The Network of Businesses Operating in the Airport - Case Study Example

To evaluate the impact of hub airports on the local or community region surrounding the flight facilities requires an initial understanding of the characteristics of airport hubs and the unique ways that they function in comparison to other airports. The general definition is derived from a familiar pattern in logistics and management, the wheel with its center, spokes, and radius. “The Hub-and-spokes system was developed as one of the results from the US airline deregulation. Prior to establishing this system, airlines operated point-to-point routing which was often not cost efficient. The concept of the Hub-and-spokes system was to concentrate traffic to one airport- the major hub from smaller national airports (known as the spokes) or other means of transport, and then the gathered group of passengers would be transported from the major hub to another major hub.” (AviationKnowledge, 2010) In addition to commercial airline hubs, companies such as FedEx, DHL, UPS, and other major carriers of air freight & cargo services may also operate airport hubs to facilitate the efficient delivery of their parcels and goods for transport. Some airports will be integrated commercial and air freight operations, while others will be dedicated and specialized to only one mode of operation dependent on the location. Furthermore, some airport hubs will be operated by a single or limited number of carriers, while other hubs will serve multiple carriers at the same location. Along with these main characteristics, hub airports also impact the local community and cities surrounding them through: Promoting regional centralization – multiple cities and states may be served by a regional hub, requiring all passengers travel to the same location. Requiring infrastructure development – hubs are typically larger than other airports and require more land for their operation, along with the building & roads to serve the facility, placing an investment requirement on the community. Jobs and business expansion – airport hubs promote an entire ecosystem of support businesses to serve the people who work in them – these include hotels, restaurants, stores, gas stations, shopping facilities, transportation, etc. Tax revenue – communities and cities will often support the development of airport hubs at great public expense in order to build longer term tax revenue through business and service expansion. Environmental Concerns – hub airports and frequent passenger air jet travel can have significant impact on local environments, including wildlife, air, water, and sound pollution, waste disposal management problems, etc. A step by step overview of the development of a hub airport shows the degree to which the effects of the construction and operation will ripple into the community. At the first stage, there is location, architectural design, and construction of the site. This employs a number of engineers, surveyors, finance specialists, architects, and environmental specialists to draw up the initial plans for the airport and begin networking for permits with local officials and financing with banks. Construction workers, heavy equipment operators, contractors, and others join to build the actual facilities of runways, hangars, and service buildings to finish the construction of the hub. The carrier contracts are negotiated, office and hangar space leased, and service industries move in to open shops, bars, restaurants, and the like, building a food court, mall area, and lounges. Regular employment in new hotel construction and operation can also begin around the hub at this stage. The network of businesses operating in the airport will begin to have a huge impact in the community, and then support the further creation of new business in the region through air transport and air cargo. Airport hubs by nature promote regional centralization, and this may have important social, political and cultural impacts in the local cities and communities that surround them. Two differences can be established in this context. In the first, a regional hub airport serves a large community and consumer demand for air flight, for example Los Angeles airport, JFK in New York, or Dulles International in Washington D.C. It is expected that these airports would naturally function as commuter hubs for air travel, as they are the largest cities in American with considerable business and tourism travel. In the second example, a regional airport hub is developed in a growing city, in a region that is predominately rural. For example, the airport hubs in Atlanta, Greensboro, and Orlando may have helped those cities grow even more strongly economically through becoming a point of regional centralization. With population growth, accelerated development, and increasing revenue streams can come changes in the city or community that are related to culture as well. For example, the city may see more concerts from major artists, an increase in culture and art galleries, or prestige as a major league sports town develop in association to the facilities of the airport hub. In many instances, the airport hub is a requirement of greater status of a city or community in the region. With the development and population also come changes in demographics which can alter the way Congressional districts are drawn, or determine which candidates are elected locally and nationally. Thus, regional centralization can be an important after-effect of the airport hub in a region. Airport hubs require a large amount of infrastructure development that combines public and private investment. Not only must runways, hangars, and airport service facilities be built, but the community or city must also provide a highway infrastructure that is sufficient to service the facilities themselves. UC Davis recently put out a report highlighting the importance of regional transportation in airport hubs, writing: “We augment our definition of the transport network by recognizing the role of highway infrastructure. Airport infrastructure expansion without additional investment in highways may cause delays and disruptions for business travelers driving to and from these airports, as Cohen (1997) suggests has recently occurred in many large-hub states. Thus, we incorporate the constraining effect of the existing highway infrastructure – or the complementary contribution of enhanced highway networks – to assess how time delays from ‘intermodal’ congestion may affect manufacturing industries’ costs.” (Cohen & Paul, 2001) Many cities and communities have dealt with the issue of airport hub traffic congestion with innovative solutions such as monorail trains from the airport to city center, or using a fleet of dedicated buses, trains, and trams. Parking and security present a long term management problem for airport hubs, so solutions that alleviate the need for long term parking through public transportation help the community in many ways. This public transportation infrastructure also serves local business development and cultural activities. However, airport hub developers and city planners need to be aware of real risks to environments that come with the expansion of highways and pollution from automobiles. The proximity of the hub to a city or town, or location in an undeveloped wildlife area will require different responses on behalf of developers to address environmental problems as they conflict with transportation infrastructure development, and the developers must remember their mistakes may not be easy to correct. The greatest benefit seen by many for local communities and cities who have airport hubs in their region is the expansion of jobs and business. Airport hubs are seen as accelerating the growth rate in a region by making it more attractive to corporate investment. Airlines rely on business travelers who fly most frequently and pay the highest fares. Business people, for their part, generally prefer a location that does not involve overly long travel to the airport for their check in and travel requirements. Thus, local governments also find it favorable to invest in the public transportation infrastructure supporting an airport hub, in order to boost business development in the region through associated business services. The economic effect of airport hubs can be seen in both large cities and small communities. For example: “LAX is a dynamic airport which creates, attracts and supports economic activity throughout Southern California. According to a recent study, LAX has an annual economic impact of $60 billion. This is generated by aviation activity on or near the airport, by off-airport expenditures related to the use of aviation services, and by money that is again spent and circulated throughout the local economy. An estimated $21 billion of this total is generated within the City of Los Angeles.” “LAX creates jobs. An estimated 59,000 jobs, directly attributable to LAX, are located on or near the airport. Approximately 408,000 jobs, spread throughout the region, are attributable to LAX. The employment in the City of Los Angeles due to the airport is estimated to be 158,000 jobs. One in 20 jobs in Southern California is attributed to LAX operations.” (LAX, 2010) It is no surprise that America’s largest air hubs have massive business stimulus effect, but the same can also be seen in small communities which function as regional air cargo transport hubs. When DHL closed its transport hub in Wilmington, Ohio, 8,000 people lost their jobs: “The DHL hub in Wilmington—in southwestern Ohio—was located in the Wilmington Airpark, the nations largest privately owned airport, 2,200 acres in size and former home to the Clinton County Air Force Base. DHL purchased the Airpark for just over $1 billion in 2003. The facility employed 8,000 workers; Wilmington has a population of 12,000.” (Lee, 2009 ) Thus, in an economy in recession for the last few years, airport hubs can offer an economic stimulus to a region that includes jobs, business development, and through that, increased tax revenue for governments. Yet, this business development does not only come to the United States through hubs. Across the developing world, countries like India, Indonesia, China, Brazil, and others are investing heavily in airport hub development, with India alone investing $20 billion USD in the next two years in airport related infrastructure. (India Brand Equity Foundation, 2010) This means new roads where there were none before, and from those, openings in real estate development and business. Thus, airport hubs are seen as an engine for growth in the developing world just as they are in America, though the influences to the culture can be much greater. They may also be used as a base for “Special Tourism Zones” and other promotions that increase foreign travel and tourism in the region. “The US Federal Aviation Administration (FAA) uses a quite straightforward and simple methodology for the assessment and identification of the number of hubs within a network. This method has been widely employed in the literature (Bazargan and Vasigh .2003; Button et al., 1999). It classifies an airport according to its participation in terms of the total passenger traffic as follows: ‘small hubs’ (0.05% - 0.25%), ‘medium hubs’ (0.25% - 1%) and ‘large hubs’ (more than 1% of passenger traffic). We applied the FAA’s methodology to data collected from Infraero on domestic passenger traffic in Brazil between 1998 and 2006. With the FAA methodology, we identified 18 ‘large hubs’ in Brazil for the year 2006. This is exactly the same number in 1998.” (Costa, Lohmann, & Olivera, 2010) In Brazil’s instance, rapid economic growth in the last decade has not led to an increase in the number of airport hubs in the country, but the facilities themselves have been strengthened and improved to facilitate local and tourist transportation. Brazil also had a number of catastrophic disasters in aviation that impacted the community at large, a rare but nevertheless important aspect to consider when evaluating the effects of hub airports on a region. The question of airport development in Brazil brings up the important point of the environmental impact that air hubs can have upon a community. Requiring vast tracks of land to build, hub airports disturb the natural environment as a matter of course of their construction. Yet, during the continued operation of an air hub airport, the frequency and amount of air traffic is much greater than at other locations, presenting an increased noise and air pollution burden on the surrounding local environment. Air hub managers must be very careful in safety, security, and environmental protection facilities, for unmanaged industrial waste, fuel & chemical leakage, and other issues of toxicity must be managed with the long term environmental impact in mind. The U.S. Congress has specifically requested research on the impact of airports upon the environment with the focus on both air and water quality issues. (CRS Report for Congress, 2007) In some instances, the environmental concerns have the ability to cause conflict between the hub airport and the community. The local city may even stop or delay air hub development through the enforcement of local environmental laws, as happened at Heathrow airport in London. (BBC, 2010) Local communities may be not only concerned with water and air safety, but also protest against noise pollution and traffic congestion in their area related to hub airport transportation. (CAAP, 2010) Therefore, developers of hub airports, their management teams, as well as all of the employees of the air carriers and service personnel involved with the airlines must be very conscious about the environmental impact of transport facilities. This includes training programs that build awareness as well as regular vigilance in the workplace. To summarize, hub airports impact their surrounding communities and cities through centralization, economic development, infrastructure growth, promoting social mobility, and by giving a region a greater sense of prestige. These are important, as they become characteristics of the greater community and its cultural identity. The jobs impact, as seen all over the world from hub airport operations, has the ability to fuel education and development of future generations. Many carriers and airline related support business support local families and their children through scholarships and health care. They also contribute heavily to local charities and foundations. These rings of expansion show how far the ripple effects of economic growth can travel away from the air hub into the greater community. Hub airports can also impact communities negatively through transportation congestion and environmental problems related to air and water safety, wildlife & endangered species, and noise pollution. While the environmental effects are not insignificant, conscious balancing of societal needs with environmental concerns by the developers and managers of hub airports has led to a compromise which must communities are willing to accept for the benefits of economic development, infrastructure, and jobs, for few other industries can provide such a growth engine for a region. Sources: Aviation Knowledge. "Hub-and-Spoke Operations." Wikidot.com, 2010. Available at: [Accessed on 06 Dec 2010]. Bauer,Paul. "Airline Hubs – A Study in Determining factors and Effects." Cleveland Fed, 1987. Available at: < http://www.clevelandfed.org/research/review/1987/87-q4-bauer.pdf> [Accessed on 06 Dec 2010]. BBC News. "Heathrow third runway pollution plan inadequate." BBC News UK, 29 January 2010. Available at: [Accessed on 06 Dec 2010]. Cohen, Jeffrey P. & Morrison Paul, Catherine J. "Hub and spoke Airport Networks and State Airport Infrastructure Spillovers: A Spatial Econometrics Approach." California Agricultural Experiment Station Giannini Foundation for Agricultural Economics, Dec. 2001. Available at: < http://arelibrary.ucdavis.edu/working_papers/files/01-011.pdf [Accessed on 06 Dec 2010]. Costa, Lohmann, & Olivera. "A Model to identify Airport Hubs and their Importance to Tourism in Brazil." LACTE, 2010. Available at: < http://www.nectar.ita.br/pessoal/hubs090224.pdf> [Accessed on 06 Dec 2010]. CRS Report for Congress. "Environmental Impacts of Airport Operations, maintenance, and Expansion." Congressional Research Service, April 5th, 2007. Available at: [Accessed on 06 Dec 2010]. General Airport Information. "Environmental Los Angeles International Airport (LAX)." Los Angeles International Airport, 2010. Available at: < http://www.airport-la.com/info/airport.html> [Accessed on 06 Dec 2010]. India Brand Equity Foundation. "Infrastructure." IBEF, November 2009. Available at: < http://www.ibef.org/artdispview.aspx?in=39&art_id=24728&cat_id=131&page=1> [Accessed on 06 Dec 2010]. Read More