landing fees result in
airlines incurring costs proportionate to their percent of total landed weight at an airport.
EPA calculated total annual compliance costs incurred by each airline by summing its airport-specific
capital and O&M costs over all affected airports served4. EPA then evaluated impacts by calculating the
ratio of each airline's total annual compliance costs to three income measures: operating revenues;
operating profit (equal to operating revenues less operating expenditures); and net income. Because the
years since 2001 have been financially difficult for the airline industry, many airlines earned negative
operating profits and negative net income for much of the period. The ratios of compliance costs to
operating profit and net income are meaningless statistics when profit or net income is negative. Thus,
EPA does not present those results and the number of airlines analyzed declines for each successive
income measure examined.
3 The fiscal year 2006 budget for the entire Alaska Department of Transportation and Public Facilities was $407.2
million (State of Alaska 2005).
4 For this analysis, EPA scaled O&M costs from 2004 based on changes in landed weight at each airport in 2005 and
2006. This change resulted in minor changes in total compliance costs calculations, as well as minor changes to the
numbers of affected airlines (based on ratio of compliance costs to revenues). The only change in overall impacts
was under Option 2 in 2006, where the scaled costs resulted in one airline changing from being impacted at the one
to three percent level to being impacted at the less than one percent level.
July 2009
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 5. Economic Impact Analysis Results
The airline revenue data presented in this analysis are for the 2004 through 2006 period. When EPA
initiated this rulemaking, the industry appeared to be returning to a sound financial footing from the
negative effects of September 11, 2001, the SARS epidemic, and the war in Iraq (see Section 2.4). Thus,
2004 and 2005 appeared to be abnormally poor financial years for the industry, while the financial data
for 2006 seemed more representative of what might reasonably be expected in the future. However, the
dramatic increase in fuel costs in 2008 has once again worsened the overall financial picture for the
industry. Thus, the results based on 2006 financial data might be optimistic for some airlines, although the
results of the analysis are broadly consistent with those for 2004 and 2005, which were financially
substantially worse years for the industry.
Table 5-11 and 5-12 present air carrier financial data for the three-year span from 2004 through 2006.
Overall, the data show that 2006 was the most financially successful year in recent history, which is
corroborated by the Air Transportation Association (ATA) in their annual industry reports. Table 5-11
shows the number of potentially affected air carriers with negative operating profits and net income from
2004 to 2006. Over those three years, the number of airlines with negative operating profits and negative
net income declined among most air carrier types. Some of this reduction may be attributable to
financially weak airlines ceasing operations or merging with other airlines (e.g., the US Airways merger
with America West in 2005), as the total number of airlines also declined during this time period.
Table 5-11. Number of Airlines with Negative Profits and Income
Air Carrier Type
Major
National
Regional
Medium Regional
Commuter
Small Certified
TOTAL
Number of Airlines with
Financial Data
2004
19
33
21
9
29
18
129
2005
20
33
18
11
27
13
122
2006
20
33
18
10
29
9
119
Number of Airlines with
Negative Operating Profit
2004
9
11
9
5
15
12
61
2005
9
11
10
7
11
8
56
2006
o
J
11
7
7
8
5
41
Number of Airlines with
Negative Net Income
2004
12
13
9
4
15
11
64
2005
10
11
10
8
13
8
60
2006
7
12
7
7
9
6
48
Table 5-12 provides average airline financial data by carrier type for the same three-year span. In general,
the data show an overall improvement in all three measures - operating revenues, operating profit and net
income - from 2004 to 2006, although average net income across the industry remained negative.
July 2009
5-15
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 5. Economic Impact Analysis Results
Table 5-12. Average Financial Data for Potentially Affected Air Carriers, 2004-2006 (in millions)8
Air Carrier Type
Major
National
Regional
Medium Regional
Commuter
Small Certified
Average Operating Revenues
2004
$6,365.4
$411.9
$52.1
$10.5
$16.8
$42.5
2005
$6,792.1
$457.1
$57.2
$12.3
$14.9
$65.7
2006
$7,458.2
$451.5
$59.7
$21.3
$20.4
$104.0
Average Operating Profit
2004
-$98.9
$15.1
$1.1
-$2.1
-$0.2
-$5.36
2005
-$2.9
$18.2
$1.2
-$5.7
-$0.4
-$2.9
2006
$347.7
$19.5
$1.2
-$11.9
$0.7
$0.02
Average Net Income
2004
-$477.5
$0.6
$0.9
-$2.1
$0.0
-$1.9
2005
-$1,345.7
-$7.7
$0.6
-$5.8
$0.2
-$3.0
2006
-$241.1
$9.2
$0.4
-$11.9
$0.5
-$0.4
a Averages for airlines with financial data available.
EPA evaluated economic impacts on airlines using essentially the same test and impact thresholds as it
did for airports (see Section 5.2.2). However, the test for airlines differs in that it compares the operating
revenue of for-profit businesses with compliance costs, instead of revenues of non-profit government
enterprises, with compliance costs.
In addition, although compliance costs might represent a small percentage of operating revenues, this
does not determine financial affordability when either an airline's operating profits or net income is
negative. The question is: what level of compliance costs is affordable if an entity is losing money? That
is not a question that can be answered using standard tests of economic achievability.
Table 5-13 presents the ratio of compliance costs to revenues for the 129 air carriers with 2004 financial
data available out of the 146 domestic air carriers that operated from potentially affected airports in 2004.
Under Option 3, which EPA is proposing to adopt, 128 of 129 air carriers reporting financial data are
projected to incur compliance costs less than 1 percent of revenues under the proposed option; one air
carrier is projected to incur annual compliance costs exceeding 3 percent of revenues.
Table 5-13. Ratio of Compliance Costs to Air Carrier Operating Revenue, 2004 Financial Data
Option
, Number
%b
~ Number
%b
, Number
%b
Number
%b
Total Compliance
Costs ($2004, in
millions)
$33.4
$101.1
$83.9
$96.0
Domestic Air
Carriers
Operating at
Potentially
Affected
Airports3
146
Number of Air Carriers with Ratio of Compliance Costs
to Operating Revenue:3
Less than or
equal to 1%
128
87.7%
114
78.1%
128
87.7%
128
87.7%
Greater than 1%,
but less than or
equal to 3%
0
0.0%
14
9.6%
0
0.0%
0
0.0%
Greater
than 3%
1
0.7%
1
0.7%
1
0.7%
1
0.7%
a Analysis excludes 17 air carriers (11.6 percent) due to lack of financial data.
b Percentages based on 146 potentially affected air carriers.
July 2009
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 5. Economic Impact Analysis Results
Table 5-14 presents the same analysis using 2005 financial data. Of the 122 existing air carriers reporting
data (out of 143 with operations at in-scope airports), 120 are projected to incur compliance costs less
than 1 percent of revenues under the proposed Option 3; one air carrier is projected to incur annual
compliance costs exceeding 1 percent, but less than 3 percent of revenues; and one air carrier is projected
to incur annual compliance costs exceeding 3 percent of revenues.
Table 5-14. Ratio of Compliance Costs to Air Carrier Operating Revenue, 2005 Financial Data
Option
1 Number
%c
j Number
%c
~ Nwnber
%c
. Nwnber
%c
Total
Compliance
Costs ($2005,
in millions)1"
$36.6
$110.7
$92.0
$105.7
Domestic Air
Carriers
Operating at
Potentially
Affected
Airports3
143
Number of Air Carriers with Ratio of Compliance Costs
to Operating Revenue:3
Less than or
equal to 1%
120
83.9%
109
76.2%
120
83.9%
120
83.9%
Greater than 1%,
but less than or
equal to 3%
1
0.7%
11
7.7%
1
0.7%
1
0.7%
Greater
than 3%
1
0.7%
2
1.4%
1
0.7%
1
0.7%
a Analysis excludes 21 air carriers (14.7 percent) due to lack of financial data.
b Total compliance costs may differ from other analyses due to the fact that EPA scaled airline O&M costs to
reflect changes in landed weight from 2004.
0 Percentages based on 143 potentially affected air carriers.
Table 5-15 presents the ratio of compliance costs to revenues for 119 air carriers with 2006 financial data
available of the 139 air carriers that operated from in-scope airports in 2006. Under the proposed
Option 3, 118 of 119 air carriers are projected to incur compliance costs less than 1 percent of revenues
under the proposed option; one air carrier is projected to incur annual compliance costs exceeding 1
percent, but less than 3 percent of revenues.
July 2009
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 5. Economic Impact Analysis Results
Table 5-15. Ratio of Compliance Costs to Air Carrier Operating Revenue, 2006 Financial Data
Option
1 Number
%c
~ Number
%c
, Number
%c
. Number
4 %°
Total
Compliance
Costs
($2006, in
millions)1"
$36.1
$108.5
$90.1
$103.2
Domestic Air
Carriers
Operating at
Potentially
Affected
Airports3
139
Number of Air Carriers with Ratio of Compliance Costs
to Operating Revenue:3
Less than or equal
to 1%
118
84.9%
107
76.9%
118
84.9%
118
84.9%
Greater than 1%,
but less than or
equal to 3%
1
0.7%
11
7.9%
1
0.7%
1
0.7%
Greater
than 3%
0
0.0%
1
0.7%
0
0.0%
0
0.0%
a Analysis excludes 20 air carriers (14.4 percent) due to lack of financial data.
b Total compliance costs may differ from other analyses due to the fact that EPA scaled airline O&M costs to
reflect changes in landed weight from 2004.
0 Percentages based on 139 potentially affected air carriers.
Table 5-16 shows that of the 119 air carriers for which 2006 financial data are available, 41 reported
negative operating profits and 48 reported negative net income. The average operating profit and income
shown in the table are only for those carriers with positive income. Thus, of 139 potentially affected air
carriers, 119 were assessed for impacts based on the ratio of compliance costs to revenues (the "sales
test," Table 5-11, above); 20 air carriers could not be analyzed using the sales test due to lack of financial
data. Of the 119 air carriers that can be analyzed, EPA was able to assess impacts for 78 using the ratio of
compliance costs to operating profit. Finally, for 71 air carriers EPA was able to assess impacts using the
ratio of compliance costs to net income.
July 2009
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 5. Economic Impact Analysis Results
Table 5-16. Air Carriers with Positive Operating Profits and Net Incomes; 2006 Financial Data
and Airline Type
Air Carrier
Type
Major
National
Regional
Medium
Regional
Commuter
Small
Certified
Total
Domestic
Air
Carriers
Operating
at
Potentially
Affected
Airports3
20
33
21
10
32
23
139
Air Carrier Operating Profit
Number with
Negative
Operating
Profit
3
11
7
7
8
5
41
Number
Analyzed
17
22
11
3
21
4
78
Average
Operating
Profit
(millions)13
$419.0
$39.1
$5.4
ND
$1.6
ND
NA
Air Carrier Net Income
Number
with
Negative
Net Income
7
12
7
7
9
6
48
Number
Analyzed
13
21
11
3
20
3
71
Average Net
Income
(millions) b
$339.8
$27.1
$3.9
ND
$1.3
ND
NA
ND = Not Disclosed. Due to low number of observations, these figures are not disclosed to protect confidentiality.
NA: Not Applicable.
a Financial data are not available for 3 regional, 3 commuter, and 14 small certificated air carriers.
b Average for carriers with positive, and thus analyzable, values.
Table 5-17 presents the ratio of compliance costs to operating profit for those air carriers with financial
data available and positive operating profit in 2006. This analysis provides greater perspective on impacts
for that subset of air carriers with positive operating profits. Of those 78 airlines with positive operating
profit in 2006, 40 incur compliance costs less than 1 percent of operating profits and 21 incur compliance
costs greater than 3 percent of operating profits under the proposed Option 3. One regional carrier is
projected to incur compliance costs exceeding 100 percent of operating profit. This carrier's projected
costs composed 1.59 percent of operating revenues, but its operating profit in 2006 was about $200,000,
hence the significant impact under the more stringent analysis.5 If EPA were performing a closure
analysis, this air carrier might have been projected to close as a result of the proposed rule.6 For six other
airlines, comprising: one major airline; one national airline; and four commuter airlines, projected
compliance costs exceed 10 percent of operating profits under Option 3. For three commuter airlines,
projected compliance costs ranged between 25 percent and 75 percent of operating profit, while the major
airline, Delta, was projected to incur costs of about 19 percent of operating profit. None of these six
airlines incurred compliance costs exceeding 1 percent of revenues. To maintain perspective, none of
these airlines would have been projected to close as a result of the proposed rule.
5 This carrier filed for bankruptcy in October 2007 and, according to some reports, has since ceased operations
(Logistics Management 2007).
6 A complete closure analysis would require reconciliation of operating profit with cashflow and/or net income, and
would also account for tax shields that would reduce the compliance costs incurred by the airline. Thus, although
the results in Table 5-15 can be considered a reasonable proxy for a closure analysis, there are significant differences
that might affect the outcome. Furthermore, a closure analysis is rarely performed on a single year's data, and, as
was pointed out in Section 2.7.3.2, air carriers have sometimes been able to operate under bankruptcy protection for
several years and return to financial health.
July 2009
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 5. Economic Impact Analysis Results
Table 5-17. Ratio of Compliance Costs to Air Carrier Operating Profit, 2006 Financial Data
Option
Number
%
Number
%
Number
J %
Number
%
Total
Compliance
Costs
($2006, in
millions)1"
$36.1
$108.5
$90.1
$103.2
Domestic Air
Carriers
Operating at
Potentially
Affected
Airports3
139
Number of Air Carriers with Ratio of Compliance Costs
to Operating Profit:3
Less than or
equal to 1%
52
37.4%
31
22.3%
40
28.8%
34
24.5%
Greater
than 1%,
but less than
or equal to
3%
10
7.2%
21
15.1%
17
72.2%
21
15.1%
Greater
than 3%,
but less than
or equal to
100%
15
10.8%
24
17.3%
20
14.4%
22
15.8%
Greater
than 100%
1
0.7%
2
1.4%
1
0.7%
1
0.7%
a Analysis excludes 20 air carriers due to lack of financial data and 41 carriers with negative operating profit in
2006.
b Total compliance costs may differ from other analyses due to the fact that EPA scaled airline O&M costs to
reflect changes in landed weight from 2004.
Table 5-18 presents the ratio of compliance costs to net income for air carriers with 2006 financial data
available. Of those 71 airlines with positive net income in 2006, 36 incur compliance costs less than less
than 1 percent, and 24 incur compliance costs exceeding 3 percent of net income under the proposed
Option 3. Nine airlines are projected to incur costs exceeding 10 percent of net income under Option 3.
Of those, one regional carrier (see footnote 2) and one commuter carrier are projected to incur costs
exceeding 100 percent of 2006 net income. One major air carrier, American Eagle, is projected to incur
compliance costs composing about 50 percent of net income. Only one of these nine airlines incurred
costs exceeding 1 percent of operating revenues.
July 2009
5-20
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 5. Economic Impact Analysis Results
Table 5-18. Ratio of Compliance Costs to Air Carrier Net Income, 2006 Financial Data
Option
Number
%
Number
%
Number
%
Number
4
%
Total
Compliance
Costs
($2006, in
millions)1"
$36.1
$108.5
$90.1
$103.2
Domestic Air
Carriers
Operating at
Potentially
Affected
Airports3
139
Number of Air Carriers with Ratio of Compliance Costs
to Net Income:3
Less than or
equal to 1%
43
30.9%
26
18.7%
36
25. 9%
32
23.0%
Greater than
1%, but less
than or
equal to 3%
10
7.2%
15
10.8%
11
7.9%
10
7.2%
Greater than
3%, but less
than or
equal to
100%
16
11.5%
26
18.7%
22
15.8%
27
19.4%
Greater than
100%
2
1.4%
4
2.8%
2
1.4%
2
1.4%
a Analysis excludes 20 air carriers due to lack of financial data, 41 carriers with negative operating profit and 7
carriers with negative net income in 2006.
b Total compliance costs may differ from other analyses due to the fact that EPA scaled airline O&M costs to
reflect changes in landed weight from 2004.
Table 5-19 demonstrates that the majority of compliance costs are borne by the 119 airlines for which
financial data are available. The 20 domestic carriers that could not be analyzed due to lack of financial
data are projected to incur less than 2 percent of compliance costs. Under the proposed option 3, 12
percent of compliance costs are projected to be passed through to foreign flag air carriers. This is because
major east coast international airports such as Boston-Logan, New York-John F. Kennedy, Newark-
Liberty, and Washington DC-Dulles International airports are all projected to incur substantial costs under
the proposed option, as is Chicago-O'Hare.
Table 5-19. Compliance Costs Incurred by Air Carriers Without 2006 Financial Data and
International Air Carriers
Option
1
2
3
4
Domestic Carriers
with Financial Data
Number
119
Compliance
Costs
($2006, in
millions)
$32.8
$100.4
$77.9
$91.0
Domestic Carriers without
Financial Data
Number
20
Compliance
Costs
($2006, in
millions)
$0.25
$0.76
$1.2
$1.3
Cost as % of
Total Option
Cost
0.7%
0.7%
1.3%
1.3%
International Carriers
Number
143
Compliance
Costs
($2006, in
millions)
$3.0
$7.3
$10.9
$10.9
Cost as % of
Total Option
Cost
8.4%
6.8%
12.1%
10.6%
Table 5-20 presents, by air carrier type, the number of airlines, average revenues, and average compliance
costs per airline for the 119 air carriers with 2006 financial data and the 20 potentially affected air carriers
without 2006 financial data. These data demonstrate that, as a group, the air carriers that cannot be
analyzed due to missing financial data are not expected to incur disproportionate compliance costs.
However, without company-specific financial data, it cannot be demonstrated that none of these air
carriers are significantly affected by the proposed rule.
July 2009
5-21
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 5. Economic Impact Analysis Results
Table 5-20. Air Carrier 2006 Financial Data and Average Estimated Annual Compliance Costs
Air Carrier Type
Domestic Air
Carriers
Operating at
Potentially
Affected
Airports
Air
Carriers
Analyzed
Average
Revenues
(millions)
Average Compliance Costs by Option
(2006 dollars)
Optionl
Option 2
Option 3
Option 4
Air Carriers with 2006 Financial Data
Major
National
Regional
Medium Regional
Commuter
Small Certified
20
33
21
10
32
23
20
33
18
10
29
9
$7,458.2
$451.5
$59.7
$21.3
$20.3
$104.0
$1,293,275
$126,957
$69,525
$2,781
$24,832
$83,243
$3,802,212
$461,968
$253,113
$11,841
$68,554
$276,889
$3,248,378
$280,649
$92,379
$4,622
$25,722
$139,499
$3,591,639
$421,230
$94,986
$7,684
$33,750
$276,718
Air Carriers without 2006 Financial Data
Regional
Commuter
Small Certified
21
32
23
3
3
14
NA
NA
NA
$63,112
$2,088
$3,679
$196,654
$4,698
$10,994
$361,296
$2,088
$8,006
$361,523
$6,181
$13,427
NA: Not Applicable.
In these estimates of potential airline compliance costs, EPA used a number of very conservative
assumptions for each impact an airline might experience. It is unlikely that all of these assumptions and
impacts would occur together to affect any one airline. Thus, the true level of impacts for a particular
airline will be significantly less than described in the preceding tables.
5.4 Market Impacts
EPA also projected impacts to airlines should airlines pass through 100 percent of costs to passengers. As
discussed in the methodology (Section 3), this analysis is equivalent to a market analysis assuming the
supply of air transportation services is completely elastic (i.e., the supply curve is horizontal on a
traditional supply-demand graph), and the price elasticity of demand is set equal to -1.5 (i.e., a 10 percent
increase in price will cause a 15 percent reduction in quantity demanded).7 The analysis presented in
Section 5.3 is equivalent to zero percent cost pass-through. That is, the supply of air transportation
services is completely inelastic (i.e., the supply curve is vertical on a traditional supply-demand graph),
and the price elasticity of demand is set equal to -1.5 (i.e., a 10 percent increase in price will cause a 15
percent reduction in quantity demanded).
The impacts under zero percent cost pass-through cause no reduction in demand or increase in air fare
(and thus revenues), but directly increase airline operating costs by an amount equal to compliance costs.
Under the 100 percent cost pass-through assumption, the increase in unit compliance costs is exactly
7 EPA selected the best available point estimate of the price elasticity of demand for this analysis. If instead, the
price elasticity of demand lies between -1.0 and -1.5, projected revenue impacts to air carriers will be smaller than
those presented in Table 5-18 and 5-19; if the price elasticity of demand lies between -1.5 and -», projected revenue
impacts will be larger.
July 2009
5-22
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Economic Analysis for Proposed Effluent Limitation Guidelines Chapter 5. Economic Impact Analysis Results
and Standards for the Airport Deicing Category
offset by an increase in unit price. However, the increased fare causes passengers to reduce purchases of
air transportation services; thus the impacts are incurred through the loss in revenue from reduced sales.8
The analysis was performed on an airline specific basis, using each carrier's 2006 revenue passenger-
miles (RPM; or revenue ton-miles (RTM) for cargo-only airlines) as the quantity of air transportation
demanded, and using yield (revenue per RPM or RTM) as the price. The analysis was performed on the
subset of airlines for which EPA had 2006 data for: airline revenues, RPM or RTM, and were projected to
incur compliance costs. Table 5-21 presents the reduction in revenues and RPM (or RTM) resulting from
the passed-through costs, and the number of airlines for which these lost revenues exceed 1 percent and
three percent of baseline revenues. The estimated compliance costs under the zero cost pass-through
assumption are also included for comparative purposes.
Assuming 100 percent cost pass-through will cause a larger impact in lost revenues than direct impacts
through increased costs under the assumption that supply is perfectly elastic. Lost revenues are 50 percent
larger than direct costs. However, the larger impacts projected using this method do not substantially
increase the number of airlines incurring impacts larger than 1 percent of revenues. Under the proposed
option 105 airlines (96 percent) are projected to incur impacts less than 1 percent of revenues, and 4
airlines are projected to incur impacts exceeding 1 percent, but less than 3 percent of revenues. In
addition, the projected decrease in the quantity of air transportation services purchased is less than 0.1
percent of baseline quantity.
8 EPA did not estimate the reduction in operating costs associated with the reduction in RPMs flown. Because this
reduction could be composed of fewer seats sold on each departure with no decrease in departures, the operating
cost reduction would be smaller than the average cost per available seat mile. Thus, these results overestimate
impacts, but by an unknown amount.
July 2009 5-23
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 5. Economic Impact Analysis Results
Table 5-21. Impacts to Air Carrier Revenues and Revenue Miles Assuming 100 Percent Cost Pass-
Through, 2006
Option
Number of
Analyzed
Domestic Air
Carriers
Operating at
Potentially
Affected
Airports"
Estimated Option
Impacts Incurred by
Analyzed Air Carriers
($l,OOOs)
0% CPT
100% CPT
Unit Production Impacts
(millions)3
Baseline
Reduction
Percent
Reduction
Number of Air Carriers with
Ratio of Option Impact Costs
to Operating Revenue:1"
Less than
or equal
to 1%
Greater
than 1%,
but less
than or
equal to
3%
Greater
than 3%
Passenger-only and Passenger-cargo Airlines
1
2
3
4
85
$27,348
$83,003
$69,990
$81,733
$41,022
$124,505
$104,985
$122,600
802,114
235
712
617
701
0.029%
0.089%
0.077%
0.087%
82
75
82
82
3
7
3
3
0
3
0
0
Cargo-only Airlines
1
2
3
4
24
$5,395
$17,271
$7,889
$9,196
$8,093
$25,907
$11,834
$13,794
28,659
9
31
14
16
0.031%
0.108%
0.048%
0.054%
23
19
23
23
1
4
1
1
0
1
0
0
aUnit production for passenger-only and passenger-cargo airlines is measured in millions
(RPM); unit production for cargo-only airlines is measured in cargo ton-miles (RTM).
b Analysis includes those airlines for which: operating revenues, revenue passenger miles
(RTM), and projected compliance costs.
of revenue passenger miles
(RPM) or revenue ton miles
5.5 Summary of Projected Impacts and Selection of the Proposed Option
Table 5-22 summarizes the projected annualized compliance costs and the number and percent of in-
scope airports projected to incur compliance costs greater than 3 percent of operating revenues under each
option analyzed by EPA.
Table 5-22. Summary of Impacts Under Analyzed Options
Option
1
2
3
4
Total Annualized
Compliance Costs
(millions of 2006 dollars)
$36.4
$110.1
$91.3
$105.0
In-Scope Airports with Projected Compliance Costs
Exceeding 3% of Operating Revenues3' b
Number
9
20
11
58
Percent
4.2%
9.2%
5.1%
26.6%
a Assuming zero percent cost pass-through.
b Impacts were not projected for 3 airports under Options 1 through 3, and 5 airports under Option 4. All 5 airports
are owned by the Alaska Department of Transportation and Public Facilities; impacts to these airports could not be
projected because the airport owner does not maintain airport-specific revenue figures.
Under Option 2, airports are projected to incur the largest total annualized costs of all four options
examined, yet projected removals of COD are less than under either Option 3 or Option 4 (see TDD,
section 13.2). Because Option 2 would cost more but would remove fewer pounds of pollutants than
either Option 3 or Option 4, EPA eliminated Option 2 as a candidate for selection as best available
technology for this ELG.
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and Standards for the Airport Deicing Category
EPA also rejected Option 4 as a candidate for selection as BAT, because more than one-quarter of in-
scope airports (i.e., 58 out of 218 in-scope airports, see Table 5-5) are projected to incur costs exceeding 3
percent of operating revenue under this option. The difference between Option 3 and Option 4 is that
Option 4 would extends the 20 percent ADF capture and treatment rate requirement from primary
commercial service airports with more than 10,000 annual departures to primary commercial service
airports with more than 1,000 annual departures (see Table 4-1). Extending the capture requirement
would cause 51 small airports with relatively low operating revenues that were not projected to incur
costs under Option 3 to incur compliance costs under Option 4. Forty-seven of these 51 airports are
projected to incur costs exceeding 3 percent of revenues, which means that these entities would
experience a heavy economic burden if required to meet this option, as described above. Based on the
large number of airports that EPA projects would experience this heavy economic burden, EPA
determined that Option 4 is not economically achievable.
Under Option 3, the proposed regulations would require the 14 airports where average ADF usage has
been estimated to exceed 460,000 gallons annually to capture and treat 60 percent of ADF. Airports with
greater than 10,000 annual departures but less than 460,000 gallons of ADF usage would be required to
meet a 20 percent ADF capture and treatment rate. Under Option 1, the regulations would require all
airports with greater than 10,000 annual departures to meet the 20 percent ADF capture and treatment
rate. Thus, the difference between Option 1 and Option 3 in projected compliance costs, economic
impacts, and pollutant removals is entirely attributable to the stricter standard for the 14 airports with the
largest ADF usage; this stricter standard would add a projected $54.9 million in annualized compliance
costs to the rule.
EPA determined that both options are economically achievable. The 9 airports projected to incur costs
exceeding 3 percent of operating revenues under Option 1 would incur identical impacts under Option 3.
Due to the 60 percent ADF capture and treatment standard, two additional airports are projected to incur
costs exceeding 3 percent of operating revenues under Option 3: Chicago O'Hare and Washington Dulles
(see Table 5-5). However, as discussed in Section 2.6, large airports such as these have significantly
better access to financial resources than smaller airports, and are less vulnerable to a potential loss of
service in response to increased rates and charges. Thus, EPA believes these airports will be less affected
than smaller airports by compliance costs that comprise a similar percentage of revenues. In addition,
both Dulles and O'Hare are currently undergoing significant capital expansion and improvement
programs; as part of these programs both airports are installing deicing pads. Although EPA does not
have sufficient information to determine if these pads will enable the airports to meet the 60 percent
capture and treatment target without further capital expenditure, their installation should decrease the
incremental costs necessary to reach that standard.
The 60 percent ADF capture and treatment standard for the 14 airports at which the largest ADF usage
occurs is expected to result in about a 70 percent increase in pollutant removals compared to Option 1 (an
increase from 26.4 million pounds to 44.6 million pounds of COD and ammonia removals, see TDD
Section 13.2). Thus, EPA projects that Option 3 will result in significantly greater pollutant removals but
little increase in the economic impacts of the rule compared to Option 1. In particular, the additional
costs of the rule would be borne by only two additional airports, and the two in question are among ef-the
largest airports in the U.S. and therefore have the greatest ability to take on these additional costs without
undue financial burden. For these reasons, among the four wide-ranging technology options considered,
EPA proposes to identify Option 3 as the BAT basis for this effluent limitation guideline.
Airports with less than 10,000 total annual departures have been excluded from ADF collection and
treatment requirements based on possible economic achievability concerns. EPA's analysis shows that
approximately 46 percent of the next approximately 100 airports (in terms of ADF usage) would incur
costs of greater than 3 percent of their revenue if required to comply with these additional requirements.
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and Standards for the Airport Deicing Category
Moreover, airports with less than 10,000 annual departures are smaller airports and may have greater
difficulty raising funds to meet these ADF requirements. For these reasons, EPA decided to exclude
airports with less than 10,000 total annual departures from the ADF collection and treatment requirements
of this proposed rule.
As a check on whether Option 3 is the best combination of technologies to be selected as BAT, EPA also
examined whether there might be an additional option that would result in more removals than Option 3
(but less than Option 4) while still being economically achievable. Option 3 would impose a 60 percent
capture requirement on the 14 airports that are the largest by ADF usage. EPA therefore considered
whether the 60 percent requirement could be extended to additional airports beyond the top 14 (i.e.,
extended to airports with somewhat less ADF usage) without going beyond the limits of economic
achievability. However, upon review of the projected costs of installing deicing pads at airports with less
than 460,000 gallons of annual ADF usage as well as those airports' operating revenues, it became
evident that the set of airports immediately following the "top 14" by ADF usage would incur
significantly greater economic impacts relative to their resources than would the top 14 airports.
Specifically, of those airports that would incur costs under the proposed rule, 5 of the 6 airports that
immediately follow the top 14 by ADF usage would be projected to incur costs greater than 3 percent of
revenues and therefore would incur a heavy economic burden. In addition, 29 of the 57 airports in all that
follow the top 14 by ADF usage would be projected to incur costs over 3 percent of revenues. This
confirms, in EPA's view, that imposing the 60 percent requirement on only the top 14 airports under
Option 3 is the appropriate cutoff point for determining economic achievability for this industry.
Moreover, these additional airports, if subjected to a 60 percent capture requirement, would be expected
to achieve few additional pounds of pollutant removals overall relative to these additional costs. This
additional analysis confirms EPA's proposal to identify the Option 3 technologies as the BAT basis for
this effluent limitation guideline. See Technical Development Document for Proposed Effluent
Limitation Guidelines and Standards for the Airport Deicing Category (DCN ADO 1195) in the docket for
additional information.
5.6 References
DOTPF. 2008. Let's Get Moving 2030: Alaska Statewide Long-Range Transportation Policy Plan. State
of Alaska Department of Transportation & Public Facilities. Available online at:
http://www.dot.state.ak.us.
ERG. 2006. "Revised Draft Economic Impact Methodology". Memo from Calvin Franz, ERG, to James
Covington, EPA. November 20, 2006.
Forbes. 2003. Airport Munis. Forbes.com. June 9. Available online at
http://www.forbes.com/forbes/2003/0609.134.html
Logistics Management. 2007. Air shipping: financial woes force Kitty Hawk to cease network air freight
and ground operations. October 31. Available online at
http://www.logisticsmgmt.com/article/CA6496182.html
Maggard, Roger. 2008. Statewide Airport Development Manager, AK Rural Airport System. Personal
Communication with Dina Metivier, ERG. May 14, 2008.
Moody's. 2002. Moody's US Municipal Bond Rating Scale. Moody's Special Comment. Moody's
Investors Service. November. Available online at
http://www.moodvs.com/cust/content/content.ashx?source=StaticContent/Free%20pages/Credit%20Polic
v%20Research/documents/current/200170000040725 8 .pdf
July 2009 5-26
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and Standards for the Airport Deicing Category
MSCAA. 2007. Memphis-Shelby County Airport Authority Annual Report 2007. Available online at
http://www.mscaa.com/MSCAA%20Annual%2007%20Complete.pdf
Public Bonds. 2004. Municipal Bonds and Default. Available online at
http://www.publicbonds.org/publicjin/default.htm
State of Alaska. 2008. Official Website of the State of Alaska Rural Aviation Division. Accessed on
May 15, 2008. Available online at http://www.dot.state.ak.us/stwdav/index.shtml.
State of Alaska. 2005. State of Alaska FY 2006 Governor's Operating Budget: Department of
Transportation and Public Facilities. December 15.
http://www.gov.state.ak.us/omb/06_OMB/budget/Trans/dept25.pdf
July 2009 5-27
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Economic Analysis for Proposed Effluent Limitation Guidelines Chapter 6. Initial Regulatory Flexibility Analysis
and Standards for the Airport Deicing Category
CHAPTER 6
INITIAL REGULATORY FLEXIBILITY ANALYSIS
This chapter analyzes the projected effects of incremental pollution control costs on small entities
engaged in aircraft deicing operations. This analysis is required by the Regulatory Flexibility Act as
amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA), hereafter
jointly referred to as the RFA. The RFA acknowledges that small entities have limited resources and
makes regulating federal agencies responsible for avoiding unnecessary burden on such entities. In
response to the RFA, EPA has prepared an initial regulatory flexibility analysis (IRFA). Section 6.1
provides the initial assessment to determine if an IRFA is necessary. Section 6.2 describes the
components of the IRFA. Section 6.3 presents the analysis of economic impacts to small entities within
the air transportation industry. Section 6.4 summarizes the steps EPA has taken to minimize small
business impacts under the proposed rule.
6.1 Initial Assessment
EPA guidance on implementing RFA requirements suggests the following issues should be addressed in
an initial assessment.
First, EPA should indicate whether the proposal is a rule subject to notice-and-comment rulemaking
requirements. EPA has determined that the proposed aircraft deicing effluent limitation guidelines (ELG)
is a rule subject to notice-and-comment rulemaking requirements.
Second, EPA should develop a profile of the affected small entities. EPA has developed a profile of the
aircraft deicing industry. This profile, provided in Chapter 2, includes all affected operations, as well as
small businesses. Chapter 5 of this EA presents the analysis of projected economic impacts to the industry
as a whole, including both small and large businesses. Much of the information covered in these chapters
applies to small businesses. Section 6.3.1 and Section 6.3.2 provide additional information on small
airports and small airlines, respectively.
Third, EPA's assessment should determine whether the rule would affect small entities, as well as
whether the rule would have an adverse economic impact on small entities. EPA has determined that
some small entities may incur costs for incremental pollution control as a result of the rule, if promulgated
as proposed. EPA examines the impacts of these additional costs in Section 6.3.
6.2 Regulatory Flexibility Analysis Components
Section 603 of the RFA requires that an IRFA must contain the following:
• An explanation of why the rule may be needed.
• A short explanation of the objectives and legal basis for the proposed rule.
• A description of and, where feasible, an estimate of the number of small business entities to
which the proposed rule will apply.
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and Standards for the Airport Deicing Category
• A description of the proposed reporting, recordkeeping, and other compliance requirements
(including estimates of the types of small entities that will be subject to the requirement and
the type of professional skills necessary for the preparation of the report or record).
• Identification, to the extent practicable, of all relevant federal rules that may duplicate,
overlap, or conflict with the proposed rule.
• A description of "any significant regulatory alternatives" to the proposed rule that accomplish
the stated objectives of the applicable statutes and minimize any significant economic impact
of the rule on small entities.
Sections 6.2.1 through 6.2.5 below address each of these issues in turn.
6.2.1 Legal Basis of and Need for the Rule
EPA is authorized under sections 301, 304, 306, and 307 of the Clean Water Act (CWA) to establish
effluent limitation guidelines and standards of performance for industrial dischargers. The objective of the
CWA is to "restore and maintain the chemical, physical, and biological integrity of the Nation's waters."
To assist in achieving this objective, EPA issues effluent limitation guidelines, pretreatment standards,
and new source performance standards for industrial discharges. Sections 301(b)(l) and 304(b)(l)
authorize EPA to issue Best Practicable Control Technology (BPT) effluent limitation guidelines. Section
304(b)(4) authorizes EPA to issue Best Conventional Pollutant Control Technology (BCT) guidelines for
conventional pollutants; Sections 103(b)(2)(E) and 304(b)(2) authorize EPA to issue Best Available
Technology Economically Achievable (BAT) guidelines to control nonconventional and toxic pollutants;
Section 306 authorizes EPA to issue New Source Performance Standards (NSPS) for all pollutants; and
Sections 304(g) and 307(b) authorize EPA to issue Pretreatment Standards for Existing Sources (PSES)
and Pretreatment Standards for New Sources (PSNS) for all pollutants.
6.2.2 Estimated Number of Small Business Entities to Which the Regulation Will Apply
The RFA defines a "small entity" as a: (1) small not-for-profit organization, (2) small governmental
jurisdiction, or (3) small business. EPA expects the principal impact of the proposed rule will fall on
different types of small entities depending on whether the focus is on airports or airlines. For airports, the
small entities impacted will be primarily small governmental jurisdictions; for airlines, the small entities
impacted will be small businesses. Due to the different ownership structures of the two major components
of the aircraft deicing industry (airports and airlines), EPA conducted separate small business analyses for
each sector.
A small governmental jurisdiction is defined as the government of a city, county, town, township, village,
school district, or special district with a population of less than 50,000. A small business is generally
defined according to NAICS code by standards set by the Small Business Administration (SBA). Under
NAICS codes 481111 (Scheduled Passenger Air Transportation) and 481112 (Scheduled Freight Air
Transportation), a small business is defined as one with fewer than 1,500 employees. Note that a
particular facility (or in this case, a particular airline) may employ fewer than 1,500 employees but not be
considered "small" by this standard if it is owned by a larger parent company and the total employment
among all company-owned facilities exceeds 1,500 workers (SBA, 2008).
Tables 6-3 and 6-13 present the estimated number of small airports and small airlines, respectively, which
may be impacted by the ELG. EPA estimates that 34 out of 218 potentially affected airports (15.6
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and Standards for the Airport Deicing Category
percent) are owned by small governmental jurisdictions, and that 103 out of 139 potentially affected
airlines (74.1 percent) are small businesses under the 1,500 employee standard.
6.2.3 Description of the Proposed Reporting, Recordkeeping, and Other Compliance
Requirements
EPA has incorporated incremental reporting recordkeeping and reporting requirements in the proposed
rule. Details of these requirements are described in the Technical Development Document, Section 12:
Technology Costs (EPA 2009). These costs are generally already incorporated in the option costs used as
the basis for the economic impact analysis (Chapter 5 of this document) and the RFA. A brief summary of
treatment technologies that will meet the effluent guidelines is presented in Chapter 4 of this document.
6.2.4 Identification of Relevant Federal Rules That May Duplicate, Overlap, or Conflict with the
Proposed Rule
The Phase I Stormwater Discharge Permit regulations already in place for deicing operations specifically
cover the direct discharge of deicing agent-contaminated Stormwater from airports into the nation's
surface waters. Although these regulations were developed by EPA, they are implemented, in most cases,
by individual states. When developing individual airport Stormwater discharge permits, states may take
into account local water quality issues. This leads to a large disparity in permit requirements from airport
to airport. The ELG being promulgated by EPA would apply limits uniformly to entities within the
industry scope without regard to the condition of the water body receiving the discharge. The
requirements in the ELGs would be incorporated into the Stormwater permits issued by EPA and states
and would neither conflict with nor overlap existing requirements.
6.2.5 Significant Regulatory Alternatives
EPA undertook a number of steps to minimize the impact of this rule on small entities. According to the
FAA National Plan of Integrated Airport Systems (2007 - 2011), there are approximately 2,800 public
use general aviation and reliever airports in the U.S., some of which have substantial cargo service. Many,
if not most, of these airports are likely to be owned by small government entities. Also likely to be owned
by small governmental entities are approximately 135 non-primary commercial service airports. EPA has
categorically chosen not to regulate any general aviation, reliever, or non-primary commercial service
airports under the proposed regulation. In addition to the 34 small government-owned primary
commercial service airports, EPA also estimates that another 42 primary commercial service airports are
owned by small government entities, but will be out-of-scope of the proposed regulation because little or
no aircraft deicing fluid (ADF) is used at those airports.
EPA also analyzed several different regulatory options in the process of developing this rule.
6.3 Small Business Analysis
This section presents the projected economic impacts on small businesses resulting from compliance with
the proposed ELG for the air deicing category. The impacts are estimated using the methodology outlined
in Chapter 3. Section 6.3.1 presents the impacts on airports and Section 6.3.2 presents the impacts on
airlines.
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Economic Analysis for Proposed Effluent Limitation Guidelines Chapter 6. Initial Regulatory Flexibility Analysis
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6.3.1 Analysis of Small Airports
6.3.1.1 Definition of Small Airports
Small airports are defined according to the size of the population served by the governmental jurisdiction
that owns the airport. To determine airport ownership, EPA downloaded the Federal Aviation
Administration (FAA) Airport Data (5010) and Contact Information data file for National Flight Data
Center (NFDC) facilities. This database lists the owner of each airport as of December 20, 2007. Using
the airport code, city, and state, EPA matched the 218 airports of interest to their owners and determined
whether the owner was public or private. Airport ownership is composed of:
• One privately owned airport: Airborne Airpark
• States
• Counties
• Cities
• Airport Authorities
• Multipurpose Port Authorities
Thus, the size of most airports will be determined by the population of the state, county, or city that owns
i • 40
the airport.
In general, airport and multi-purpose port authorities are quasi-governmental agencies that maintain and
usually operate airports, shipping ports, and other government owned facilities such as bridges. The
authorities are legal entities created by legislation. Many of these authorities have the ability to issue debt,
as well as charge fees for the use of the properties.
As quasi-governmental organizations, EPA will consider airport and port authorities as owned by the
relevant government, and the airport will be considered small for the purposes of RFA if the government
that created the authority has a population of less than 50,000 people.41 For example: the owner of the
Williamsport, PA airport is listed in the NFDC database as the Williamsport Municipal Airport Authority.
Williamsport, PA has a population of 29,900, and is therefore a "small" government for the purposes of
RFA. Conversely, Port Columbus International Airport is listed in the NFDC database as owned by
Columbus Regional Airport Authority. Because Columbus, OH has a population of 728,000, the airport is
not considered "small."
6.3.1.2 Number of Potentially Affected Small Airports
Table 6-1 presents the unweighted counts of surveyed airports by size designation (small or non-small, as
determined by the criteria described above), hub size, location (Alaska or all other states), and average
annual snow or freezing precipitation (SOFP) days (greater than or equal to 14.5 or less than 14.5). The
list below shows the number of small and non-small surveyed airports (including Alaska):
40 All but one of the surveyed Alaskan airports are owned by the State of Alaska and are therefore designated "non-
small" even if they serve sparsely populated areas.
41 We also examined the possibility that airports should be classified by size using either the $6.5 million standard
for NAICS 488119 (Airport Operations) or $23.5 million for NAICS 488310 (Port and Harbor Operations).
Compared to the governmental jurisdiction population method, using the lower standard results in more airports
designated as "small." The main objection, however, to using one of the alternative thresholds is that it seems most
logical to classify airport or port authorities as governmental agencies.
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Economic Analysis for Proposed Effluent Limitation Guidelines Chapter 6. Initial Regulatory Flexibility Analysis
and Standards for the Airport Deicing Category
• 136 of 152 surveyed airports (89 percent) are non-small.
• 16 of 152 surveyed airports (11 percent) are small.
• 10 of the 11 surveyed airports in Alaska are non-small because they are owned by the State of
Alaska.
Table 6-1. Small and Non-small Airports, Surveyed (Unweighted)
Airport Type SOFP Days > 14.5
Non-Alaska Airports
SOFP Days < 14.5 Total
Large Hubs
Non-small 12
Small 0
21 33
0 0
Medium Hubs
Non-small 10
Small 0
24 34
0 0
Small Hubs
Non-small 15
Small 1
7 22
0 1
Nonhubs
Non-small 22
Small 12
11 33
2 14
General Aviation/Cargo
Non-small 2
Small 0
2 4
0 0
Totals, Non-Alaska Airports
All Airports 74
Non-small 61
Small 13
67 141
65 126
2 15
Alaska Airports"
Medium Hubs
Non-small 1
Small 0
0 1
0 0
Small Hubs
Non-small 1
Small 1
0 1
0 1
Nonhubs
Non-small 7
Small 0
0 7
0 0
Commercial Service
Non-small 1
Small 0
0 1
0 0
Totals, Alaska Airports
All Airports 1 1
Non-small 10
Small 1
0 11
0 10
0 1
a Ten of 11 surveyed Alaskan airports are owned by the State of Alaska and are therefore considered non-small.
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Economic Analysis for Proposed Effluent Limitation Guidelines Chapter 6. Initial Regulatory Flexibility Analysis
and Standards for the Airport Deicing Category
Table 6-2 presents the same results based on survey weights rather than survey counts. By summing the
weights of surveyed airports EPA estimated the total national number of potentially affected small and
non-small airports. Since it would not be appropriate to include judgment sample airports in a statistically
weighted summary, all airports in Alaska as well as four non-Alaska airports were excluded from the
results presented in Table 6-2.42 A weighted analysis gives the following results:
• 276.4 of 347.0 potentially affected airports (80 percent), excluding Alaska, are non-small,
• 70.6 of 347.0 potentially affected airports (20 percent), excluding Alaska, are small.
The larger percentage of potentially affected small airports that occurs when weights are used reflects the
fact that, with one exception, all large and medium hubs were certainty selects and therefore have weights
equal to one. Conversely, almost all small and nonhub airports were sampled and therefore have weights
greater than one.
Table 6-2. Small and Non-small Airports, Excluding Alaska, Weighted"
Airport Type
SOFP Days > 14.5
SOFP Days < 14.5
Total
Large Hub
Non-small
Small
12.0
0.0
21.0
0.0
33.0
0.0
Medium Hub
Non-small
Small
10.0
0.0
26.0
0.0
36.0
0.0
Small Hub
Non-small
Small
20.4
1.9
25.7
0.0
46.1
1.9
Nonhub
Non-small
Small
77.3
46.4
80.0
22.3
157.3
68.7
General Aviation/Cargo
Non-small
Small
2.0
0.0
2.0
0.0
4.0
0.0
Totals
All Airports
Non-small
Small
170.0
121.7
48.3
177.0
154.7
22.3
347.0
276.4
70.6
a Alaska airports are not presented in this table, as they were included as judgment samples for the survey, and
therefore cannot be considered statistically representative.
Tables 6-1 and 6-2 present the universe of surveyed airports (both unweighted and weighted). EPA has
determined, based on survey responses, that not all of these airports fall within scope of the proposed rule
due to some airports not being involved in deicing operations. Table 6-3 presents the final estimate of
small and nonsmall airports that fall within the scope of this rulemaking. Based on the final counts, only
34 of 218 in-scope airports (15.6 percent) are considered small based on the size of the government that
owns each airport.
42 Airports in the judgment sample were chosen for the survey at EPA's discretion. These included all Alaska
airports in the survey as well as the following four non-Alaska airports: Kalamazoo/Battle Creek International
Airport (AZO), Akron-Canton Regional Airport (CAK), Duluth International Airport (DLH), and Chicago/Rockford
International Airport (RFD).
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Economic Analysis for Proposed Effluent Limitation Guidelines
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Chapter 6. Initial Regulatory Flexibility Analysis
Table 6-3. Numbers of Small and Nonsmall Airports In Scope
Hub Size
Large Hub
Medium Hub
Small Hub
Nonhub
Total
Number of Small
Airports
0
0
3
31
34
Number of Nonsmall
Airports
28
35
38
83
184
Total
28
35
41
114
218
6.3.1.3 Summary of Projected Compliance Costs for Small Airports
Table 6-4 presents a summary of total compliance costs, by option, for all in-scope airports as well as
small in-scope airports. Under the proposed option, small in-scope airports incur $1.8 million in projected
compliance costs, which represents 1.96 percent of total compliance costs for this option.
Table 6-4. Total Compliance Costs for Small Airports In Scope
Option
1
2
3
4
Total Compliance Costs ($2006, in millions)
All In Scope
$36.4
$110.1
$91.3
$105.0
Small In Scope
$1.8
$4.8
$1.8
$3.0
Small as Percent of Total
4.92%
4.35%
1.96%
2.81%
Table 6-5 presents a list of the small airports with total projected compliance costs in the top quartile of
compliance costs under each option. Under the proposed option, Juneau International Airport incurs
$802,221 in projected compliance costs, representing 20.4 percent of the airport's total operating
revenues. Section 6.3.1.4 describes in more detail the impact of projected compliance costs on airport
operating revenues.
Table 6-5. Small Airports in Top Quartile of Projected Compliance Costs
Airport
Id
Airport Name
City
State
Hub
Status
Weight
Projected
Annualized
Compliance
Costs (2006
dollars)
Compliance
Costs as
Percent of
Revenue
Option 1
JNU
Juneau Intl
Juneau
AK
S
1.000
$802,221
20.43%
Option 2
JNU
XNA
Juneau Intl
Northwest Arkansas
Regional
Juneau
Fayetteville/
Springdale
AK
AR
S
S
1.000
1.880
$2,202,074
$1,203,584
56.07%
13.28%
Option 3
JNU
Juneau Intl
Juneau
AK
S
1.000
$802,221
20.43%
Option 4
JNU
Juneau Intl
Juneau
AK
S
1.000
$802,221
20.43%
July 2009
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Economic Analysis for Proposed Effluent Limitation Guidelines
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Chapter 6. Initial Regulatory Flexibility Analysis
6.3.1.4 Impact of Compliance Costs on Small Airport Revenues
As a measure of the impact that projected compliance costs might have on airport revenues, EPA
analyzed the ratio of projected compliance costs to total operating revenues (the "revenue test").
By EPA guidance (EPA 2006):
• If fewer than 100, or less than 20 percent of affected airports incur compliance costs that
exceed 3 percent of operating revenues, then the option is considered affordable.
Table 6-6 presents the ratio of compliance costs to total operating revenues for small, in-scope airports.
Table 6-6. Impacts on Small Airports (Weighted Figures)
Option
1 Number
%
1 Number
%
3 Number
%
4 Number
%
Total
Annualized
Option Costs
(millions of
2006 dollars)
$36.4
$110.1
$91.3
$105.0
Total
Airports in
Scope
218
Total Small
Airports in
Scope"
34
Small Airports with Ratio of Compliance Costs
to Operating Revenues'":
Less than or
equal to 1%
23
67.9%
23
67.9%
23
67.9%
23
67.9%
Greater than 1%,
but less than or
equal to 3%
8
23.7%
8
23.7%
8
23.7%
0
0.0%
Greater
than 3%
3
8.4%
3
8.4%
o
J
8.4%
11
32.1%
a An airport is considered small if the governmental entity that owns the airport is responsible for a region with less
than 50,000 people.
b Airport counts may not add to 218 due to rounding of weights.
The majority of airports (67.9 percent) incur compliance costs less than one percent of total operating
revenues. Under the proposed option, 23 small airports incur compliance costs less than one percent of
operating revenues; eight small airports incur compliance costs greater than one percent of revenues, but
less than three percent of revenues; and three small airports incur compliance costs greater than three
percent of operating revenues.
Table 6-7 presents a list of small airports with projected compliance costs greater than 3 percent of total
operating revenues. Under the proposed option, Juneau International Airport incurs compliance costs that
are 20.4 percent of operating revenues and Northwest Arkansas Regional Airport incurs compliance costs
that are 3.87 percent of operating revenues.
July 2009
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 6. Initial Regulatory Flexibility Analysis
Table 6-7. Small Airports with Projected Compliance Costs Exceeding 3 Percent of Operating
Revenues
Airport Id
Airport Name
City
State
Hub
Status
Weight
Projected
Annualized Costs
(2006 dollars)
Compliance Cost
as Percent of
Revenue
Option 1
JNU
XNA
Juneau Intl
Northwest
Arkansas Regional
Juneau
Fayetteville/
Springdale
AK
AR
S
S
1.000
1.880
$802,221
$350,557
20.43%
3.87%
Option 2
JNU
XNA
Juneau Intl
Northwest
Arkansas Regional
Juneau
Fayetteville/
Springdale
AK
AR
S
S
1.000
1.880
$2,202,074
$1,203,584
56.07%
13.28%
Option 3
JNU
XNA
Juneau Intl
Northwest
Arkansas Regional
Juneau
Fayetteville/
Springdale
AK
AR
S
S
1.000
1.880
$802,221
$350,557
20.43%
3.87%
Option 4
JNU
HTS
XNA
Juneau Intl
Tri-State/Milton J.
Ferguson Field
Northwest
Arkansas Regional
Juneau
Huntington
Fayetteville/
Springdale
AK
WV
AR
S
N
S
1.000
8.089
1.880
$802,221
$184,475
$350,557
20.43%
9.41%
3.87%
6.3.1.5 Impact of Compliance Costs on Debt Service Coverage Ratio of Small Airports
In addition to the revenue test, EPA also conducted an analysis of the impact compliance costs would
have on the debt service coverage ratio (DSCR) of in-scope airports. A full description of the methods
used to analyze debt service coverage is presented in Chapter 3.
A standard DSCR threshold is 1.25; that is, revenues available for debt service must be at least 125
percent of debt service. Therefore, EPA used 1.25 as a cutoff point for impacts. If an airport with debt
service data that also incurred compliance costs had a post-regulatory DSCR less than 1.25, it was
considered to be impacted.
EPA separately analyzed the impacts to DSCR for those entities owning only one airport and those
entities owning more than one airport. Table 6-8 presents the impacts to DSCR under three cost pass-
through (CPT) scenarios for those entities owning only one airport.
July 2009
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 6. Initial Regulatory Flexibility Analysis
Table 6-8. Projected Impacts to Debt Service Coverage Ratio of Small Single Airport-Owners
Incurring Costs
Option
Airports
Incurring Costs3
Airports Incurring
Costs Not Analyzed
Owners with Pre-Regulatory DSCR 1.25 or Greater
and Post Regulatory DSCR Less Than 1.25
100% CPT
50% CPT
0% CPT
Unweighted
1
2
3
4
29
34
30
39
3
3
3
10
0
0
0
0
0
1
0
0
1
1
1
1
Weighted
1
2
3
4
54
62
55
99
6
6
6
42
0
0
0
0
0
2
0
0
2
2
2
2
a Ninety-three surveyed single-owner airports are in-scope with weights representing 192 airports. Survey weights
are not statistically reliable for determining the number of single airport owners. However, EPA believes the
weights generally reflect the relative frequency of potentially affected single airport owners.
Under the proposed option (unweighted) and zero cost pass-through scenario, one small airport incurs a
post-regulatory DSCR less than 1.25; when the weighted calculation is used, this number changes to two
airports.
No small airports were owned by governments or authorities owning more than one airport. Thus, EPA
did not conduct a small business DSCR analysis for multi-airport owners.
6.3.2 Analysis of Airlines
6.3.2.1 Definition of Small Airlines
As privately-owned, for-profit businesses, airlines are subject to the small business definitions set forth by
the Small Business Administration's size standards. Table 6-9 shows the Small Business Administration
size standards for NAICS 481, the Air Transportation category.
Table 6-9. Small Business Administration Size Standards for Airline Industry
NAICS
Code
481111
481112
481211
Except
481212
Except
481219
NAICS Industry Definition
Scheduled Passenger Air Transportation
Scheduled Freight Air Transportation
Nonscheduled Chartered Passenger Air Transportation
Offshore Marine Air Transportation Services
Nonscheduled Chartered Freight Air Transportation
Offshore Marine Air Transportation Services
Other Nonscheduled Air Transportation
Size Standard in
Millions of Dollars"
$25.5
$25.5
$6.5
Size Standard in
Number of
Employees
1,500
1,500
1,500
1,500
"Average annual receipts. Source: SBA 2008.
July 2009
6-10
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 6. Initial Regulatory Flexibility Analysis
For EPA's purposes, the size standards for the Scheduled Passenger and Freight Air Transportation
categories (NAICS 481111 and 481112) will be appropriate for determining potentially affected small
airlines. Thus, airlines with less than 1,500 employees will be considered small for the purposes of this
analysis.
6.3.2.2 Data Issues
Available employment data for airlines is limited to that provided by the Bureau of Transportation
Statistics (BTS) in their Employment Statistics - Certificated Carriers report. Unfortunately, this data set
only contains records for 66 airlines - far fewer than the number of airlines in the scope of this proposed
rule. In addition, not all of the 66 airlines with employment data were considered to be in the scope of the
proposed rule, so the usable employment data was even less.
EPA obtained employment figures from the airlines' individual annual reports or the annual report of the
Regional Airline Association for some of the airlines that were missing data. As a proxy for the remaining
missing data, primarily in the smaller airline categories (regional, medium regional, commuter and small
certified carriers), EPA examined departure and enplanement data for in-scope airlines for 2004 through
2006. Since both passenger and cargo airlines are included in the list, EPA determined that departures
would be the more appropriate measure to use as a proxy for employment data.
EPA first analyzed the number of departures for the non-small and small airlines as defined by
employment statistics. Table 6-10 summarizes the findings.
Table 6-10. 2006 Departures Data for Non-Small and Small Airlines, as
Defined by Employment
Departures Data
Average
Median
Minimum
Maximum
Non-Small
269,329
198,210
2,656
1,092,819
Small
19,776
6,565
0
120,538
Sources: BTS 2008, BTS 2007
EPA determined that a reasonable proxy cutoff for small and non-small airlines could be made at 20,000
annual departures. This is slightly more than the average departures by known small airlines (as defined
by available employment data).
Where employment data was available, it was used as the determinant of small airline status. Where
employment data was not available, the departures for the respective year (2004, 2005 or 2006) were
used. Any airline with no employment data and fewer than 20,000 annual departures was considered to be
small for purposes of this analysis.
6.3.2.3 Number of Potentially Affected Small Airlines
Tables 6-11 to 6-13 show the numbers of potentially affected small and non-small airlines for each year
of the impact analysis (2004 through 2006). For each of these three years, the majority of airlines are
considered small. Approximately half of the small airlines are in the Commuter Carrier and Small
Certified Carrier categories.
July 2009
6-11
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 6. Initial Regulatory Flexibility Analysis
Table 6-11. Numbers of Non-Small and Small Airlines by Airline Type: 2004
Carrier Type
Major Carriers
National Carriers
Regional Carriers
Medium Regional Carriers
Commuter Carriers
Small Certified Carriers
Total
Total Non-
Small
20
14
0
0
0
4
38
% of All
Airlines
13.7%
10.7%
0.0%
0.0%
0.0%
3.1%
29.0%
Total Small
0
19
21
11
35
22
108
% of All
Airlines
0.0%
14.5%
16.0%
8.4%
26.7%
16.8%
82.4%
Table 6-12. Numbers of Non-Small and Small Airlines by Airline Type: 2005
Carrier Type
Major Carriers
National Carriers
Regional Carriers
Medium Regional Carriers
Commuter Carriers
Small Certified Carriers
Total
Total Non-
Small
20
14
0
0
0
1
35
% of All
Airlines
14.0%
10.7%
0.0%
0.0%
0.0%
0.8%
26.7%
Total Small
0
19
20
10
34
25
108
% of All
Airlines
0.0%
14.5%
15.3%
7.6%
26.0%
19.1%
82.4%
Table 6-13. Numbers of Non-Small and Small Airlines by Airline Type: 2006
Carrier Type
Major Carriers
National Carriers
Regional Carriers
Medium Regional Carriers
Commuter Carriers
Small Certified Carriers
Total
Total Non-
Small
20
13
1
0
0
2
36
% of All
Airlines
14.4%
9.9%
0.8%
0.0%
0.0%
1.5%
27.5%
Total Small
0
20
20
10
32
21
103
% of All
Airlines
0.0%
15.3%
15.3%
7.6%
24.4%
16.0%
78.6%
6.3.2.4 Impacts on Small Airlines
As with airports, EPA analyzed the impact of projected compliance costs on the total operating revenues
of in-scope airlines. Table 6-14 presents the results of this analysis.
Under the proposed option (Option 3), 82 small airlines (79.6 percent of small airlines) incur compliance
costs less than one percent of total operating revenues; one airline (1.0 percent of small airlines) incur
compliance costs between one percent and three percent of total operating revenues; and no small airlines
incur compliance costs greater than three percent of total operating revenues. Twenty airlines (19.4
percent of small airlines) were not included in the analysis due to lack of financial data.
July 2009
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 6. Initial Regulatory Flexibility Analysis
Table 6-15 shows the impact of projected compliance costs on the operating profit of in-scope airlines.
Under the proposed option, 28 small airlines (27.2 percent of small airlines) incur compliance costs less
than one percent of total operating profit; 5 airlines (4.9 percent of small airlines) incur compliance costs
between one percent and three percent of total operating profit; and 19 small airlines (18.4 percent of
small airlines) incur compliance costs greater than three percent of total operating profit (one of which
incurred costs exceeding 100 percent of operating profit). Fifty-one airlines (49.5 percent of small
airlines) were not included in the analysis due to lack of financial data or because they had negative
operating profits.
Table 6-16 shows the impact of projected compliance costs on the net income of in-scope airlines. Under
the proposed option, 27 small airlines (26.2 percent of small airlines) incur compliance costs less than one
percent of net income; 5 airlines (4.9 percent of small airlines) incur compliance costs between one
percent and three percent of net income; and 18 small airlines (17.5 percent of small airlines) incur
compliance costs greater than three percent of net income (two of which incurred costs exceeding 100
percent of net income). Fifty-three airlines (51.5 percent of small airlines) were not included in the
analysis due to lack of financial data or because they had negative net income.
Table 6-14. Impacts on Operating Revenues of Small Airlines
Option
1 Number
%
~ Number
%
, Number
%
. Number
%
Total
Option
Costs
($2006
millions)
$36.4
$110.1
$91.3
$104.6
Total Small
Airline
Compliance
Costs
($2006, in
millions)
$3.3
$12.2
$6.5
$1.4
Small Airline
Compliance
Costs as % of
Total Option
Costs
9.2%
11.1%
7.2%
7.1%
Total
Number
of Small
Airlines
103
Airlines
Less than or
equal to 1%
82
79.6%
70
68.0%
82
79.6%
82
79.6%
with Ratio of Compliance Costs to
Operating Revenues:
Greater than
1%, but less
than or equal
to 3%
1
1.0%
12
11.7%
I
1.0%
I
1.0%
Greater
than 3%
0
0.0%
I
1.0%
0
0.0%
0
0.0%
Not
Analyzed"
20
19.4%
20
19.4%
20
19.4%
20
19.4%
1 Airlines were not included in the analysis if financial data was not available.
July 2009
6-13
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Economic Analysis for Proposed Effluent Limitation Guidelines
and Standards for the Airport Deicing Category
Chapter 6. Initial Regulatory Flexibility Analysis
Table 6-15. Impacts on Operating Profits of Small Airlines
Option
1 Number
%
~ Number
%
, Number
%
. Number
%
Total
Option
Costs
($2006
millions)
$36.4
$110.1
$91.3
$104.6
Total Small
Airline
Compliance
Costs
($2006, in
millions)
$3.3
$12.2
$6.5
$7.¥
Small Airline
Compliance
Costs as % of
Total Option
Costs
9.2%
11.1%
7.2%
7.1%
Total
Number
of Small
Airlines
103
Airlines with Ratio of Compliance
to Operating Profits:
Less than or
equal to 1%
30
29.1%
23
22.3%
28
27.2%
26
25.2%
Greater than
1%, but less
than or equal
to 3%
5
4.9%
6
5.8%
5
4.9%
6
5.8%
Greater
than 3%b
17
16.5%
23
22.3%
19
18.4%
20
19.4%
Costs
Not
Analyzed"
51
49.5%
51
49.5%
51
49.5%
51
49.5%
a Airlines were not included in the analysis if financial data was not available or if airlines had negative operating
profits.
b One small airline incurred compliance costs exceeding operating profits under Options 1, 3, and 4; two small
airlines incurred compliance costs exceeding operating profits under Option 2.
Table 6-16. Impacts on Net Income of Small Airlines
Option
1 Number
%
~ Number
%
, Number
%
. Number
%
Total
Option
Costs
($2006
millions)
$36.4
$110.1
$91.3
$104.6
Total Small
Airline
Compliance
Costs
($2006, in
millions)
$3.3
$12.2
$6.5
$7.¥
Small Airline
Compliance
Costs as % of
Total Option
Costs
9.2%
11.1%
7.2%
7.1%
Total
Number
of Small
Airlines
103
Airlines with Ratio of Compliance
to Net Income:
Less than or
equal to 1%
28
27.2%
21
20. 4%
27
26.2%
25
24.3%
Greater than
1%, but less
than or equal
to 3%
7
6.8%
8
7.8%
5
4.9%
5
4.9%
Greater
than 3%b
15
14.6%
21
20. 4%
18
77.5%
20
19.4%
Costs
Not
Analyzed"
53
57.5%
53
57.5%
53
57.5%
53
57.5%
a Airlines were not included in the analysis if financial data was not available or if airlines had negative net incomes.
b Two small airlines incurred compliance costs exceeding net income under Options 1, 3, and 4; four small airlines
incurred compliance costs exceeding operating profits under Option 2.
6.4 Regulatory Flexibility Analysis
EPA has chosen to minimize the impact of this rule on small entities by tailoring its proposed guidelines
based on airport size (i.e., annual jet departures) and use of aircraft deicing fluid. EPA chose not to
include any general aviation, reliever, or non-primary commercial service airports under the scope of the
proposed rule. In addition, another 42 primary commercial service airports owned by small government
entities will be out-of-scope of the proposed regulation because little or no deicing fluid is used at those
airports.
July 2009
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Economic Analysis for Proposed Effluent Limitation Guidelines Chapter 6. Initial Regulatory Flexibility Analysis
and Standards for the Airport Deicing Category
Based on the results presented in Section 6.3, three small airports incur projected compliance costs greater
than three percent of operating revenues under the proposed option. Under the same option, no small
airlines are projected to incur compliance costs greater than three percent of operating revenues.
6.5 References
BTS 2008. Employment Statistics - Certificated Carriers. Bureau of Transportation Statistics.
Downloaded from http://www.bts.gov. May 13, 2008.
BTS 2007. Air Carrier Statistics (Form 41 Traffic), T-100 Segment Database. Bureau of Transportation
Statistics. Downloaded at: http://www.bts.gov, October 2, 2007.
RAA 2006. 2006 Annual Report. Regional Airlines Association.
SBA 2008. U.S. Small Business Administration. Table of Small Business Size Standards Matched to
North American Industry Classification System Codes. U.S. Small Business Administration. Effective
March 11, 2008. Downloaded at: http://www.sba.gov. May 13, 2008.
U.S. EPA. 2009. Development Document for Proposed Effluent Limitation Guidelines and Standards for
the Airport Deicing Category. EPA-821-R-09-004.
U.S. EPA. 2006. Final Guidance for EPA Rulewriters: Regulatory Flexibility Act as amended by the
Small Business Regulatory Enforcement Fairness Act. U.S. Environmental Protection Agency.
November.
July 2009 6-15
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