Review of Aviation Activity Forecast Methodologies San Diego County Regional Airport Authority

1. Seth Young, President of IAMG, Inc., gave a revised presentation on “Resolving Questions Raised About Operations and Passenger Forecast” at the March 2, 2006 Advisory Committee meeting. Attached is the revised presentation.

2. Review of Aviation Activity Forecast Methodologies San Diego County Regional Airport Authority Presented to: SDCRAA Airport Advisory CommitteeMarch 2, 2006 International Aviation Management Group, Inc. Seth Young, Ph.D., President Associate Professor, Embry-Riddle Aeronautical University

3. Presentation Topics Topics of Presentation: Based on Scope of Tasks • Review of Current FAA Terminal Area Forecasts • Review of SH&E June 2004 Forecasts of Aviation Activity • Discussion of Carson’s Alternative Forecast Methodology • Discussion of Issues presented at recent FAA Forecast Workshop • Q & A

4. FAA Forecast Methodology Overview The FAA Employs Two Types of Forecast Methodologies National Forecasts Aggregate forecast of national levels of aviation activity Revenue Passenger Miles Available Seat Miles Load Factors Total Passengers Average Trip Lengths Domestic and International U.S. Air Carrier Activity Purpose: National Level FAA Workload Planning Headquarters, National Air Traffic Control Centers, etc.

5. FAA Forecast Methodology Overview The FAA Employs Two Types of Forecast Methodologies • Terminal Area Forecasts (TAF) • Disaggregate Forecasts of individual airports • Devoted resources to Top 100 busiest airports • Particular emphasis on top 35 “OEP” Airports (including SAN) Purpose: To plan for capacity enhancement and air traffic management of future aviation demand

6. FAA Forecast Methodology Overview • Terminal Area Forecasts (TAF) • Forecasts Passenger Demand • Evaluates aircraft average seat size and load factors • Forecasts Commercial Aircraft Operations (by aircraft size) INPUTS OUTPUTS FAA collected data from air carriers: Enplanements Load Factors Operations Aircraft Fleet Based Aircraft Average Fares Demographic / Socio-Economic Data Population Economic Variables: GDP “Cost of Flying” • Airport Specific Forecasts of: • Enplanements & Operations on “mainline” vs. “regional” aircraft general aviation and military • “Instrument Operations” • Based aircraft

7. FAA Forecast Methodology Overview

8. FAA Forecast Methodology Overview

9. SH&E Forecast also a disaggregate forecast

10. SH&E Passenger Forecast Methodology Economic indicator Cost of flying indicator 9/11 downturn dummy variable

11. San Diego CountyRegional Airport Authority Federal Aviation Administration Planning Airside Operations Airport Noise Facilities Development Site Selection Study Team San Diego Air Traffic Control Tower Southern California TRACON Western Pacific Region(Richard Dykas) Office of Operations Planning Performance Analysis(Don Guffey)Office of Aviation Policy & Plans(Roger Schaufele) SANDAG Population & Economic Forecasts(Regional Demographers) Independent Consultants Dr. Richard Carson, UCSDIAMG, Inc. (Seth Young) SH&E Forecasts subjected to extensive internal and external review

12. Annual Passengers Total San Diego Passengers FAA TAF 2.7% 32.7 M Average Annual Growth(Base 2002 – 2030) SH&E High 2.8% SH&E Low 2.2% 27.1 M 2004 Actual16.4 M Sources: SH&E Analysis; San Diego International Airport Master Plan Final Report – June 2001; HNTB Airport Economic Analysis (AEA), HR&A with Landrum and Brown, January 2001. SH&E Forecast also a disaggregate forecastForecasts within range of TAF (FAA looks for results within 10% of TAF)

13. Actual SH&E High SH&E Low SH&E Operations Forecast: Issues Comparison of Operations Forecasts for SDIA Aircraft Operations 300,000 Operations Severe Congestion 260,000 Operations 2022 2015 Note: Operating Thresholds Based on SH&E Capacity/Delay Analysis and FAA Guidelines. Source: SH&E Analysis; SDIA Airport Operations Dept; FAA Statistics.

14. SH&E Enplanement Forecast: Issues Near linearity of economic indicator coefficients Emphasis on late ’80s growth Limited considerations for uncertaintyNo considerations for different scenarios

15. Figure 1 - Passengers 2005 17.4 M Passengers Most Recent Actual Data Exceeding 2004 Forecasts Sources: SDIA Air Traffic Reports; SDIA Aviation Activity Forecasts, SH&E, Inc., June 2004

16. 2005 220,210 Operations Most Recent Actual Data Exceeding 2004 Forecasts Figure 2 - Operations Sources: SDIA Air Traffic Reports; SDIA Aviation Activity Forecasts, SH&E, Inc., June 2004 Note: Actual aircraft operations data includes overflights that are excluded from the forecast values

17. Discussing R. Carson’s Criticisms of SH&E Forecast Report Carson’s Critique of SH&E Forecasts include: • Call for Origin-Destination based “behavioral” forecast model • Statistically weak relationship between passengers and operations • Lack of greater consideration for future increases in aircraft size • Call to consider demand management policies • Thoughts of minimal impact of “constrained growth”

18. Analyzing Carson’s Forecasting Model Carson’s Pooled Model – A “Behavioral” Forecast Model The coefficients of the model estimator describe how each of the characteristicsin the model affect “propensity to fly”

19. Discussing R. Carson’s Criticisms of SH&E Forecast Report “Relationship of Operations to San Diego Airline Passengers statistically weak”

20. Discussing R. Carson’s Criticisms of SH&E Forecast Report Issues regarding Fleet Mix decisions Passengers want: • High Frequency, Reliable, Non-stop Service • Low Fares Airlines want: • Maximize the use of capital assets • High load factors • Fleet that meets the needs of the market: Full Planes • Quick turns

21. Issues regarding Fleet Mix decisions As a result of Passenger and Airline desires Most popular aircraft for San Diego market: Boeing 737: 200-800 seriesSeating Capacity: 120-150 Airbus A-320Seating Capacity: 140-160

22. Issues regarding Fleet Mix decisions As a result of Passenger and Airline desires Most popular aircraft for San Diego market: 50 – 90 Seat Regional Jets Range 1200 – 2000 nautical miles

23. Issues regarding Fleet Mix decisions Plus: Little Evidence of Decline in TurboProps in the SAN-LAX market: Most convenient aircraft type for short flight

24. Seattle Portland Minneapolis Detroit New York JFK Cleveland Sacramento Philadelphia Chicago Reno Pittsburgh Salt Lake City Baltimore Denver Oakland San Jose Washington (Dulles) City St. Louis Charlotte Albuquerque Los Angeles Nashville Imperial Phoenix Tucson Atlanta Dallas El Paso Houston New Orleans Austin Discussing R. Carson’s Criticisms of SH&E Forecast Report Potential New Non-Stop Markets from SDIA Spokane Bismark Redmond Boston Boise Providence Hartford Redding Jackson Hole Milwaukee Newark Omaha Des Moines Columbus Indianapolis Kansas Cincinnati Las Vegas Norfolk Raleigh-Durham Fresno Wichita Memphis Oklahoma City Little Rock San Diego Jacksonville Mobile Orlando Kauai Tampa San Antonio Maui Fort Lauderdale Miami Kona

25. Based on current facilities capacity, airport expansion needed in immediate future Increasing congestion

26. Carson’s Suggestions to Mitigate Forecast Congestion To mitigate forecast congestion, Carson Suggests: • Employing mandatory “slot constraints” to limit operations • Force airlines to bid for takeoffs and landing slots • Result will be fewer flights, larger aircraft, and higher fares • Result in reduced growth in local air passenger activity: • Passengers with lower travel value will fly through Los Angeles • or take alternate transportation (bus, car, train) • or simply choose not to visit, or do business in San Diego

27. Results of TRB FAA Forecast Methodology Workshop Overall findings are being applied in 2006 Forecast: • Slightly slower traffic growth of commercial operations: (0.2% - 0.5%) annually • Average Fares not declining as fast as in recent history: (rate of decline down 0.3%) • Load Factors are increasing ( ~ 2%) • Fewer than projected 50 seat regional jets in favor of 70-90 seat jets Although… Historical criticism that TAF under-estimates future levels of aviation demand

28. S-Curve Theory Results of TRB FAA Forecast Methodology Workshop Methodological Issues to be considered in the future: • “Linearity” of socio-economic drivers Population IncomeGDP Lower Fares More Seats can’t have a linear effect forever

29. “What if we build the new airport in location A vs. location B?”

30. Summary Summary • FAA TAF and SH&E Forecasts use Disaggregate methodologies • SH&E High & Low end forecasts surround TAF Issues to consider are: Linearity of Growth based on Economic Indicators Time period of Analysis (high growth 1980’s) Enhanced Scenario-based Analyses More detailed / explicit operations forecasts • Carson Analysis largely unjustified • Correlation of passengers to operations seems to be reasonable Difficult to force aircraft fleet on airlines • Mathematical basis of model called to question Thoughts on policies to mitigate growth don’t seem economically logical • FAA Workshop revealed forecast methodological issues worth pursuing at SDCRAA • ALL Forecasts predict need for airfield capacity enhancement

31. Review of Aviation Activity Forecast Methodologies San Diego County Regional Airport Authority Questions Welcomed International Aviation Management Group, Inc. Seth Young, Ph.D., President