US Airways - Phoenix Regional Operations Economic & Fiscal Impact Summary - Prepared for: North Scottsdale Chamber of Commerce Prepared by: ...
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US Airways – Phoenix Regional Operations Economic & Fiscal Impact Summary Prepared for: North Scottsdale Chamber of Commerce Prepared by: Elliott D. Pollack & Company 7505 East 6th Avenue, Suite 100 Scottsdale, Arizona 85251
Impact of US Airways – Phoenix, Arizona Operations Executive Summary – Key Findings The purpose of this summary report is to quantify the benefits that US Airways provides to the regional economy as well as to estimate any potential losses that may occur if the US Airways/American Airlines merger occurs and related business activity is modified or shifted from one region to another. The at-risk jobs relate to corporate headquarters and “hub” specific operations. Synopsis of Findings: The merger will likely result in a reduction in the number of local US Airways jobs. The extent of the potential job losses is unknown at this time. However, some perspective can be provided on the scale of the related economic and fiscal impact losses that might occur. This report does not include tourism related impacts. • US Airways currently employs 9,239 workers, making them the 9th largest private employer in the state. This is similar in ranking to companies such as Intel, JP Morgan Chase and American Express. Adding related indirect and induced employment brings the total employment impact to 24,515. • The state currently receives $52.7M per year in tax revenue from direct and related economic activity, while the counties and other local government entities receive $23.2M and 20.6M per year, respectively. • There are approximately 2,000 “headquarter” jobs within the 9,239 employment total. Recent newspaper publications have quoted US Airways officials stating 7,000 of the 9,000 total US Airways jobs are related to airport and hub operations, with the remaining positions related to corporate office positions. This was independently confirmed by the US Airways corporate relations department. o If the state loses all 2,000 corporate jobs, the cumulative employment impact would reach 5,305 jobs; annual state revenues would fall by $11.4M, and annual county and other local government revenues would fall by a combined $9.5M. Combined that would mean nearly $15 of reduced revenue per household in Maricopa County each year. • Though purely speculative, there is a risk that US Airways could reduce flight operations in the Phoenix area due to proximity to American Airlines hubs. Therefore, two scenarios were modeled (reducing flight activity by 25% and also by 50%) to illustrate potential losses if such a decision were made post-merger. o If a 25% reduction occurred, total employment within the state would be reduced by 4,643 jobs (when including the multiplier effects). Annual state tax revenue would decline by $10.0M, and county and other local government revenue would decline by a combined $8.3M. • While nobody can identify the precise number of potential job losses and related tax revenue impacts associated with the merger, the scale of any impact scenario is sizeable. Elliott D. Pollack & Company 1 www.arizonaeconomy.com
Impact of US Airways – Phoenix, Arizona Operations 1.0 Background – US Airways Merger with American Airlines US Airways is one of the five largest domestic airlines in the United States and operates three hub operations, one of which is located at Phoenix Sky Harbor International Airport. In addition to the airport hub operation, US Airways corporate headquarters is located in Tempe, Arizona. According to company fact-sheets, the airline averages 287 daily flights out of Phoenix to 77 non-stop destinations and operates flights out of 56 gates. This includes both Mainline and Express operations contracted by the airline. The airline’s Phoenix operations provide significant benefits to the economy in terms of employment, taxes, and overall economic activity. 1 While a portion of the local airline operations can be considered market driven in that demand for flights determine employment levels, other operations appear to be based on choice. One such choice is the maintenance of the corporate headquarters operation in the Phoenix market. The other is the continued designation of the region as a hub. Assessing the likelihood of a change of service in the form of fewer flights in and out of the local market was beyond the scope of this analysis. It is assumed that economic conditions will determine the optimum number of flights and non-stop options. To complete the analytical task, the employment profile of US Airways needed to be segmented into the multiple types of operations in the region: 1. “Total” company employment in the local market (9,239 reported); 2. “Corporate headquarters” employees that can locate anywhere (2,000 est.), 3. “Hub operations” employees that follow the location of an airline’s designated hub (part of the remaining 7,239 est.), 4. “Local serving” employees that must locate where the flight traffic occurs (the other part of the remaining 7,239 est.). There is only limited numerical reporting on the proposed merger and the related economic consequences. However, some relevant information is available and allows for a limited yet informative analysis. 2.0 Employment Assumptions by Segment of Operations It is reported that US Airways employs 9,239 people in the local market. Based on discussions with professionals in the airline industry and confirmed by US Airways representatives, it is believed that as many as 2,000 local US Airways jobs could be considered “corporate” and are at risk of being relocated to another state. This leaves a remainder of 7,239 jobs that are either “hub” oriented or simply service the incoming and outgoing demand for flights. Unfortunately, no information is available to adequately designate a specific number for “hub-only” employment. In this case, some assumptions must be made and some scenarios must be produced for added perspective on the issue. US Airways management has stated publicly that Phoenix will remain a “hub” operation for the company. However, some level of risk must be associated with this condition being permanent versus temporary. 1 All economic data utilized in this report was obtained from public documents and select interviews with professionals in the industry. Elliott D. Pollack & Company 2 www.arizonaeconomy.com
Impact of US Airways – Phoenix, Arizona Operations 3.0 Analysis of ALL CURRENT OPERATIONS Economic Impacts (Jobs and Output) An economic and fiscal impact model created by this firm was utilized to provide the calculations in this report. While technical terms are occasionally used to describe the impact effects, the structure and explanation is relatively straightforward. Economic impact analysis examines the economic implications of an activity in terms of sales or output, earnings, and employment. The different types of economic impacts are known as direct, indirect, and induced, according to the manner in which the impacts are generated. For instance, direct employment consists of permanent jobs held by company employees. Indirect employment is those jobs created by businesses that provide goods and services essential to direct operations. These businesses range from manufacturers (who make goods) to wholesalers (who deliver goods) to janitorial firms (who clean the buildings). Finally, the spending of the wages and salaries of the direct and indirect employees on items such as food, housing, transportation and medical services creates induced employment in all sectors of the economy, throughout a metropolitan area. • The company reports a total of 9,239 direct employees in the region, including pilots, flight attendants, maintenance crews, fleet service, customer service and corporate employees. • According to IMPLAN economic statistics, US Airways paid approximately $867.5 million in wages to “direct” Phoenix area employees and produced over $2.9 billion in economic output. These estimates are based on data from companies in the Air Transport industry operating in Maricopa County. • Air carriers provide higher than average multiplier effects in the region. Based on direct employment, US Airways is responsible for an additional 6,037 jobs from suppliers (“indirect” impacts), which pay out nearly $304.0 million in wages and produce $793 million in economic activity. • In addition, the spending of employees (both direct and indirect) on consumer needs such as health care, services, retail, etc. support another 9,239 jobs in the region (“induced” impacts). This equates to $423.4 million in wages and nearly $1.2 billion in economic activity. • In total, US Airways supports over 24,500 jobs in the region and the employees (cumulative) earn nearly $1.6 billion in annual wages. Total economic activity reaches nearly $4.9 billion each year. Elliott D. Pollack & Company 3 www.arizonaeconomy.com
Impact of US Airways – Phoenix, Arizona Operations Economic Impact of US Airways - Phoenix Operations Maricopa County 2012 Impact Economic Type Jobs Wages Output Direct 9,239 $867,461,000 $2,918,024,000 Indirect 6,037 $303,972,000 $793,027,000 Induced 9,239 $423,430,000 $1,187,534,000 Total 24,515 $1,594,863,000 $4,898,585,000 _______________ 1/ The total may not equal the sum of the impacts due to rounding. All dollar figures are in constant dollars. Inflation has not been included in these figures. Source: Elliott D. Pollack & Company; IMPLAN Fiscal Impacts (Taxes) Fiscal impacts are the revenues that are generated to the state or a local county or municipality from the economic impacts, including sales tax, property tax, income tax, and several other sources of revenue. Operational impacts result from taxes generated by the activities of the company and the spending by employees. The spending of indirect and induced employees will also be considered. Without proprietary operating data for Phoenix area operations, only the secondary impact of employees was estimated. With that in mind, the fiscal impacts reported in this summary should be considered conservative as they exclude direct taxes that US Airways pays during the course of normal business. • On an annual basis, the State of Arizona receives an estimated $52.7 million in taxes related to the spending by employees (cumulative). The most significant sources of revenue come from sales taxes and emplyee income taxes. • Counties and municipal governments also collect various taxes and receive state shared revenue from numerous tax categories. In total, Arizona counties receive over $23.2 million annually in tax revenue related US Airways operations. Municipalities collect nearly $20.6 million annually. Elliott D. Pollack & Company 4 www.arizonaeconomy.com
Impact of US Airways – Phoenix, Arizona Operations Fiscal Impact of US Airways - Phoenix Operations Secondary Revenues from Employees State Revenues Impact Sales Income License Unemp. HURF Total Annual Type Tax Tax Tax Tax Tax Revenues Direct $11,613,800 $11,913,200 $596,900 $1,746,200 $856,500 $26,726,600 Indirect $4,794,600 $3,939,600 $389,900 $1,140,700 $559,500 $10,824,300 Induced $6,893,600 $5,006,900 $596,800 $1,745,800 $856,300 $15,099,400 Total1/ $23,302,000 $20,859,700 $1,583,600 $4,632,700 $2,272,300 $52,650,300 County Revenues Impact Sales Property Shared Total Annual Type Tax Tax Revenues Revenues Direct $462,100 $6,792,100 $1,621,300 $8,875,500 Indirect $190,800 $4,437,100 $799,600 $5,427,500 Induced $969,000 $6,790,700 $1,182,400 $8,942,100 1/ Total $1,621,900 $18,019,900 $3,603,300 $23,245,100 Local Government Revenues Impact Sales Property Shared Total Annual Type Tax Tax Revenues Revenues Direct $1,290,200 $3,291,800 $3,621,900 $8,203,900 Indirect $532,600 $2,150,400 $1,499,700 $4,182,700 Induced $2,831,800 $3,291,100 $2,085,000 $8,207,900 1/ Total $4,654,600 $8,733,300 $7,206,600 $20,594,500 _______________ 1/ Total may not equal sum of impacts due to rounding. All dollar figures are in constant dollars. Inflation has not been included in these figures. All of the above figures are representative of major revenue sources for the state of Arizona, counties and local governments. Figures are intended only as a general guideline as to how the state and local governments could be impacted by the project. The above figures are based on current economic structure and tax rates of the state of Arizona and local governments. Source: Elliott D. Pollack & Company; IMPLAN; Arizona Department of Revenue; Arizona Tax Research Association 4.0 ANALYSIS OF LOSING HEADQUARTER OPERATIONS Management at US Airways has stated that a significant corporate presence would remain locally post-merger, and have mentioned that they are even extending lease agreements in their current building. The company has stopped short of estimating the number of jobs that could relocate or be eliminated. As mentioned previously, as many as 2,000 corporate employees could leave the state. Due to the uncertainty related to the maintenance of local corporate employment post-merger, two scenarios were completed. One relates to the potential for all assumed 2,000 corporate positions being eliminated in the local region. A second scenario was provided for the economic and fiscal losses that would be associated with an incremental 500 person reduction in corporate employment. The calculations are considered linear, meaning that if the losses are later revealed to be 1,000 employees, the impact results can simply be doubled. If the losses are later found to be only 250, the incremental figure in the table can be reduced by 50%, etc. Elliott D. Pollack & Company 5 www.arizonaeconomy.com
Impact of US Airways – Phoenix, Arizona Operations The following table details the two scenarios (loss of 500/2,000 corporate jobs). Tables related to “hub” operations at Phoenix Sky Harbor International Airport are provided in the following section. Jobs, Output and Fiscal Impact Estimates – Corporate Job Losses The following table details the extent of the economic and fiscal losses associated with two corporate relocation scenarios (examples are provided for a loss of 500 corporate jobs and a loss of 2,000 corporate jobs). Under the “500” scenario, total cumulative job losses would exceed 1,300 jobs, state tax revenue losses would exceed $2.8M, and county and other local government losses would total $1.3M and $1.1M, respectively. Under the “2,000” scenario, all of the economic and fiscal impacts increase by a factor of four. These are ANNUAL losses. Annual Losses From Headquarter Relocation Scenarios Low Scenario - 500 Corporate Jobs Total Economic Economic Impacts Jobs Wages Output Direct 500 $46,940,000 $157,905,000 Indirect 327 $16,449,000 $42,913,000 Induced 500 $22,913,000 $64,259,000 TOTAL 1,327 $86,302,000 $265,077,000 State County Local Fiscal Impacts $2,849,400 $1,257,900 $1,114,600 High Scenario - 2,000 Corporate Jobs Total Economic Economic Impacts Jobs Wages Output Direct 2,000 $187,740,000 $631,566,000 Indirect 1,307 $65,787,000 $171,634,000 Induced 2,000 $91,640,000 $257,009,000 TOTAL 5,306 $345,167,000 $1,060,209,000 State County Local Fiscal Impacts $11,397,400 $5,031,900 $4,458,200 _______________ 1/ The total may not equal the sum of the impacts due to rounding. All dollar figures are in constant dollars. Inflation has not been included in these figures. Source: Elliott D. Pollack & Company; IMPLAN 5.0 ANALYSIS OF REDUCED “HUB” OPERATIONS If US Airways merges with American Airlines, the combined companies would have a significant number of hub operations in place. In the western U.S., there would be hubs located in Los Angeles, Dallas, and Phoenix. Some airline analysts have opined that this would create redundancies and there would eventually be a reduction in the number of hubs or in operating capacity at multiple locations. Some believe that US Airways would completely eliminate Phoenix as a hub due to the close proximity to other large hubs. While this is contrary to US Airways current official position, there exists the possibility that the position could later change. Elliott D. Pollack & Company 6 www.arizonaeconomy.com
Impact of US Airways – Phoenix, Arizona Operations The Phoenix region is still a very attractive destination for airlines due to the size of the metropolitan population, which creates significant local demand for flights to various destinations. However, it is possible that post-merger the local market could also lose some direct flights to locations such as Europe, Hawaii, and Central and South America, which could be routed through LAX and DFW airports. The following scenarios quantify the loss of jobs and revenue if there is a change in hub designation. One scenario provides statistics associated with a 25% reduction in all frontline operations jobs, while a second scenario provides statistics related to a 50% reduction. Since it is not possible to identify if, or when, any non-corporate jobs losses could occur, the following statistics are provided for information purposes only. The statistics do, however, identify the importance of maintaining as large of a presence of current US Airways operations as possible. Jobs, Output and Fiscal Impact Estimates – Hub Activity Reduction If the Phoenix region were to experience a loss of flight operations as described in the following scenarios, there would be a loss of 4,600 to 9,300 direct, indirect and induced jobs out of the 24,515 total jobs (relates to the provided 25% reduction scenario and the 50% reduction scenario). This equates to $300-$600 million in wages and $900 million to $1.9 billion in economic activity, respectively. Additionally, local and state governments would lose $18 million (under the 25% scenario) and $36 million (under the 50% scenario). Annual Losses From Hub Operation Reduction Scenarios Scenario #1 - 25% Reduction Total Economic Economic Impacts Jobs Wages Output Direct 1,750 $164,277,500 $552,634,000 Indirect 1,143 $57,566,000 $150,184,000 Induced 1,750 $80,188,000 $224,890,000 TOTAL 4,643 $302,031,500 $927,708,000 State County Local Fiscal Impacts $9,973,000 $4,402,800 $3,901,000 Scenario #2 - 50% Reduction Total Economic Economic Impacts Jobs Wages Output Direct 3,500 $328,545,000 $1,105,241,000 Indirect 2,286 $115,128,000 $300,360,000 Induced 3,499 $160,369,000 $449,765,000 TOTAL 9,286 $604,042,000 $1,855,366,000 State County Local Fiscal Impacts $19,945,700 $8,805,800 $7,801,900 _______________ 1/ The total may not equal the sum of the impacts due to rounding. All dollar figures are in constant dollars. Inflation has not been included in these figures. Source: Elliott D. Pollack & Company; IMPLAN Elliott D. Pollack & Company 7 www.arizonaeconomy.com
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