Journal of Air Transport Management 16 (2010) 325e329

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Journal of Air Transport Management

journal homepage: www.elsevier.com/locate/jairtraman

Air accessibility and growth e The economic effects of a capacity expansion

at Vienna International Airport
Richard Sellner a, *, Philipp Nagl b
a
Institute for Advanced Studies, Department of Economics and Finance, Stumpergasse 56, 1060 Vienna, Austria
b
Vienna University of Economics and Business, Institute for Transport and Logistics Management, Nordbergstrasse 15, 1090 Vienna, Austria

a b s t r a c t
JEL classification: We use an econometric endogenous growth model to estimate the impact of air accessibility on GDP and
C23 investment growth. This is done in a dynamic panel system estimation framework for the EU-15 between
L93
1993 and 2006. The results are then used to predict the economic effects of an increase in capacity at the
O11
Vienna International Airport using actual forecasts of the required information set. We find a GDP
Keywords:
elasticity of air accessibility of 0.014 and an investment elasticity of 0.05 for our sample. Given the official
Air accessibility elasticities
Econometric estimation passenger forecast this would lead to additional GDP growth in Austria of accumulated 0.81% based on
Airport capacity expansion the values of the restricted scenario (no third runway). In a more conservative forecast scenario of 3%
Vienna annual passenger growth, a third runway is projected to increase GDP by 0.2% by 2040.
Ó 2010 Elsevier Ltd. All rights reserved.

1. Introduction results are used in Section 4 to simulate the impact of an increase in

air accessibility by a capacity expansion at the Vienna International
In 2008 the total worldwide passenger air traffic volume Airport. The passenger forecasts of the restricted scenario and an
amounted to 2.27 bn passengers, which is an increase of 0.5% unrestricted scenario with increased capacity as a result of a third
compared to 2007.1 Apart from cyclical variations most forecasts runway are compared in order to predict the effects on Austrian
(e.g. Airbus, 2007; Boeing, 2008; DLR, 2008; Eurocontrol, 2006) GDP and investments. A final section concludes.
predict yearly growth rates of air passenger traffic between 2 and
5% till 2025. In its White Book on transport (European
2. Air accessibility and growth
Commission, 2001), the Commission of the European Union
approves investments to expand the existing capacities of some
Bruinsma and Rietveld (1998) define accessibility2 in the most
important European airports, as their capacity limits are nearly
general way as the potential of opportunities for interaction. Given
exhausted. Given that the air accessibility of a country is a main
the transport mode of aviation, very complex connectivity and
location factor of an economy, the quantification of the economic
accessibility measures are possible.3 However, to keep the concepts
impact of an increase in capacity and therefore accessibility is of
in this paper concise, we use a measure of actual and not potential
research interest. This study focuses on one of the available esti-
accessibility. We measure air accessibility by the total number of
mation methods, a supply-side driven catalytic approach using
passengers within a country divided by the population.
panel econometrics, controlling for the ambiguous direction of
There are various ways to estimate the impacts of the aviation
causality between air accessibility, GDP and investment growth.
industry (airports, air traffic, .), apart from the effects of accessi-
After the according elasticities are estimated, we simulate the
bility improvements. After a comprehensive survey ACRP Synthesis
economic impact on Austrian GDP and investments of a capacity
7 (2008) identify three different methodologies: (1) inputeoutput,
expansion at the Vienna International Airport.
(2) collection of benefits and (3) catalytic methods. To link air
The structure of the paper is as follows. Section 2 reviews the
accessibility to economic growth, the catalytic method seems to be
concept of accessibility and sketches the methods used to evaluate
most adequate. It includes all the spillover effects from the usage of
infrastructure investments in the aviation industry. In Section 3, we
the airport and the operation of the aviation industry on GDP,
present the econometric model and the estimation results. Those
2
Overviews on the richness of accessibility indicators are given in Bruinsma and
* Corresponding author. Tel.: þ43 1 59991 261; fax: þ43 1 59991 555. Rietveld (1998), Spiekermann and Neubauer (2002) or Schürmann and Talaat
E-mail address: sellner@ihs.ac.at (R. Sellner). (2000).
1 3
Source: ICAO, retrieved 09/01/2010. See Malighetti et al. (2008).

0969-6997/$ e see front matter Ó 2010 Elsevier Ltd. All rights reserved.
doi:10.1016/j.jairtraman.2010.04.003
326 R. Sellner, P. Nagl / Journal of Air Transport Management 16 (2010) 325e329
investment, trade, tourism and productivity via a supply-side
approach. The catalytic approach evaluates the improvements of
the location factor, the better international accessibility and access
to production factors (allocation efficiency improvements) and the
stimulus to R&D and education by a better international exchange
of tacit knowledge. New firms, generated employment, higher
investments and an increase in productivity and GDP can result
from those supply-side effects (see Cooper and Smith, 2005).
3. Modelling
Data were taken from the Eurostat Database (see Eurostat,
2008). Observations on total passengers for EU-15 are fully avail-
able between 1993 and 2006, which limits our sample to this
period. All other socio-economic variables were sufficiently avail-
able on a yearly basis.
The model is based on a neoclassical endogenous macro-
economic growth model as for example in Barro and Sala-i-Martin
(2003). We extend the typical model by air accessibility and
measures for technology and innovation capacity and trade to avoid
spurious causality with air accessibility. To capture the full effects of
air accessibility on economic growth, we also consider the indirect
effects over increased investments (see Cooper and Smith, 2005).
As the direction of causality between GDP growth and air accessi-
bility is ambiguous, because GDP is often used to predict traffic
flows (e.g. Doganis, 2002; ICAO, 2006), we estimate a seemingly
unrelated regression to control for circular causality.
We check the variables used for the order of integration and
apply differences when needed. The results of various panel unit
root tests4 for first differences, indicate that for most variables we
can reject the null hypothesis with respect to established
significant levels. Only GDP per capita seems to be of higher
integration order, so we decided to include an autoregressive
term in the GDP equation.
Starting from the Barro-type neoclassical growth model in
Cobb-Douglas specification Yi;t ¼ ALN 1N , where Y is GDP in
i;t Ki;t i,t
year t in country i and L and K are physical labor and capital inputs
respectively. We take logs and extend the model by the approxi-
mations of human capital and technological level, a trade openness
measure and the air accessibility indicator. For human capital we
use the share of population with finished secondary education,
technological level is approximated by the expenditures in R&D of
the business sector, trade openness is the share of imports and
exports in GDP and air accessibility is measured by the total
number of passengers reported by a country divided by the total
population. As no comparable measure of physical capital stock
across countries is available, the productive service flows of phys-
ical capital stock to output generation are approximated by the
investment rate defined by the capital formation divided by GDP.
Furthermore, to remove size effects total employment and GDP are
divided by the total number of population and country dummies
are introduced. Taking logs and differences leads to an economet-
rically tractable GDP specification of the following form
X
15
Dyi;t ¼ a1i;t Di þ b1 Dli;t þ b2 Dki;t þ b3 Drndi;t þ b4 Dedui;t
i¼1
þ b5 Dtradei;t þ b6 Dacci;t þ b7 Dyi;t1 þ 31i;t
where lower capital letters indicate logarithms (y, k and l are GDP
per capita, investment rate and employment rate respectively),
4
The statistics for the tests are not shown here for the sake of brevity. We used
the Im, Pesaran and Shin W-stat, ADF e Fisher Chi-square and the PP e Fisher Chi-
square test statistics.
Dyi;t1 is the one period time lag of the dependent variable, D being
the one year difference operator and e is an i.i.d. disturbance term.
To model the impact of air accessibility on investments, the
following investment equation is added to the system:
X
15
Dki;t ¼ a2i;t Di þ b8 Dyi;t þ b9 Dii;t þ b10 Dii;t1 þ b11 Dacci;t
i¼1
þ b12 Dki;t1 þ 32i;t ð2Þ
with i being the 3-month EURIBOR interest rate. To address the
concerns of causality direction between air accessibility and GDP,
we include a third air traffic demand equation, correcting for the
influences of GDP and trade on air traffic demand
X
15
Dacci;t ¼ a3i;t Di þ b13 Dyi;t þ b14 Dtradei;t þ 33i;t (3)
i¼1
Eqs. (1)e(3) are estimated in a seemingly unrelated regression
framework (see Zellner, 1962). A summary of the regression results
is given in Table (1). In this paper, the main interest lies on the
coefficients of air accessibility within the equations (1) and (2).
Growth in air accessibility significantly influences growth in
GDP, even if controlled for circular causality in the seemingly
unrelated regression framework. An increase in air accessibility of
1% leads to an increase in GDP growth of 0.014%. The GDP elasticity
of air accessibility found is of a much a lesser magnitude than the
0.055 reported by Cooper and Smith (2005). However, Cooper and
Smith (2005) estimated an error correction model (ECM) including
freight in their ‘Air Transport Usage’ indicator for air accessibility.
Moreover, they estimate the effects for EU-25, which includes
a significant amount of converging countries, showing high growth
rates in both GDP and air passengers.
Oxford Economic Forecasting (2006) found GDP elasticities of
air accessibility of the size 0.06. They estimated within a sample of
31 sectors in the UK economy over 27 years and also included
freight traffic volumes in their measure of accessibility. IATA (2007)
estimates an elasticity of 0.007, which is half of the elasticity found
in this study. The differences may be due to the disaggregated
approach used. IATA (2007) used a connectivity measure to study
the impacts on productivity. For such a disaggregated approach
Oxford Economic Forecasting (2006) observed tendencies for
smaller elasticities.
Turning to the impact of accessibility on investments, we find an
elasticity of 0.05 at a 10% significance level. Cooper and Smith (2005)
found an investment elasticity of 0.16. The reasoning for the high
deviations of the investment elasticities found in this study is
analogous to the reasoning of the difference in GDP elasticities.
4. Simulation of capacity expansion in Vienna
With the estimated coefficients of our model, we are able to
simulate the economic impact of a capacity expansion using
scenario techniques. This is demonstrated by the proposed third
runway at the Vienna International Airport. Vienna International
Airport has experienced an extraordinary period of growth over the
last 10 years. Passenger numbers soared from 11.2 m in 1999 to
ð1Þ 19.7 m in 2008. The CAGR5 from 1999 to 2008 has been well above
6%, which is significantly higher than the structural growth rate of
overall air transport of about 2 to 5% (see Section 1). This tremen-
dous growth of Vienna International Airport can be fragmented in
three main influencing factors. (1) Austrian flag carrier ‘Austrian
5
Compound annual growth rate.
 R. Sellner, P. Nagl / Journal of Air Transport Management 16 (2010) 325e329 327

Fig. 1. Growth rate for passenger demand at Vienna International Airport.

Airlines’, after its merger with Lauda Air in 1999, started a massive
expansion of services, with particular focus on Eastern Europe. The
result has been a sustained period of growth in the number of
passengers making Vienna International Airport the airport with
the most destinations in Eastern Europe, even more than Frankfurt
or Munich. (2) Vienna International Airport also benefits from
a significantly enlarged catchment area after the fall of the iron
curtain in 1989. For people from western Slovakia and Hungary as
well as from southern Czech Republic Vienna International Airport
became the closest international airport. (3) Vienna International
Airport has been able to attract a high number of low cost carriers,
with three of them (Air Berlin, FlyNiki and Sky Europe) having main
bases in Vienna International Airport. The share in passengers of
low cost airlines in Vienna International Airport is a 23.3% in 2008,
which is significantly higher than most of other airports of
comparable size, e.g. Munich (16%), Copenhagen (14%), Zurich (11%)
or Brussels (3%).
The current long-term forecasts for Vienna International Airport
presume a CAGR of 5.4% (taken from Kaufmann, 2008) for
passenger volume until 2020. This figure is derived from an
extrapolation of the long-term growth rate. However, a compre-
hensive forecast should go further than a simple extrapolation if
there are reasons for the perception that the development in the
future might be different than in the past. In the case of Vienna
International Airport the reasoning behind an expectation of
growth rates above the structural growth rate of air transport is
questionable for three reasons. (1) The ‘catching up’-effect of the
economies in Eastern Europe can be expected to slow down as they
will reach higher levels of economic saturation. (2) By the end of
2008 Lufthansa announced a takeover bid for Austrian Airlines. If
this deal materializes, the speed of the expansion of Austrian
Airlines will be different from in the past, where Austrian Airlines’
expansion was driven by competition to make their network more
attractive than those of other airlines, in particular Lufthansa. (3)
The growth of low cost airlines can be anticipated to lose some of
the verve of the pioneering years. One of the low cost carriers, Sky
Europe, went bankrupt in September 2009.
In addition, the short term effect of the economic crisis has to be
taken into account. Vienna International Airport estimates that from
2008 to 2009 passenger volumes are expected to go down by 5%.
We therefore propose two scenarios for the CAGR: A more
optimistic scenario (official forecast scenario) which is in line with
the assumptions of Vienna International Airport and the more
pessimistic scenario (conservative forecast scenario), which
assumes a lower growth rate of 3% per annum. In each of the two
scenarios passenger volumes are expected to go down by 5% in
2009 and we further reduce the growth rates after 2020 to take
account for saturation of air transport markets. In addition every

Table 1
Summary of regression results, method: SUR.

Variable Dependent variable

GDP per capita Air accessibility Investment rate

Constant 0.008 (0.003) *** 0.003 (0.035) 0.018 (0.012)
GDP per capita 1.701 (0.693) ** 1.327 (0.254) ***
GDP per capita lag 0.230 (0.067) ***
Employment rate 0.357 (0.110) ***
Investment rate 0.093 (0.019) ***
Trade openness 0.120 (0.026) *** 0.724 (0.310) **
Air accessibility 0.014 (0.006) ** 0.051 (0.029) *
RnD bus. exp. 0.029 (0.012) **
Education 0.015 (0.024)
Investment rate lag 0.098 (0.075)
Interest rate 0.007 (0.013)
Interest rate lag 0.047 (0.016) ***

R2 0.79 0.14 0.31

DurbineWatson stats 2.15 2.04 2.30
No. of observations 130 180 165

***, ** and * indicates that the coefficient is significant at a 1%, 5% and 10% level, respectively.
328 R. Sellner, P. Nagl / Journal of Air Transport Management 16 (2010) 325e329

2.5

in percent of restricted scenario GDP/ i nvestm ents

2

1.5

0.5

0
2010 2015 2020 2025 2030 2035 2040

official forecast: GDP official forecast: investments

conservative: GDP conservative: investments

Fig. 2. Difference of Austrian GDP and investments between restricted and unrestricted scenario in percent of restricted values.

scenario has a restricted case which reflects the maximum capacity scenario of an increased capacity as a result of the operation of
of the airport with the current layout of runways and an unre- a third runway starting operation in 2014 for the Vienna Inter-
stricted case where a third runway is available. The assumptions of national Airport. We construct a more optimistic scenario (based
growth rates for all cases are shown in Fig. 1. on official forecasts) given annual forecasts of growth rates of 5.4%
If the growth rates are transformed into passenger numbers we and a more conservative forecast assuming annual passenger
observe that the mid-term upper boundary for growth with a two- growth rates for the Austrian International Airport of 3% per
runway layout is at 26 m passenger. In the official forecast scenario annum. By 2040 in the official forecast scenario Austrian GDP is
the boundary would be reached in 2015, whereas in the realistic projected to increase by 0.81% based on a restricted scenario of no
scenario it would not be reached before 2020. In the restricted cases third runway. These effects include the direct effects of air acces-
it is assumed that in the long-term the two-runway layout can sibility as well as the indirect effects from increased investments.
accommodate for up to about 32 m passengers, which will enable Austrian investments are forecast to be 2.18% higher in 2040 based
further but slow growth. For the case of a third runway, in the on their restricted value of that year. Given annual growth rates of
official forecast scenario passenger numbers rise to about 50 m 3% per annum (conservative forecasts), the third runway influ-
passengers in 2040, whereas in the conservative scenario ences outcomes after 2020, increasing GDP and investments in
passenger numbers will not grow above 40 m in the long term. 2040 by 0.2 and 0.52%.
Using these forecasts we extend the series for air accessibility
from 2014 to 2040. All other regressors are assumed to be constant, Acknowledgements
so the resulting forecasts are ceteris paribus. Within the system of
equations the forecasts of GDP and investment for Austria are The authors of this paper would like to thank Helmut Hofer,
simulated using the coefficients of estimation in Table 1, consid- Wolfgang Schwarzbauer and Wolfgang Polasek for useful
ering the heterogeneity of GDP and investments, but taking air comments and assistance and the Vienna International Airport for
accessibility as given by the forecasts. Fig. 2 plots the resulting funding the project that led to this paper.
economic effects of the capacity expansion for Austrian GDP and
investment, i.e. the differences of those time series between the
two scenarios, in percentage of their restricted values. References
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