A ‘load of’ British Airways ‘gibberish’

A ‘load of’ British Airways ‘gibberish’

It once was written that public policy is a study in imperfection. That it involves imperfect people with imperfect information facing deeply imperfect solutions. Thus, it’s not surprising that they get imperfect results.

But when public policy is built around demonstrably flawed data, it’s the public that always pays the price for such mistakes – with their wallets and lost trust in policymakers.

It was on July 25 that Pittsburgh and Allegheny County officials announced with great fanfare that British Airways (BA) would, beginning in April 2019, resume direct flights between London and Pittsburgh for the first time in 20 years.

And like so many other recent announcements about new airlines and new flights out of Pittsburgh International Airport (PIT), the British Airways flights will be publicly subsidized. The airline will be given $3 million over two years.

Part of the rah-rah-sis-boom-bah-ing over the British Airways deal was a claim by Allegheny County Chief Executive Rich Fitzgerald that the flights would result in a local annual economic impact of $57 million. The media took the assertion at face value.

The county Airport Authority was asked to document the claim. It hemmed and hawed for nearly 10 days. Finally, this past Monday, it produced a two-page “memo,” undated, from a Boston company, EDR Group. And the assessment from Jake Haulk, president of the Allegheny Institute for Public Policy, was as swift as it was succinct:

“What a load of gibberish,” the Ph.D. economist concluded. “Virtually all the estimated impacts are based on questionable assumptions about passengers arriving at PIT.”

Here’s a small (but detailed) taste of the exposed gibberish (to be more fully explored in a forthcoming Policy Brief):

It is “assumed 40,562 arriving and departing passengers annually on 234 roundtrips (81 percent occupancy).  Of those, 29 percent of passengers (11,763) are assumed to be from the United Kingdom or other Europeans whose destination is PIT and are not connecting to another city.

“Spending by those visitors in the Pittsburgh region apparently makes up the bulk of the economic impact of the carrier’s flights. There is no breakdown of dollar mounts for that spending or the outlays for cabin crews, ground crews or catering purchases.

“All told, the airline projects the 234 roundtrips will lead to 564 added jobs in the 10 county Southwestern Pennsylvania region with average worker income of $37,776 and a total labor income boost of $21,306,000. This will be accompanied by value-added increase of $33,879,000, according to the BA study.

“Most of the jobs will be at restaurants and hotels. However, 11,763 visitors to the region over 365 days is an average of only 33 per day.  Even if they stay seven days on average that is only 82,000 room nights. The city alone has around 2.6 million room nights available per year and the rest of the region likely has at least half that many.

“Thus, UK visitor stays would make up only 2 percent or so of the region’s available room nights. It is improbable that 2 percent would create a commensurate number of new hospitality jobs. Indeed, stats from Pennsylvania tourism officials show that for Allegheny County in 2016, on average, $143, 297 was spent by tourists/travelers for each job in the tourism-related industries. If that figure is still anywhere close to the present ratio, the 11,763 visitors would have to spend over $80 million or $7,000 each to produce 564 new jobs.

“What’s more, any added jobs would likely be low-paid hotel room attendants and restaurant wait staff for which pay levels are about $23,000, a far cry from the $37,776 pay level used in the BA study.  The BA figure would include salaries of managers, sales reps, engineers, security, repairmen, etc.”

Furthermore, one part of the economic impact memo, instead of offering data that could be used in support of the public subsidy, actually serves as an argument against it, Haulk says.

Based on the memo’s assumptions, the outflow of dollars would be greater than the inflow. Spending by Pennsylvania travelers would be 2.5 times greater than foreign British Airways travelers to the Pittsburgh region.

“That is not a win for the region,” Haulk says. “Indeed, it is just the opposite.”

Yet the memo is used by the county and Airport Authority officials to defend “investing” millions of public dollars.

And as Haulk sees it, myriad flawed assumptions “make the airport’s $3 million subsidy a high-risk gamble that is unlikely to ever pay for itself unless British companies with significant investment and potential employment that otherwise would not have located facilities in the region decide to place operations in Southwestern Pennsylvania.”

“And in the meantime, if the most probable effects of the subsidy are to damage competitors” – many of whom also have been subsidized with public dollars – “while increasing the net outflow of resources from the region, it is hard to see any upside to the handing over tax dollars to the airline,” Haulk says.

Simply put, the economic impact “study” used to defend Allegheny County’s latest multimillion-dollar exercise in turning taxpayers into venture capitalists to deliver corporate wealthfare is indefensible.

No wonder it took the Airport Authority so long to cough it up.

Colin McNickle is a senior fellow and media specialist at the Allegheny Institute for Public Policy (cmcnickle@alleghenyinstitute.org).