Logan Airport Case

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into account the airport’s current airplane mix (40% turboprop, 18% regional jet and 42% conventional jet), one can calculate the weighted average of the delay cost per hour. According to this calculation, the amount of savings the new runway provides per plane is $2399.20, and $1,727,436.24 per day, which means it requires merely 57 days to save enough costs to breakeven. That being said, there are several key assumptions in the calculation. We assume the airplane mix and arrival rate (based on Exhibit 9, 30 arrivals/hour) will stay the same, and we infer the new runway has the same capacity as the current ones and will be able to operate during adverse weather conditions.

An important note to make which further outlines the benefit of building a new runway is the situation when weather conditions are rough. Boston’s harsh climate makes the airport particularly susceptible to weather delay. In the event of adverse weather conditions, one of the fundamental assumptions of queuing theory is violated. The service capacity of the airport decreases depending on the adversity of the weather condition, from 60, to 45, to 30 if the conditions are very rough. The arrival rate continues to stay the same, and exceeds the service capacity of the airport. As seen in Exhibit 8 (case study), the arrival rate at hour 18 is around 60 planes, which is double the service capacity if weather conditions are rough. This implies that airplanes over capacity would either have to wait in line mid-air in order to land, or be distributed to other airports. When the number of runways decreases to one, delay times increase astronomically up to 990 minutes/plane at an arrival rate of 60. This predicament is unsustainable and has to be addressed. The addition of a new runway will alleviate the problems caused by adverse weather conditions as it will increase capacity, and it will make sure that at least two runways will be operational at all times. Therefore, incurring the $100 million fixed cost will be well worth it as proven in the aforementioned breakeven analysis.

All in all, it is recommended that PPP be implemented, specifically at a fee of $200, to maximize overall cost savings for the current airplane mix. This will most likely cause shifts in the airplane mix, and the effectiveness of this procedure will be most relevant in the short term. In the long term, the issue of overcapacity will have to be addressed, especially during adverse weather conditions since demand will continue to increase. Demand management techniques may not suffice, so it is urged that a new runway is constructed, as the capacity it provides and delay costs it saves outweigh the issues surrounding its development.

Limitations

The recommendations provided above have their respective limitations. Peak period pricing is a great short-medium term solution to delays, as it discourages the use of the airport’s runways during peak periods. When implemented, the process decreases costs dramatically (even minor decreases in aircraft arrivals can cut costs significantly). However, the effectiveness of PPP depends on the aircraft mix of the airport. If the airplane mix changes in the future, the effectiveness of this strategy could decrease. In addition, PPP is projected to cause ticket prices to rise and may result in the cancellation of operations and losses of jobs in airline companies.

The second, more long-term solution is building a runway. However, by constructing a new runway, Boston is reducing the value of the residential project located near the airport. $20 billion of public money has been invested towards this real estate project development, and the financing to soundproof the houses may not be present. Another limitation in the construction of a new runway is that Massport intends it to be used for smaller planes. With PPP already in affect, there will be a decrease in smaller planes, so the effectiveness of the new runway may be hindered (or it will have to allow access to larger aircraft as well). It is also being assumed that the runway will be able to continue operations during adverse weather conditions. If the runway does not function during bad weather, it will not be a worthwhile investment, as it will not provide increased capacity when it is most needed.

Appendix

Table 1: Passenger Load and delay costs per hour

Plane Type Capacity 65% passenger load Fixed Cost ($)/hour Passenger Cost ($)/hour

Turboprop 15 9.75 352 301.28

Regional Jet 50 32.50 672 1004.25

Conventional Jet 150 97.50 1590 3012.75

Table 2: Delay Costs per respective delay times

Delay Cost/delay time

Arrival Rate Delay Time (min) Plane Type Total Cost ($)/delay time

50 6.54 Turboprop 71.21

Regional Jet 182.71

Conventional Jet 501.70

55 12.52 Turboprop 136.31

Regional Jet 349.78

Conventional Jet 960.44

59 60.50 Turboprop 658.72

Regional Jet 1690.22

Conventional Jet 4641.11

Table 3: Peak-Period Pricing Fee as a Percentage of Total Revenue

Landing Fee as a Percentage of Total Revenue

Plane type Revenue/trip Landing fee percentage of the revenue

$150 $200 $250

Turboprop 2242.50 6.69% 8.92% 11.15%

Regional Jet 5005.00 3.00% 4.00% 5.00%

Conventional Jet 39195.00 0.38% 0.51% 0.64%

Table 4: Delay Costs when landing fees are applied

Delay Costs with fees

Plane type Fee

$0 $150 $200 $250

Turboprop 658.85 286.34 249.77 289.2

Regional Jet 1690.37 499.81 327.69 350.58

Conventional Jet 4640.96 1110.41 555.56 526.16

Total 6990.18 1896.56 1133.02 1165.94