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 85251Impact 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
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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.
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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.
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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.
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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.
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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
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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
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