A new Wichita State University study confirms what Fair Fares supporters have long argued: that public subsidies to lure low-cost carrier AirTran Airways to Wichita have paid for themselves many times over in economic benefits.
The study by WSU’s Janet Harrah found that landing AirTran has brought about 9,700 new jobs to Wichita with a payroll of $238 million.
Moreover, local and state governments, which have contributed $22.3 million to AirTran in the past six years, have received about $70 million in taxes.
And passengers and businesses have benefited from the lower fares. In 2002 alone, Wichita airport passengers saved an average of $84 per ticket — almost $84 million total that year alone.
Not a bad return for the investment. This is a good example of the kind of smart economic development effort that can pay big dividends for a community.
21 Comments
Janet Harrah normally does very good work.
But this study is flawed is several ways. Here’s just two.
1) The opportunity cost of the subsidy isn’t counted. Meaning she specifically didn’t calculate the economic impact of other potential uses of the subsidy money. What economic impact if those dollars had been used to lower property taxes?
2) The money given to Air Tran is counted as an economic benefit. Not just the affect of the money, but the actual dollar amount. That is double counting.
Basically, the report says if the subsidy is $4MM, then there is at leat $4MM of ecnoomic impact. That may or may not be the case.
It’s a great example of the working a plan.
It would be better to subsdize rail service between Wichita and Kansas City so we can then fly from there. Airlines flying out of KCI fly to places other than Atlanta and Florida.
I disagree with the naysayers here. The effect of airline subsidies was obvious. Thanks largely to deregulatory Ronnie, the big airlines gouged midsized markets like Wichita when they did not have low fare airlines to compete with. I remember the days of Vanguard, and the days between the departure of Vanguard and the entrance of Air Tran. I don’t think the opportunity costs that Galt sites (and the name probably is quite revealing of his viewpoint on pretty much any government “meddling” in the private sector) are comparable. I don’t think property taxes are that great a drag on building and economic growth in Wichita because our real estate prices are relatively low. However, making Wichita an expensive place to fly in and out of does hurt our economy. Businesses that travel a lot do see it as a disincentive to come to Wichita if the airfares are high. And I disagree with Ben about rail service because costs need to be looked at as more than monetary. Making people travel to lower airfares by any mode of transportation is a cost compared to being able to travel right out of a city. And like it or not, the preferred mode of long distance travel in this country is by air. Wichita was badly hurt, in my very strong opinion, a couple of decades ago with the Senate, led by one Christopher Dodd, killed the idea of an east west interstate connecting Springfield to Wichita to Colorado Springs. Transportation access is very key part of economic development. No need to further self mutilate ourselves by allowing the big airlines to try to recover their costs and more by gouging us like they did in the last decade.
This is one of the best decisions local and state governments have made.
“Wichita was badly hurt, in my very strong opinion, a couple of decades ago with the Senate, led by one Christopher Dodd, killed the idea of an east west interstate connecting Springfield to Wichita to Colorado Springs.” With should be when. Also, this is my imperfect recollection of events around two decades ago, but I do recall Dodd being involved in blocking the idea of an east west interstate through Wichita, based on population (he compared it with east coast population).
Also, KCI is a crappy airport.
Give me 22.3 million dollars and I can create a lot of jobs too. Then those people will work and pay taxes and I’ll get a cut out of those taxes and all the wealth they generate through their work I can take credit for.
The corporate welfare isn’t needed. It would have been better to invest in our infrastructure rather than make some CEO wealthier.
Air subsidies may be paying off, but not for the individual investor. Imagine the outrage if a private business ran like this scheme.
Step 1: Obtain investor funds
Step 2: Invest money
Step 3: Collect profit
Step 4: Forget to return profit to original investors.
For private investors there would be a Step 5: Go to jail.
Perhaps the study would list the actual businesses benefiting and a service fee could be charged. That way the people getting the benefit can pay for the subsidy.
Do not forget to look at who commissioned the study.
Rule #1: Follow the money.
ksag – KCI might be crappy but at least it has airlines going everywhere. Our subsidies don’t do that.
Aviation subsidies paid off for Europe.
True Phantom – but they don’t limit where you can fly with their subsidies like Wichita does.
Passenger rail service gets better MPG than jet aircraft and can haul more people. I’d rather subsidize a Passenger Rail Service to KC and eventually OKC and perhaps Dallas or even further!
(Spring Break Party trains to Galveston – the Parents would be in agony! :D)
Regular – agree 100%. I would also note that rail can be just as fast for moderate distances when you factor in getting into the airport, into the plane, etc.
When I see them considering paving over a big chunk of San Benito County to build a new airport for San francisco I have to ask how much pressure could be relieved by increasing rail service. Same for O’hare, Hartsfield, etc etc etc.
I thought that all the Republicans were in favor of “free markets,” you know, let the “market” dictate.
How are subsidies complying with so-called “free market” philosophies?
“ksag – KCI might be crappy but at least it has airlines going everywhere. Our subsidies don’t do that.”
No, but it makes air travel to hub airports, including ones much better than KCI, affordable.
I stand by what I’ve said.
“I thought that all the Republicans were in favor of ‘free markets’, you know, let the ‘market’ dictate.
“How are subsidies complying with so-called ‘free market’ philosophies?”
Who are you talking to? In all fairness, the free marketeers (Proudman, Galt, even Regular in a non-trollish post) here are all arguing against the subsidies. I think I am the only one here arguing differently, and I don’t think these subsidies would have been necessary if Reagan hadn’t deregulated the airlines.
“No, but it makes air travel to hub airports, including ones much better than KCI, affordable.”
Which hub airports? Any ones out west?
Doug
Posted March 29, 2008 at 10:16 am | Permalink
“Give me 22.3 million dollars and I can create a lot of jobs too. Then those people will work and pay taxes and I’ll get a cut out of those taxes and all the wealth they generate through their work I can take credit for.”
The corporate welfare isn’t needed. It would have been better to invest in our infrastructure rather than make some CEO wealthier.
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Doug, I would agree with you on most Corporate Welfare but in this case I can see the justification.
$22,300,000 divided by 9,700 jobs equal $2,299 cost to the tax payer per job. While better that paying that person welfare it is even better since it has returned to government $70,000,000 in taxes for a net profit for the governments of $47,700,000. I will take returns like on my money any day.
However, what Randy Sctholfield did not tell us is how much of that net profit of taxes went to Wichita and how much went to each the state and the Feds. But that is only typical of Randy Scholfield inept reporting.
BUT as an added bonus it save me an average of $84 for each time I flew.
This one case the investment has returned more than the cost by many times to not only the CEO bt to the Federal, State, County and City governments AND to each of us who fly. We should be very grateful.
Doug I don’t think you can do as good but present a Business plan and if I agree, I will help you.
Ben
Posted March 29, 2008 at 3:59 pm | Permalink
“No, but it makes air travel to hub airports, including ones much better than KCI, affordable.”
“Which hub airports? Any ones out west?”
MY GOD BEN, surely you jest. As far a airport connections and destination just about any other hub. Tell me Ben which ones you consider worse?
I’m not understanding these figures. For table 2 it says Airtran employes 17 people at an average of $29,000 but concludes at the end that Airtran employs 33 people at an average salary of $22,000.
Now I can understand subsidies increasing Airtran’s business but that would mean a reduction in competitor business leaving a decrease in their number of employees which isn’t mentioned in the study. And does all this take into account the estimated increase in airplane travel without the subsidies because it may have just increased anyway.
Now if the subsidies mean more people can fly out of Wichita then it means they’ll be taking more vacations out and spending money elsewhere. If they couldn’t afford the flights then they’d remain in Kansas and spend the money thereby increasing the amount of tax revenue in the state. So does the study take into account the loss in tax revenue in relation to the gain? This can be calculated by measuring the increase in incoming tourism in relation to the increase of outgoing tourism. If the outgoing is higher than the incoming then the subsidies have provided a net loss in tourism related revenue.
Then the study failed to take into account the loss of revenue had the subsidies been directed towards other activities in the state. To make up for the subsidies taxes had to be collected from the public to make up the shortfall. Subsidies to build overpasses for trains would increase employment and related tax revenue. So the loss of revenue from diverted funding should be calculated into the total.
The study doesn’t take into account all the variables so the total revenue gained is inflated. I’m always wary of these studies because, like the stadium study figures, any money spent on watching an event at the arena will mean less money spent at other local venues but the second figure is rarely calculated in order to provide an inflated positive figure.
This is not exactly a “zero sum game” —
Total air travel, out of Mid-Continent Airport, went way UP due to this Airtran subsidy.
It is not correct to state that the Airtran jobs caused the loss of other Airport jobs, in Wichita.
What happened was that Airtran forced DOWN the prices of some of the competition.