CURRENT NEWS
Orange County Voices
El Toro Study Is Unrealistic
County Airport Report Based
on Dubious Assumptions
By G.J. "PETE" FIELDING, AMIHAI GLAZER
Consultants for Orange County predict that facilities will be needed for 34.2 million airline passengers by 2020: 28.8 million at El Toro and 5.4 million at John Wayne. This rosy forecast overestimates demand and underestimates competition. As a consequence, a larger-than-needed airport is planned and economic benefits inflated.
In the business world, such errors harm only the firms involved. Government, however, can use tax-exempt bonds to pay for construction of excess capacity and make taxpayers subsidize losses.
Orange County is repeating the same errors as Denver: planning a larger-than-required airport and hoping people will come. Denver International Airport was built for 56 million passengers per year, at a cost of $5 billion, but only 30 million use the facility.
Predicting future travel is inexact; it's like forecasting the weather or interest rates. We know some of the variables, but past performance is a poor predictor of how these variables might behave in the future. For example, the environmental impact report confidently predicts increasing demand for air travel from John Wayne Airport, but travel declined 3.5% in 1998, even with a booming economy.
We find dubious assumptions included in the model that assigns future travelers to airports. The likelihood that a person will choose a particular airport is determined by the travel time required to reach the airport and the service level (number of connections to other places). Travel time is estimated from 125 geographic zones to seven competing airports in Southern California. Some assumptions are curious; consultants say it will take almost two hours to travel from Anaheim to the Ontario airport, but only 20 minutes from Anaheim to El Toro.
El Toro's planners envision a similar range of domestic and international connections to Los Angeles International Airport. This assumption is misleading. LAX will offer more frequent service to many more cities and attract more than twice as many passengers. LAX will continue as the "gateway hub" for Southern California.
Where areas are served by more than one international airport, one dominates. In New York, Washington, London and Paris, the dominant airport captures between 67% and 83% of international passengers. It is unlikely, therefore, that El Toro will capture 8.2 million international passengers by 2020.
Competition from rival airports is underestimated in other ways. The county's consultants assume, for example, that airlines will charge the same fares at all airports in the Los Angeles basin. This is not true today, nor is it likely in the future. New airports often charge higher landing fees, causing airlines to raise fares. And might not Ontario, with unused capacity, charge lower fees to attract Orange County passengers?
Lindbergh Field in San Diego is the only airport to the south included as a competitor. And more than 2 million San Diego County citizens are predicted to choose El Toro each year. Potential competition from Tijuana's International Airport is not mentioned, although negotiation for joint use is underway. Tijuana would be a more convenient airport for both travelers and freight from San Diego and industrial plants in Mexico.
Errors would be understandable if they were random. But when they are systematically biased in favor of constructing a larger-than-required airport, the predicted demand is suspect. And we also suggest that the economic benefits should be reexamined, because overestimating passengers exaggerates benefits.
Economists use sensitivity analysis to guard against optimism. Rather than assume that air fares will decline and demand for travel to Asia will double, as the consultants have done, good economists estimate travel demand using both optimistic and pessimistic assumptions. Both high and low estimates are reported rather than only the most favorable.
Prudent businesspeople, faced with unreliable information, would assess passenger estimates conservatively. County supervisors should do the same. Otherwise, we are likely to end up like Denver: wasting public funds by building an airport that costs three times the estimate but attracts only half the forecasted passengers. - - -
G.j. "Pete" Fielding Is a Research Professor and Amihai Glazer a Professor in the Department of Economics at Uc Irvine
Click here for El Toro Airport website analysis of the airport demand.