MANAGEMENT SCIENCE Vol 27. No. 2.

February 1981

Fnnled m U SA.

BENEFIT-COST ANALYSIS OF A PROPOSED RUNWAY EXTENSION*
CARY SWOVELANDt
This paper describes a benefit-cost analysis of a proposed $1.4 million runway extension at Kelowna Airport, in Kelowna, British Columbia (Canada's westernmost province). Lengthening the runway as proposed would allow Pacific Western Airlines to operate their Boeing 737 aircraft out of Kelowna with heavier paytoads. thereby reducing the occurance of situations where the combined passenger and cargo demand exceeds the available weight capacity of the aircraft. The problem is complicated by the fact that the maximum payload weight permitted on take-off varies considerably with the air temperature and wind speed and direction at the time of departure. On hot summer days, when the problem is most severe, it is sometimes necessary to remove all of the cargo from the aircraft, and. at times, to limit the number of passengers taking the flight to less than the number of seats. An alternative means of achieving the objectives of the runway extension was also considered: lowering the average demand per flight by simply increasing the number of flights out of Kelowna. The "Runway Extension" and "Additional Flights" options were evaluated in terms of their net economic benefits, as compared with the "Do Nothing" option. Net economic benefit is the present value of economic benefits less the present value of economic costs. The economic benefits depend upon the extent to which unsatisfied passenger and cargo demand would be reduced, and on the unit economic costs of unsatisfied passenger and cargo demand. Estimates of the reductions in unsatisfied demand were obtained by means of a probability model that is similar to ones used to solve single-penod, stochastic inventory planning problems. The unit economic costs were not estimated; rather, the economic benefits were expressed as linear functions of the unit economic costs of unsatisfied passenger and cargo demand. The economic cost of the "Runway Extension" option was the cost of constructing and maintaining the runway extension; the cost of the "Additional Flights" option was the cost to Pacific Western Airlines of providing the additional flights out of Kelowna. The numbers of such additional flights were ch(»en to produce the same amount of unsatisfied passenger demand as that which had been estimated for the "Runway Extension" option. Those responsible for deciding whether the runway should be extended were asked to judge the values of the unit economic costs of unsatisfied passenger and cargo demand, thus determining which of the three options was preferred on economic grounds. Prior to the study. Transport Canada had formally recommended the proposed runway extension to the Treasury Board (the Cabinet Committee of the Canadian Government that controls govemment expenditures). The Treasury Board requested the Department to reconsider the project, and as a result, a benefit-cost analysis was undertaken. Because of the conclusions of the study. Transport Canada decided to postpone indefinitely the lengthening of the runway. The runway may still be lengthened sometime in the future to accommodate aircraft that require a longer runway thai; does the Boeing 737, but only if a subsequent analysis shows that the resulting benefits would exceed the costs. Having been successfully applied at Kelowna Airport, the methodology developed in this study has now been adopted by Transport Canada for evaluating proposed runway extensions at other Canadian airports. (COST-BENEFIT ANALYSIS; AIR TRANSPORTATION; PLANNING)

1.

Iatro^KitioB

In fiscal 1971/li.^ the Govemment of Canada spent approximately $200 million (Can.) on capital improvements to the national airport and airspace system, and an
Paul Gray; recravai E>ecember 12, 1979. This paper has been with the author 2 months for 1 rev^on. ^ Inc., Vaaeoava, Canada. *^^ 0025-1909/81/2702/OI55$01.25
. T%e institute of Maiumcment ScieiMxs

156

CARY SWOVELAND

additional $460 million on the system's operation and maintenance (gross of revenues). The responsible federal department. Transport Canada, owns and operates 110 airports, including all of Canada's international airports. In addition. Transport Canada subsidizes the construction and operation of certain municipally-operated airports and maintains an extensive air traffic control network. Transport Canada consists of three administrations—air, marine, and surface—and several corporate-level planning, financial and administrative units. The largest of the three administrations is the Canadian Air Transportation Administration (CATA), with approximately 13,000 employees, CATA's major responsibilities are to plan, operate, maintain and improve the national airport and airspace system, promulgate and enforce safety regulations and develop domestic and international air transport policies, CATA is a decentralized organization, having six regional offices between Moncton, New Brunswick (the Atlantic Regional Office) and Vancouver, British Columbia (the Pacific Regional Office), Most proposed air transport investment projects are initiated within one of CATA's Regional Offices, After having been approved for future funding by the Regional Office and by CATA Headquarters, each proposal must compete annually with all other approved projects for a limited capital budget. Decisions concerning which projects should be approved for future funding and what should be the relative priorities of approved projects are primarily based on judgement, because there is no single criterion used in ranking projects and because the value of proposed projects often cannot be estimated with sufficient accuracy to provide meaningful quantitive comparisons. To assist departmental management in making these decisions, CATA has encouraged the greater use of benefit-cost analysis for evaluating the economic merit of proposed investment projects. While it has been recognized that benefit-cost analysis has definite limitations (mainly related to the difficulty of estimating certain types of benefits), the economic effects of some projects can be estimated with reasonable accuracy. Although factors other than economic efficiency may also influence funding decisions, the results of benefit-cost analyses are clearly taken into account by those responsible for making the decisions. This paper describes the methodology developed by the author for estimating the economic effects of proposed runway extensions and the application of the methodology to a proposed runway extension at Kelowna Airport, in Kelowna, British Columbia. In the last fifteen years, Canada's five Regional Air Carriers have converted their fleets of mostiy 40-60 seat turboprop aircraft to 90-110 seat jet aircraft—mostly Boeing 737's. During this same period, Canada's two flag carriers—Air Canada and CP Air—have converted to all-jet fleets. To accommodate the increased use of jet aircraft, runway extensions and other airport improvements were required at many Canadian airports. At some airports, however, the existing runways could accommodate the new aircraft, though at times the aircraft operated under take-off weight limitations. In these cases, there was often controversy over whether the runway should be extended. The runway was long enough to permit safe flight operations, but the take-off weight limitations sometimes resulted in passen^rs being unable to take their preferred flights or in air cargo shipments being delayed. TTie problems caused by the weight limitations are complicated by the fact that maximum allowable take-off weight

4 million (in 1978 dollars). The economic benefits result from increased maximum take-off weights for Pacific Westem Airlines' 737 flights. which would have increased the length of the runway to 6500 feet. and must therefore arrange to take another flight.) In light of these difficulties.) This situation has existed at Kelowna Airport for several years. PWA sometimes must limit the number of seats that can be filled or the amount of cargo that can be carried. As a result. This problem is most severe in the hot summer months.BENEFIT-COST ANALYSIS OF A PROPOSED RUNWAY EXTENSION 157 depends on certain environmental conditions at the time of take-off. Some of these passengers have confirmed reservations and are told shortly before their flight is to depart that they must wait for a later flight. In addition. over the twenty year life of the runway extension. (Maximum landing weights for PWA flights into Kelowna do not limit passenger or cargo demand. some of the cargo must be held at Kelowna for a later flight. airport operations and maintenance costs would have increased by an estimated $3300 annually (due to increased runway sweeping and snow removal costs. Whenever passenger demand for a particular flight exceeds the number of seats available. It is the judgement of Departmental experts that the safety of flight operations at Kelowna would not be enhanced significantly by lengthening the runway as proposed. etc. The Treasury Board. The economic costs include the capital costs of the mnway extension and the increased operations and maintenance cost that would be inctirred in each year of the planning period. which may slightly delay the departure of the aircraft. in the direction opposite that chosen for take-off. Pacific Western Airlines (PWA) operates Boeing 737 (B737) jet aircraft between Kelowna and several other cities in British Columbia and Alberta. which may be less convenient. requested the Department to reconsider the project. because maximum take-off weight is inversely related to air temperature at time of take-off. Whenever cargo demand for a particular flight exceeds the available cargo weight capacity (which depends in part on the passenger demand for the flight). depending on the air temperature and effective wind speed at time of take-off. In particular. the magnitudes of the economic costs and benefits associated with the project. The capital cost of the extension was estimated to be approximately $1. Other passengers affected are simply unable to reserve a seat on the flight. . some passengers wanting to take the flight are tumed away. it is necessary to remove cargo from the aircraft that is being shipped through Kelowna. uncertain that the benefits of the project justified the costs. Benefit-Cost Andysis Benefits and Costs The benefit-cost analysis estimates. At times. Calgary and Vancouver.). 2. it was decided to carry out the benefit-cost analysis described in this papier. a runway extension of 1150 feet was proposed." (Effective wind speed is that component of wind velocity which is parallel to the runway. The proposed runway extension was approved by Transport Canada and formally recommended to the Treasury Board (the Cabinet Committee of the Canadian Govemment that controls govemment expenditures). For flights from Kelowna to Edmonton. maximum take-off weight varies with air temperature and "effective wind speed.

Estimates of the economic costs of each altemative were then subtracted from the estimated benefits to give estimates of the net present values of each of the two altematives (relative to the Do Nothing Option). . on economic grounds. . the physical life would be 20 years).e. less the present value of the economic costs of the project. Thus. It was left to the decision-maker to judge the values of these unit costs. Thus.200 + (3.200 (die capital cost in 1978 dollars) and = V = 3. the study estimated the extent to which unsatisfied passenger and cargo demand would be reduced. the project was not credited with any benefits associated with the introduction of any new scheduled or chartered air services or with the future replacement of PWA's B737 aircraft on flights to and from Kelowna with larger. and / and a = 1/(1 + ») are the social discount rate and discount factor. N.398.. . (discounting to 1978) 2Q 20 2 a>(3. respectively.398. For the proposed Kelowna mnway extension. B. more economical aircraft Options The study also considered an altemative means of reducing unsatisfied passenger and cargo demand: increasing the frequency of PWA flights departing from Kelowna and not extending the runway.3(X) fory = 1 . equals the present value of the economic benefits that would result from the project. if its net economic benefit is positive. V. it was estimated that L = 20 (i.300) 1. For both altematives to the Do Nothing Option. Consequently.{l/lf} 0) . the economic benefits again are reduced unsatisfied passenger and cargo demand. no safety benefits were ascribed to the proposed project. the benefits and costy years in the future are Bj and Vj. the Runway Extension Option and the Additional Flights Option. and calculated the associated economic benefits as functions of the unit costs of unsatisfied passenger and cargo demand (whose values were not estimated). extending the runway as proposed would not necessarily result in the use at Kelowna of commercial aircraft larger than the B737. . = respectively. Calculation of Net Benefits A public investment project is generally considered worthwhile. Thus. Also. whereas the economic costs are increased operating costs for PWA. With this option. expressed as functions of the unit costs of unsatisfied passenger and cargo demand. The net economic benefit of a project.300Xl/i)[ 1 . if the physical life of the project is L. thus determining which of the three options is preferred on economic grounds.158 CARY SWOVELAND Therefore. three options were considered: the Do Nothing Option. 20 (incremental annual operations and maintenance c<Mts in 1978 dollars). FQ = 1.

and the reduction in unsatisfied cargo demand was Cy Then the net economic benefit of this option (as compared with the Do Nothing Option) would be _ 20 _ _ _ _ where 20 20 and Kp is as defined previotisly. is dilKu^ed in the final section ^f this r. This choice facilitated a comparison of these two options. Then. the determination of the preferred option depends only upon the values of the unit economic costs 6^ and b^. but also in a larger increase in PWA's operating costs. Cj. of course. which. in each year. It was decided to choose for comparison a level which would result in expected unsatisfied passenger demand being the same for the Additional Flights Option as for the Runway Extension Option (for each route segment. and . Thus. but it would not increase PWA's operating costs by much. Cj.. and year). respectively. month. Cj. (pounds). The extent to which the frequency of flights departing from Kelowna would be increased under Additional Flights Option is. were judged by the decision-maker rather than estimated by the analyst. arbitrary. and would be preferred to the Runway Extension Option if N > N. unsatisfied passenger and cargo demand were reduced by Pj (passengers) and C. Suppose that in year j the_ cost of providing the additional flights under the Additional Flights Option was V^. as mentioned previously. The following action describes the appro£u:h taken to estimating Pj.BENEFIT-COST ANALYSIS OF A PROPOSED RUNWAY EXTENSION 159 Suppose that as a result of lengthening the runway. 20 where Kp = ^f^^aJPj and K^^f^^aJq. N'=B-V>Q if and only if K^b^ + K. the Additional Flights Option would be preferred to the Do Nothing Option if N >0. since they would differ only in economic cost (the capital and operating cost of the runway extension versus increased operating costs for PWA) and in expected unsatisfied cargo demand. or if Kpb^ + KA > V. A small increase would result in the benefit of reduced unsatisfied passenger and cargo demand being small. Letting b^ (dollars per passenger) and b^ (dollars per pound of cargo) denote the economic benefits per unit reduction in unsatisfied passenger and cargo demand respectively. Cj and Vj have been estimated. or if Once Pj. The nature of unsatisfied passenger and cargo demand. a larger increase would result in greater benefits.K > V. which influences judgments about their unit econ(»nic a>sts.

) In this figure. the maximum payload would be about 19. the greater the MTO. the lower the MTO. the direction chosen for take-off—and for landing as well—is such that the effective wind speed is positive.) To simplify the analysis. baggage and cargo permitted on take-off. and its orientation vis-a-vis mountains. Runway 15 is in the opposite direction." This equals the maximum take-off weight less the empty operational weight of the aircraft (which includes the weight of the crew and supplies). (b) the air temperature and effective wind speed at time of take-off.400 lbs.) If. plus a safety reserve.. flight segment and runway direction designated for take-off.(X)0 lbs.) If. there would be five units of unsatisfied passenger demand and all cargo demand for the flight would be unsatisfied. The relationship between B737 (specifically. (The average weight per passenger.400 » 3. (Runway 33 is the runway direction 330° from North. including baggage. the flap setting). and the distributions of passenger and cargo demand per flight. Estimation of Unsatisfied Passenger and C a i ^ Demand The extent to which passenger and cargo demand for PWA's flights departing from Kelowna is satisfied depends on the maximum weight of passengers. The higher the temperature. the maximum payload has been expressed both in pounds and in equivalent numbers of passengers. the greater the effective wind speed. all of the cargo aboard the aircraft during the previous flight segment would have to be removed at Kelowna and loaded onto a later flight.800 .). the operational procedures used by the pilot in taking off (e. (Normally. including baggage was estimated to be 200 lbs. the passenger demand for this flight were only 77 (weighing 15. and surface of the runway. a constant wind speed of zero was assumed. Maximum payload weights differ by runway direction because the runway has a slight slope and because of variations in terrain in the vicinity of the airport. Maximum Payload Weight The maximum weight of passengers. for example. for a particular aircraft.. which resulted in a slight over-estimate of the benefits of both of the alternatives to the Do Nothing Option. The maximum take-off weight (MTO) for a particular aircraft primarily depends upon: (a) the physical characteristics of the airport (e. elevation. (In this case.15.g. meaning that with no cargo on board at most 19. If the passenger demand for that flight were 100. all of it could be satisfied and at most 19. the maximum payload depends primarily on two "random" factors—air temperature and effective wind speed at time of take-off. buildings and other obstructions in the area). plus an amount necessary to fly from the destination to'an "alternate" (in case the aircraft is not able to land at the planned destination). slope..600 lbs.. Thus. the B737-2(X) Advanced) maximum payload weight and temperature is illustrated in Figure 1 for the Kelowna-Edmonton flight segment. for an effective wind speed of zero. and (c). With the lengthened Runway 33.g. of cargo demand could be satisfied.000 . the maximum payload at this temperature (90°F) would be about 24. baggage and cargo permitted on take-off is called the "maximum payload weight. less the weight of the fuel carried.000/200 = 95 seaU could be filled. the aircraft has a seating capacity of 118.160 CARY SWOVELAND 3. This assumption caused the estimates of reductions in unsatisfied passenger and cargo demand to be somewhat on the high side. the number of seats in the aircraft. The minimum amount of fuel required equals the amount of fuel necessary to fly to the destination. 150° from North. instead. length. the temperature at time of take-off from the present Runway 33 were 90° F.

the excess demand forms a part of the demand for some earlier and later flights. and next stop.4. average demand varies by month. Though. the analysis assumes that average passenger demand would be constant for all PWA flights departing from Kelowna throughout the planning period.200 lbs. In the absence of reliable data. in fact. According to studies done by Boeing [1.BENEFIT-COST ANALYSIS OF A PROPOSED RUNWAY EXTENSION 161 35- o a t) . however. Passenger and Cargo Demand Per Flight The amounts of unsatisfied passenger and cargo demand depend in part on the distributions of passenger and cargo demand per flight. all 118 seats could be filled and 24. year.(118 x 200) = 1. In this case.c a I m o (D 0. Maximum Payload Weight for PWA B737 Aircraft vs. E a E H IS S 40 70 75 80 85 90 95 Temperature (°F) FIGURE 1.) In the case of the Do Nothing and Runway Extension Options.2 and . Boeing's findings were tentatively assumed to apply to both passenger and cargo demand for flights departing Kelowna. it was assumed that all passenger and cargo demands are independently distributed. (Clearly. of cargo demand could be carried. passenger demand per flight can be reasonably approximated by a normal distribution. Moreover. certain pairs of random variables are correlated: whenever passenger or cargo demand for a particular flight exceeds the available aircraft capacity. lbs. as mentioned earlier. to introduce very little error into the analysis. whose standard deviation to mean ratio falls between . Temperature for Kelowna-Edmonton Flight Segment (for wind speed of zero). the assumption of a constant average demand was judged . The independence assumption was judged.2].800 .

average unsatisfied pa^enger demand per flight vm obtain«l 1^ ccfflxputrag a wei^ted a v e n ^ (rf the />'s tor each runway directicm. Sensitivity analyses were done for "low" and "high" average passenger demands per flight of 64. The latter quantity equaled the estimated total passenger demand (for the next stop.3. as it would not have been possible to reliably predict average passenger demand per flight by month.2 and 0. The average cargo demand per flight. The "most likely" average passenger demand per flight used in the analysis was 76. Sensitivity analyses were done for ratios of 0.) and. for each month. tite im^Kjrtkms of flighte depattiag ia eac^ <rf two iKdods erf tfa« day (!^X) 1900 hrs. for eadi next staip aad mcmdi.162 CARY SWOVELAND to be satisfactory.7. This was fortunate. the "most likely" ratio of the standard deviation to the mean passenger demand per flight was taken to be 0. and «K) . which is 65% of the maximum seating capacity of 118. and temperature at time of take-off. next stop and temperature and fp(x) is the normal probability density of passenger demand (with mean n and standard derivation a) for PWA flights departing from Kelowna.22»O hrs. period of day aad teflEtperature [where the wdghls w a « d ^ fraction of time mxk rvanmy directicm is used. For all three options. month and year) divided by the average passenger demand per flight Estimates of the standard deviation of cargo demand per flight were obtained by multiplying the average demand per flight by the same standard deviation to mean ratios as were adopted for passenger demand.9 and 88. year and next stop. next stop.e. runway direction. equation (2) reduces to lL where F is the standard normal distribution function and ) ( 3 ) The fdlowing s t q s were then carried out t(x each qpticm. the expected unsatisfied passenger demand per flight equals | > (2) where s is the maximum number of seats that can be occupied for the given runway. The results of the sensitivity analyses are described in the next section. (Observe that this equation depends on the previously-stated assumption that passenger and cargo demands are independent. This estimate was based upon actual load factors for PWA flights departing from Kelowna in the summer of 1977. because the relationship between the reduction in unsatisfied passenger demand and the average passenger demand per flight was found to be nearly linear over the range of interest of the latter. First. the mid-point of the range found by Boeing as applying to most distributions.. Expected Unsatisfied Passenger Demand For each runway (i. present or proposed).5 (55% and 75% load factors). Cargo demand per flight was also assumed to follow a normal distribution. as will be shown (see Figure 2 in the following section). year and next stop. was estimated by dividing the estimated total cargo demand for that next stop (in that month and year) by the estimated number of flights. lot ewch <rf die tw) pwiods <rf the .1200/1900 .) After some manipulation.4.

(5) where w is the maximum take-off weight (for the given next stop and temperature at time of take-off). (9) where 20 -= (* ^ M)/*. For each runway (existing or proposed). wei^ted average of the g's were calculated. For x > s. = (w . month. mnway direction.y)/T (7) (8) 1 and Zj = (w . and/.y ) / T . Substituting (7) and (8) into (4) rraults in [»-^(^o)].)]\. for each year of the pianning period. v2w where F is the standard normal distribution function. and for each next stop.(c) is the normal probability density for cargo demand with mean y and standard deviation T. next stop. year and temperature at time of take-off.l / 2 z | ) . The complexity of this calculation is related to the fact that passengers have priority over cargo.Wgx . Uc)dc. S (6) After some algebraic manipulation. [c .F(z.Woi . way.WoS)]Uc)dc. 2. divided by fi. Expected Unsatisfied Cargo Demand Unsatisfied cargo demand was estimated for each of the three options in a similar. including baggage. (Recall that f^(x) is the probability density of passenger demand per flight and s is the maximum number of seats that can be occupied on take-off).z .(w .Numerical integration was used to evaluate the first term on the ri^t side of (9). the probabilities of the given temperatures occurring]. the expected unsatisfied cargo demand per flight is (4) where g(x) is the expected unsatisfied cargo demand when the passenger demand equals x.BENEFIT-COST ANALYSIS OF A PROPOSED RUNWAY EXTENSION 163 day. month and year. For e^::h of the diree options. month and year. (5) and (6) reduce to ]l . though slightly more complicated. For x < s. [ l .) Summing these products over next stops and months provided estimates of the total unsatisfied passenger demand for each year of the planning horizon. corrraponding to each combination of runway . (The latter quantity equalled the forecast number of passengers departing Kelowna for the given next stop.L e x p ( . The resulting quantity was then multiplied by the forecast number of flights departing from Kelowna for the given next stop and month. w^ is the average weight per passenger. the average demand per flight.

Each of the resulting quantities was then multiplied by the forecast number of flights departing Kelowna for the given next stop. month and year. Estinmted Reductions in Umaitisfied Passenger and Cargo Demami For the "most likely" values of these four parameters. Note that if. as a function of temperature at time of take-off. Call this derived average passenger demand per flight ji and the associated average cargo demand per flight y. The products were then summed for each year to obtain estimates of the total annual unsatisfied cargo demand. These calculations will be explained in greater detail in the next section. for each next stop and runway direction. 4." "most likely. would yield the same estimate of U for unsatisfied passenger demand for the given next stop. and • values for the four parameters listed in Table 1. in each year. for the existing runway. Numbers of Additional Flights Under Additional Flights Option By applying Equation (3) to the case where the runway is lengthened. if the runway were not lengthened. by next stop. an estimate was made of the average demand per flight which. maximum payload weight limitations for PWA B737 aircraft. period of day. and temperature. before deciding whether more accurate estimates were required." and "high" valu^. it was ^timated that the Runway Extension and Additiomtl Flight Optima would reduce unsatisifed passenger R^ults . and Z2. The expected unsatisfied cargo demand per flight for the Additional Flights Option was then estimated by the use of Equation (9) with ju replaced by jl in the calculation of ZQ. the number of additional flights required to that next stop in that month and year with the Additional Flights Option would be The /?'s for each next stop. the ratio of average cargo demand to average passenger demand remains constant from year to year. by period of day and by month. for a given month and next stop. month and year were calculated and summed over months to obtain estimates of the total numbers of additional flights required for each next stop. y replaced by y and T replaced by f = y(j/y) in the calculation of z.164 CARY SWOVELAND direction. The derivation of the parameter values in Table 1 is explained in [2]. Though the estimates of these parameters were only tentative. Data Requirements The calculation of unsatisfied passenger and cargo demand required estimates of the following quantities: •temperature distributions at Kelowna. month and year. If D passengers were to travel to the given next stop in the given month and year. Subsequently. • forecast passenger and cargo demand for B737 flights departing from Kelowna. using their "low. it was decided to carry out three sets of analyses. month and year. it was estimated tiiat for flights to a given next stop in a given month and year. •proportions of PWA B737 flights expected to depart in each runway direction. and 5' being the maximum number of seats that can be occupied on take-off. the expected unsatisfied passenger demand (for the entire month) would be some number U (for an average passenger demand per flight of /i). y and T—and therefore Q—also remain constant from year to year (thus resulting in a considerable savings in computer time required).

088 11.134 31.615 27.5 0.5 0.4 0.349 44.549 41.3 0. in 1979.348 20. .001 39.801 43.149 48.053 45.453 38.105 51.653 53.890 18.) Runway Extension Additional Flights Option Option 22.432 14.000 passengers and 1.304 29.BENEFIT-COST ANALYSIS OF A PROPOSED RUNWAY EXTENSION TABLE 1 Values of Parameters Used in Analysis _ Parameter Average passenger demand per flight for the "Do Nothing" and "Runway Extension'" Options Shape of distribution of passenger demand per flight—ratio of standard deviation to mean Shape of distribution of cargo demand per flight—ratio of standard deviation to mean Fraction of departures between 1200 and 1900 hours Low Value Most Likel> High 165 64.2 0.4 0.104 33.697 50.4 0.403 14.975 17.432 16. Calgary and Vancouver were forecast to cany a total of 160.605 Year 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 ' For "nwst likdy" parameter values.631 13.601 47.402 11.804 15.2 0.147 19.831 12.776 20.000 pounds of cargo.7 88.9 76. by next stop and month.604 17.200.467 36.774 10.061 16.976 21.075 35. TABLE 2 Estimated Annual Reductions in Unsatisfied Passenger and Cargo Demand* Estimated Reductions in Unsatisfied Passenger Demand.067 25.:MI 9. Runway Extension and Additional Flights Options 148 158 168 179 191 204 217 233 240 250 260 275 285 290 300 310 320 329 339 350 Estimated Reductions in Unsatisfied Cargo Demand (lbs.579 19.6 and cargo demands by the amounts shown in Table 2.3 0. PWA flights from Kelowna to Edmonton.145 9. Table 3 illustrates the breakdown of the estimated reduction of 148 in unsatisfied passenger demand in 1979.519 24. By way of comparison.

9 and for ft . and the average demand per flight M for different "shapes" of the distribution of passenger demand per flight o/f.4 illustrate the degree of variation associated with the proportion of flights departing between 1200 and 1900 hours (i.3. With and Without Pr(^>osed Runway Extension* Vancouver Calgary Reduction 0 0 0 0 0 2 10 8 0 0 0 0 20 Edmonton Reduction 0 0 0 0 2 5 14 11 Do Nothing 6 6 8 10 15 25 40 36 23 II Runway Extension 6 6 8 8 8 9 12 II 11 9 8 10 105 Reduction ToUl Do Runway ReducNothing Extennon tion 38 35 51 53 53 81 131 119 91 62 54 70 843 Do Month January February March Apnl May June July August September October November December Total Nothii Ig 22 21 31 31 29 37 58 53 45 36 33 42 437 Runway Extension 22 21 31 31 29 35 47 r>o Nothing 10 Runway Extension 10 9 13 13 12 15 19 19 19 15 13 17 172 9 13 13 13 19 33 30 22 15 13 17 208 0 0 0 38 35 51 51 51 59 79 75 75 60 54 70 694 2 8 16 28 25 12 2 0 0 93 <t5 45 36 33 42 417 3 0 0 0 35 8 10 198 0 0 0 2 2 22 53 44 16 2 0 0 148 * Entries have been rounded to the nearest integer. Using linear interpcdatkm. the shape of distribution of passenger demand per flight (O/M).76. can best be explained by demonstrating how the calculation was made for a particular month. unsati^^i passenger demand (for the month) was dien »timat»l to equal £/=s-187. The relationship betw^n the ^eduction in unsatisfied cargo demand and these parameters has a similar appearance (spe [3]). 0.7. The relationship between the estimate of the rwluction in unsatisfied passenger demand in 1979. ? is illustrated in Figure 2.4. Tie dashed lines below the solid lines correspond to this proportion being 0.9 .97jt. with the other parameters from Table I »)uatling their "mtst likely" valu^ and with valu^ of s corresponding to the existing runway. where ft is the avamge demmd per fU^t (Note that U»S lot fi»64. The estimation of the "Required Average Etemand/Flight." by month.166 CARY SWOVELAND TABLE 3 Estimated Annual Unsatisfied Passenger Demand in 1979. say July (1979). Additional Flights Option The calculation of the numbers of additional flights requir^i in 1979 under the Additional Flights Option is illustrated in Table 4 for the Kdowna to Edmonton route segment. and 0. total unsatisfied passenger demand for all flights to Edmonton in July would equal 5 if die average demand per flight were 64.9 (55% of 118) and would equal 40 if die average demand per flight were 76. weight^ a v e r a ^ of the /"s from equation (3). The dashed lines around the thrw curves labelled (i/\i = 0. This was done by calculating. the hottest part of the day). rrapectively.5 (the "most likely" value) and the dashed lines above the solid lines correspond to it being 0. First it was estimated diat for the existing runway.2. due to the lengthening of the runway. but does not vary greatly with the aircraft departure times..75-I-2. the solid lines correspond to it being 0. It can be seen that the estimated reduction in the unsatisfied passenger demand is sensitive to both the average demand per flight M and .. for p « 64.e.6.7 (65% of 118).

BENEFIT-COST ANALYSIS OF A PROPOSED RUNWAY EXTENSION 167 64.S (75% Of 118) Avsrage Oftmand P«r Flight CM) FIGURE 2.7. for n = 76.7 (65% Of l i e ) S8.9 (55%of118) 76. ej^^cted total unsatirfied p a ^ e n ^ demand for fli^te to Edmonton in July of 1979 would be 12. it was estimat&l that for the proposed lengthened runway. to achieve an unsatisfied ^ m a o d (tf 12 without length^ng die runway. U + 187. This was done by calculating a wei^ted avera^ of the P's from equation (3) with frcMi Table I equ^ing their "most likely" values.97 (10) Next. and with values of 5 ing to the pr<^K)sed lengthened runway.) Hence. Reduction in Unsatisfied Passenger Demand in 1979.75 2. average demand per flight . as a Function of Parameter Values. Thus.

Estimates for the coefficients / ^ .6 27. By similar calculations.3 67.168 CARY SWOVELAND TABLE 4 Calculation of Additional FWA Flights from Kelowna to Edmonton Required in 1979 Under the Additional Flights Option Forecast Passenger Demand 1280 1280 1760 1760 1760 2080 2720 2560 2560 2080 1920 2400 Additional Flights Option Req'd Average Number of Flights* Demand/Flight 76.9 4.7 16. (If.5. for 1979.7 23.4 33. estimates of the expected reduction in unsatisfied cargo demand (shown earlier in Table 2) were calculated by the methods described in the previous section.7 23. May June July Aug.9 36.7 74." ** Equals "Forecast Passenger Demand" divided by 76. the ratio of cargo demand to passenger demand remains constant from year to year. the calculations described above must be repeated for each year of the planning horizon.7 (65% of 118). Nov. Sept.75 _ ^7 o as shown in Table 4.3 315. the numbers of additional flights in 1979 to Calgary and Vancouver were estimated to be 12.8 25. This procedure was repeated for each next stop and each month of 1979. Feb. K^.9 74. Thus. (Estimates of K^ initially were made only for "most likely" parameter values.1 67.1 35.8 4.5 Do Nothing Option-Number of Flights'* 16.7 16. and 15%.7 76.0.7 76.6 76.4 4.0 Increased Number of Flights 0 0 0 0.5 40.7 16. All costs and benefits were measured in 1978 dollars and discounted J o 1978. Estimation of Net Benefits Net economic benefits were calculated for three social discount rates: 5% 10%.7 76. (from Equation (10)) would have to be approximately _ 12+ 187.0 31. the number of additional PWA flights from Kelowna to Edmonton (under the Additional Flights Option) was estimates to be 21.4 66. respectively. it was concluded .5 3.) For the Additional Flights Option.9 2. Oct.0 23.9 25. but further suggests that calculations also be done for rates of 5% and 15%.9 22. and K^ (the present valu^ of reductions in unsatisfied passen^r and cargo demand) are contain«l in Tables 5 and 6.8 0 0 21.5 69.1 25.5 33.3 336. Mar. Subs^uentiy.7 31. Canada's Treasury Board r^ommends the use of a 10% social discount rate (to be applied to future benefits and costs expressed in constant dollars).4 37. otherwise. TOTALS 'Equals "Forecast Passenger Demand" divided by "Req'd Average Demand/Flight.2 0.5 Month Jan. Dec. the estimated numbers of additional flights increase over time at the same rate as does passenger demand.0 31.4 27. due to the lai^e amount of time required to cany out the calculations.1 and 8. using the estimates of average demand per flight contained in Table 4 and "most likely" values from Table 1 for the other parameters. Apr.0 68. for each month and route.0 22.9 27.

000 10% 1.046.BENEFIT-COST ANALYSIS OF A PROPOSED RUNWAY EXTENSION TABLE 5 Present Values of Reductions in Unsatisfied Passenger and Cargo Demand.301 80.000 447.426.000 3. Estimates for V were obtained by computing first the cost of providing the additional flights required under the Additional Flights Option. This includes aircraft depreciation or rent.000 1. Additional Flights Option* Social Discount Rate 5% Passenger Demand (K^) Cargo Demand (K^) 2.419.282 per "block" hour.000 725. Runway Extension Option Social Discount Rate 5% Passenger Demand (K^) Parameter Values "Low" "Most Likely" "High" Cargo Demand in Lbs. The calculation of the estimated cost of TABLE 7 Present Values of Econotnic Cost of Runway Extension and Additional Flints Options Social Discount Rate 5% Runway Extension 10% 15% Option (F) Additional Flights Option (F) $1.000 1. For the "most likely" parameter estimates.000 $1. fuel and oil.834 6.000 .000 • For "most likely" parameter estimates. The marginal cost of PWA's B737 flights was estimated to equal $1.877 5. in-flight crew.439.529 11 1.000 922.637. that there was no need to carry out a sensitivity analysis for the Additional Flights Option.000 15% 1. The estimates for V were obtained by evaluating Equation (1) for each of the three social discount rates.936 182. the values in these tables correspond to present values of the three columns of figures in Table 2.000 $1.000 590.877 116.936 8. and then calculating the present values of those cost streams.651 16 1. direct maintenance burden and miscellaneous flying expenses. for each year between 1979 and 1998.301 3.000 198.000 TABLE 6 Present Values of Reductions in Unsatisfied Passenger and Cargo Demand.000 286.) Estimates of the present values of economic costs of the Runway Extension and Additional Flights Options are contained in Table 7. (K^) Parameter Values "Low" "Most Likely" "High" 10% 15% 169 25 2.000 4. the cost of the flight crew.000 4(».

In particular. Thus.1. The line labelled A'^ > Ot is described by the equation N^ = 1.270 providing the additional flights required in 1979. .000/17aOOO2s 4.000) . is shown in Table 8.8776^ + 116.) The net benefit of each of the two altematives to the Do Nothing Option may now be calculated.1. die net benefit for the Additional Flights Cation.426.(1.286..563 $46. .426. the preferred option depends on the values given to the unit economic costs b^ and b^.0 $ 748 Calgary 12.0006. > N^ if and only if 6. .) above this line and ne^tive for points below this Une. liiat is.5 1282 Estimated Total Cost Increase in 1979 = $46.8776^ •¥ 286. Since ^ b^ .0006.590.270 Vancouver 8. . the estimated net benefits are A' = S . This is illustrated in Figure 3.0006.000 for the Additional Flights Option. (The marginal costs have been estimated for the additional departures only.836.984 12.0006.0.V » 1.8776^ + 116.bj above the line labelled A ^ > Ot and is negative for points below this line.92. For a 10% social discount rate and "most likely" parameter estimates. in terms of the unit economic costs of unsatisfied passenger and cargo demand {b^ and b^).1 1068 Edmonton 21.pmmd oi unsattsfod cargo demand exceeds $4.0006.000 . N^.000. one additional arrival at Kelowna would be required for each additional departure. however. for example. is positive for points (bp.590.6. the marginal costs in Table 8 would be changed accordingly.426.8776^ + 116.000fe. though it is recognized that additional departures from Kelowna would necessitate aircraft flight schedule changes elsewhere in PWA's route network.1. N^. > 836.000 for the Runway Extension Option and N^ B-V = 1.932 27. Similarly. Estimates of these costs and benefits are not available. the Rtmmiy Extensitm Optimt has a ^eato* ratimat«d net l^ndfit duui the Ad£timad Flights (^mt if and cmly if die eccmomic oasX pa.170 CARY SWOVELAND TABLE 8 Cost of Providing Additional Flights in 1979 under Additional Flights Option Next Stop Additional Flights Required in 1979 Marginal Cost per Flight Increased Costs in 1979 $ 5.92. is pt^itive for points (6^.000 . .170. . If the costs and benefits of the flight schedule changes were known. The net benefit for the Runway Extension Option. .

09 N/A N/A 5. Runtway Extantion Option N^: Nat Prawnt Vaiua.88 356.000 1. C<»t/lb.17 N/A .00 3:23 .99 N/A 314 N/A N/A 314 N/A N/A 314 N/A 10% 15% Low Most Likely 473. TABLE 9 Line Intercepts in Figure 'ifor Various Social Discount Rales and Parameter Values Social Discoount Parameter Rate 5% Values Low Most Likely High Low MostUkety Line Ubelled N >0T Line Labelled N >0T Line Labelled \ > Nf N/A 5.BENEFIT-COST ANALYSIS OF A PROPOSED RUNWAY EXTENSION for Optiom at a Function of CoMfiMr IMit of UnMtit«ad •^HMnQir flnd CWBO O M I W I O 171 $6. Additional FHgim Option FIGURE 3.00 7.125 760 258 129.92 N/A N/A 8J7 N/A J Cost/Pass.560 490 166 89.09 N/A N/A 5.091 370 $240. Cargi Cost/Pass.00 Rumvay Extamion Option Prafarrad $SJ» $100 $200 $300 $400 $S00 $600 $700 ttOO Economie Cott per Unit of Unsatisfiad Panengar Damand (p) N^: Nat Prannt Vaiua. Cost/lb.95 N/A N/A 4. Preference for Options as a Function of Costs per Unit of Unsatisfied Passenger and Cargo Demand. Cargo $57.50 4. Cargo C<wt/lb.09 N/A 1..

or 9:10 p. (This delay generally does not exceed five minute. Although he is able to get on the following flight at 5:(X) p. For the executive. if this had proven n«»ssary. and so on. first served" rule is used.m. Economic theory says that b^ should be that amount a passenger would be "willing to pay" to take his or her preferred flight.m. the economic cost of missing an important meeting and having to wait over three hours for the next flight may be quite large. Interpretation of Results To determine which of the three options is best on economic grounds.172 CARY SWOVELAND The horizontal and vertical intercepts for the lines labelled N^>OX.m. Consider the example of a retired couple living in Kelowna who decide that in two days time they would like to fly to Vancouver to visit friends and relatives. The latter type of rule need not be inequitable. The economic cost of the inconvenience suffered by the retired couple is probably quite small.m. This amount clearly varies from passenger to passenger. no estimates are available for any of these costs. N^ >(yf and N^ > N^I in Figure 3 are given in Table 9 for social discount rates of 5%. requires that (under certain circumstances) when an air carrier has overbooked a flight.m. the amount of notice given that the preferred flight is not available. weekday flight and find that no seats are available.S. 10% and 15% and for various parameter values. is not an easy task. So they make reservations for either the 9:40 a. storing. flight the same day. the Civil Aeronautics Board in the U. the average economic cost clearly will be greater than it would be in the case where the selection rule gives preference to those passengers who would be willing to pay the most to take their preferred flight. They call PWA to make reservations for the 1:35 p. in exchange for a partial or full refund of his or her air fare.m. The average unit cost of unsatisfied passenger demand depends also on the rule used for deciding which passengers are able to take a particular flight. in part because of expected high temperatures in Kelowna on the day they want to travel. we must estimate the unit economic benefits b^ and b^. and even for a particular passenger. . the alternatives available.. The economic cost per pound of unsatisfied cargo demand (b^) consists of: (a) the additional cost to PWA of unloading. however. and (c) the cost as^Kiated with any delay in the departure of aircraft from Kelowna because cargo m^Ist be removed. and demand exceeds the number of seats available. and reloading cargo that must be removed from its aircraft at Kelowna. he finds that because of unexpectedly high temperatures that day no more passengers can be taken aboard the aircraft. rather than another one.) Unfortunately. the carrier must ask if anyone aboard the aircraft is willing to deplane and take a later flight. however. depending on the passenger's reasons for wanting to take a particular flight. both of which still have seats available. This. he misses the meeting and must wait over three hours to depart. Contrast this case with that of a busy executive who must get to an important meeting in Vancouver that starts at 3:00 p. (b) the economic costs associated with delays in the delivery of air cargo shipments. flight (for which he had a confirmed reservation). is different from one time to another. Arriving at Kelowna Airport at 1:20 for the 1:35 p. This policy encourages those passengers who would be least inconvenienced by waiting for a later night to voluntarily give up their seats. 5. If some sort of "first come. H i r o u ^ further investigation it would have been pmsible to estimate the magnitude of the first c4 the% ct^ts. For example.

but only if a subsequent analysis shows that the resulting benefits would exceed the costs. 1979. "Surplus Seat Management." TIMS/ORSA Meeting. Having been successfully applied at Kelowna Airport. AND PINA. The runway may still be lengthened sometime in the future to accommodate aircraft that require a longer mnway than does the Boeing 737. .BENEFIT-COST ANALYSIS OF A PROPOSED RUNWAY EXTENSION 173 Although there was no consensus within CATA about the magnitude of the unit economic costs of unsatisfied passenger and cargo demand. References 1. August. Atlanta.) 2. (Also a personal communication from K. R. E." Report TP 1917. 3. LANKFORD. TRANSPORT CANADA. of Boeing. "Management of Scheduled Airline Capacity. 1979. 1977. June. it was decided to postpone indefinitely the lengthening of the runway. "Cost-Benefit Analysis of a Proposed Runway Extension at Kelowna Airport.' 'The author wishes to thank George Nishimura of Transport Canada and Jeffrey Sidney of the University of Ottawa for useful comments on an earlier version of this paper." undated. The methodology can also be used to determine optimum runway lengths and to assess the effects of different types and mixes of aircraft on unsatisfied passenger and cargo demand. R. there was general agreement that they were not large enough to justify either of the altematives to the "Do Nothing Option. BOEING COMMERCIAL AIRPLANE COMPANY. Fox. the methodology developed in this study has now been adopted by Transport Canada for evaluating proposed runway extensions at other Canadian airports.." Consequently.