Insights: What If? Why Now is the Right Time to Plan!
One of life’s greatest paradoxes is that there is no better time to plan than when you don’t have the resources to do it. Isn’t it ironic that hindsight often provides clear answers to challenges we didn’t see coming? Insert the COVID-19 pandemic, where many of us did not imagine the scenario we see unfolding before us. Though resources are limited, it is paramount that airports plan for their recovery by envisioning the future and creating an adaptive framework to get there. The time to plan is now.
While most airports do have plans, few, if any, dive deep enough and have a plan for addressing a pandemic and the associated economic realities of a 90% drop in passenger activity for an extended period of time. What if your current plan and projects had taken this into account? Below are some thoughts to ponder on your upcoming plans and projects and ask “What if?”.
What if…The current plan was stress tested?
Stress testing the plan helps airports understand how resilient they may be in the face of future challenges. The testing can be both physical and non-physical. For example, a physical test might model the impacts of future extreme weather or storm surge on various alternatives within the master plan. Can the new cargo development on the low end of the airfield withstand projected sea-level rise? How will that impact the airport economically? Conversely, a non-physical test might map the airport’s network of community partners to understand if necessary relationships are in place to help respond to various threats, including public health or economic emergencies. Stress testing can also reveal opportunities for flexible development and preserve future economic choice. For example, a utility master plan might very well reveal needed electrical upgrades now, but ensuring utilities can accommodate a range of future development scenarios will unlock economic opportunity and prevent you from being pigeonholed into one particular outcome.
What if….Your plan focused on activity levels instead of years?
Developing forecasts is challenging in normal times; seeing the future through a pandemic is near impossible. This is particularly true when relying on conventional time-based forecasting methods. The FAA requires an aeronautical forecast based on short-, medium-, and long-range planning horizons. These forecasts are crucial for justifying demand-based development and prioritizing funding. However, if projects are implemented based on a time-based forecast, resources may not be best allocated as demand may not materialize according to schedule (cue COVID-19).
Translating an implementation schedule from a fixed time to a Planning Activity Level (PAL) provides a better way to link development to demand. The PAL represents a trigger point based on passengers, operations, or other relevant metrics. This approach offers more flexibility than the time-based forecast by allowing for— and indeed, expecting—unknowable future events like pandemics or economic downturns. But the PAL cannot stand on its own without anticipated growth rates, another crucial determinant for initiating projects. If the growth rate nearing the PAL is substantially greater or lower than forecasted in the time-based methodology, the lead-time for project initiation could be affected depending on the scale and complexity of the project. It is important to understand that that the time-based forecast is necessary to create a plan for facility development, but to initiate individual projects a more prudent approach also considers the PAL and rate of growth.
What if…Revenue sources were reimagined?
Primary passenger entitlements could drop considerably by federal fiscal year 2022, which is when 2020 annual enplanements would be used to calculate entitlement funding. A scenario calculated by C&S indicates that if annual enplanements drop by 60% for 2020, passenger entitlements to airports could drop by as much as 30%. The potential reduction in entitlements ranges from $750k to $6.6 million per airport. Although there is already some discussion about allowing airports to use 2019 numbers to calculate 2022 entitlements, there is potential that the Aviation Trust Fund itself is at risk given very limited tax revenues replenishing the Fund.
Airports will need to be more creative in identifying new revenue sources, including rethinking their approaches to real estate. While many segments of the commercial real estate market have been disrupted like aviation, other segments like industrial continue to expand. Further, new commercial development formats are being envisioned in the marketplace, particularly around mixed-use, adaptive reuse, and experiential outdoor spaces. Many airports are already well-positioned for industrial growth, and their assets may also offer creative solutions or new value propositions to meet reimagined community need, commercial demand, and investment interest in a post-COVID era.
Though airport property has become a fairly standard tool in the toolbox for alternative revenue opportunities, that doesn’t always mean land is ready to go nor inform how it can be used. Fixed assets on your campus may also offer the possibility for interim and long-term alternative uses, including changes to the way they are managed or monetized. But alternative uses must be identified and prepared for so that operational, regulatory, and market needs are addressed. Even Section 163 of the 2018 FAA Reauthorization Act, which offers reduced regulatory oversight for certain development projects, can require significant preparation to just get to the review of its applicability and potential relief. Are your land or other assets ready to capture opportunity in the near and/or long term?
How can you ask “What if?”
Your development plans may be recently completed, or they may have been completed five or more years ago. Regardless, there is a pretty good chance your plans did not address a pandemic. Is it time for you to ask “What if?” A brief review or workshop with airport staff to ask “What if?” about your plan can help provide answers to some of the questions posed here. Perhaps it’s time to make a small tweak, or program a full master plan update? Does your development plan have projects ready to go for potential stimulus funding? C&S prides itself on creative thinking and working with our clients to roll-up our sleeves, work together, and provide solutions for implementable and actionable airport development plans.
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