Is more better?

09.01.2012
By Bert van Wee

Airneth column
January 2012
By Bert van Wee

Discussions on the future of air transport to and from the Netherlands often have an emotional character. The sector reacts defensive, sometimes even allergic, to proposals that could reduce growth or increases costs, some interest groups in the areas of the environment or citizens living in the regions of airports (Schiphol and others) seem to prefer as few aircraft movements as possible. In this column I limit the discussion on the future of air travel to the question if more air travel is per definition ‘better’. I take both the perspective of the sector as well as of the wider society.
 
Suppose there would be restrictions on volume indicators, for example the maximum number of aircraft movements per year, and that restrictions would imply less movements than without these restrictions. Restrictions could result from capacity limitations or policies. Would this per definition be bad for the sector? I doubt it. It could mean that then prices can increase. This can apply to the airport (most likely: Schiphol). Higher prices would decrease demand, but this decrease should be realized anyway because of the restrictions. In other word, such restrictions can improve the profitability of Schiphol. Or airlines can increase prices, making more profit. Considering the poor performance of airlines worldwide this definitely could make the airlines more viable. The sometimes heard argument that limitations to growth could make the system collapse because of network effects, could be true, but I doubt it. Some other airports worldwide do have restrictions, but to the best of my knowledge there is no empirical evidence for such a collapse.
 
Taking the perspective of society, we can expect that – considering the high volume of aircraft movements to and from Schiphol airport – the law of diminishing returns applies. In other words, the additional (accessibility) benefits of additional flights decreases if the number of flights increases. But the costs for the environment probably increase disproportional. For example, if the day time capacity is reached, more flights will mean more night flights, and flights at night cause much more noise nuisance and noise related health effects compared to day time flights. In economics jargon: at some point the marginal costs exceed the marginal benefits.
 
An often heard argument is that more flights from Schiphol airport increase the attractiveness of the region for international companies. For example, if a Japanese company needs to chose a location for its European office, this choice is partly based on access by air transport. But the choice is also based on the quality of the environment. And more (night) flights decrease this quality. It is important to realize that the number of flights per day or week from Schiphol to many destinations is already high, decreasing the added value of a further increase.
 
 Despite these notes recent Cost-Benefit Analyses for Schiphol show significant positive benefits for extensions. But one can debate them. For example, due to the discount rates used long term effects (e.g. due toCO2 emissions) hardly have an impact on results. A 2011 masters thesis of one of my students shows that not or hardly discounting CO2 strongly affects the outcomes. And levies on jet fuel and VAT on tickets comparable to those on road traffic reduce demand and therefore the need for more capacity. What, to my opinion, is missing in the debate is a vision on the pros and cons of several strategies for the future of Schiphol airport, or Dutch aviation in general. I would not be surprised if the positive welfare effects of airport extensions as found in the past could be substantially lower if long-term effects would be discounted less, or in case of introducing levies or taxes. And I would not be surprised if restrictions would be even profitable for the sector.

The author would like to thank Prof. Piet Rietveld, VU University Amsterdam, for his comments on the draft of this column.


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