Domodedovo Aerotropolis Catalytic Economic Effects

Moscow Domodedovo Airport

• The Phoenicians• The Romans and their roads• The Caravansarei of the Silk Road• The Venetians in the Mediterranean• The Portuguese route around Africa• The Dutch and The English in the

Americas and Africa– The first multimodal logistics

platform

History tells a story

Impact of transport nodes on urban form

Charles Horton Cooley, The Theory of Transportation, 1894:Population and wealth tend to collect wherever there is a break in transportation. By a break is meant an interruption of the

movement at least sufficient to cause a transfer of goods and their temporary storage. If this physical interruption of the movement is all that takes place we have what I may call a mechanical break; but if on account of the close relation between transportation and exchange…the physical interruption causes a change in the ownership of the transported goods we have a commercial break (1894; 91)

Today

Mechanical breaks generate logistics activities to support them

Commercial breaks generate financial and legal activities

Charles Horton Cooley

Rail

Air

Road

Sea

Trade transactions take place

Produces Population

andWealth

Attracts real estate Investments, companies to occupy that real estate, residents to serve those companies

The Cooley Model

As a consequence, trade generates more trade and the cycle has begun

Seamless Multimodal

Connectivity

Mechanical breaksCommercial breaks

Applied today

Since Cooley

• Cars and airplanes have changed the transportation world; ships and trains are faster and more efficient

• An air traveler can get to anywhere in the world in 24 hours

• IATA says an airfreight shipment takes on average six days to reach its destination

• Where is the problem?

Economic Effects of Air Transportation

• Direct• Air transportation sector

• Airlines, airports and services, air navigation service providers

• Aerospace sector• Airframes, engines, equipment, off-site service providers

• Indirect• Suppliers, manufacturing, business services

• Induced• Spending of direct and indirect employees on clothing,

manufacturing, food, healthcare, transportation, housing• Catalytic

• Trade, tourism, real estate investment, labor supply, productivity, market efficiency, consumer welfare, congestion, environmental impact

Use of air servicespassengers, freight, express, mail

Generates revenues for companies in the air transport industry, which

Employ staff Earn profit,Pay taxes

Buy goods and services from

suppliers

Indirect ImpactDirect Impact

Spending by employees on other goods and services

Induced Impact

Catalytic Impact

EconomicSpillovers

Trade, tourism, real estate investment, labor supply, produ7ctivity, market efficiency, consumer

welfare, congestion, environmental impact

Catalytic Economic Effects

Larger than direct, indirect, and induced combined

Oxford Economics, Eurocontrol Report, 2005, The Economic Catalytic Effects of Air Transport in Europe

The Hypothesis

• Multinational corporations are not waiting for the challenges to be resolved

• The opportunities to fill the needs of an underserved market are very attractive

• By providing seamless multimodal connectivity for passengers and airfreight an airport can attract these supply chains and their ancillary support industries

• They will need warehouse and industrial sites, specialized logistics operations, commercial and retail sites and support services

• Supply chain footprints are deepening and widening

Where is the opportunity?

As the market of the Russian Federation develops, the supply chains’ investment profiles change

The investment climate in Russia

Export of finished products from origin to Russia

Manufacture of products in country from components imported and produced in Russia

Assembly of finished products from imported components in Russia

Mo

re In

ve

stme

nt

SuppliersSuppliers ManufactureManufacture AssemblyAssembly DistributionDistribution RetailRetail

Outside Russia Inside Russia

SuppliersSuppliers ManufactureManufacture AssemblyAssembly DistributionDistribution RetailRetail

SuppliersSuppliers ManufactureManufacture AssemblyAssembly DistributionDistribution RetailRetail

Relative network strength of airports Objective: gain strength as a hub

Brings apositive cycle ofinvestment and

increased asset value

Brings apositive cycle ofinvestment and

increased asset value

Connectivity and its Positive Feedback Loop

As FDI increases because of the improved connectivity and market attractiveness, frequencies increase

Relative network strength of airports

Behind all this…

• Six days versus one day

• The issues on the ground

• The interests of the citizens and governments of the communities impacted by multimodal transportation

• They all have to be managed

Business

Business

Business

Analysis of Airport Stakeholders David Schaar (Ph.D. Candidate), not member IEEE, Lance Sherry (Ph.D.), Member, IEEE

Stakeholder Relationships

Airport Management andOperations

Airport Infrastructure

Service Providers:Carriers, concessionaires,

air traffic control, etc

Demand Capacity

Airport Organizational Boundary

Debt

Retained earnings

GovernmentFunds

Private Investors

Credit Ratings

PassengerFacility

Charges

Capital Improvement Sources

Airport Service Boundary

Capital Funds

Local Government

Organizations (businesses, non-profits, etc,)

Taxes

Demand

Revenue

Local Community

Noise

Pollution

Traffic

InfrastructureImpacts

Passengers asEconomic

Participants

O&D Passengers

Transfer Pax

Passengers asTravelers

O&D Passengers

Transfer Pax

Demand

ServiceExpectations/Delivery

Municipal Planning Authorities

Demand/Revenue

Capacity/Service

Jobs

Local economy and community

Regulators: Federal Aviation, Customs, Ministries, etc

Airport Cities

• Air transportation is the only global transportation network

• Airport cities grow on the nodes of this network

• Hubs at large metropolitan areas have the greatest relative network strength

• They have an airline base or hub

• Multimodal connectivity that is seamless, fast and predictable is critical to differentiate the airport

• Stakeholder alignment is a fact of life

Characteristics of the Successful Cities

Non-aviation revenues

• Aviation revenues are no longer the core of many airport’s revenue stream

• Airports non-aviation revenues often represent 65-70% of total revenue

• Much of the non-aviation revenue is still passenger focused and within the terminal (retail, service, parking)

• However, new sources of non-aviation revenue are emerging outside the terminal; the drivers are land, connectivity and infrastructure

• Real estate and revenue derived from third parties not directly related to the aviation operation are becoming more and more important (Catalytic Economic Effects)

Non-aviation revenues

Airlines & Passengers Structure

Infrastructure Regional Factors

Share of international passengers

Multimodal connectivity Economic development

Share of LCC passengers Available land Regional infrastructure

Share of transfer passengers

Utilities availability Purchasing power

Share of business passengers

Zoning

Destination mix Master plan Population density

Critical success factors

The investors’ criteria

Business skills•Availability of work force, suppliers•Market knowledge about the drivers of future tenant demand

Business skills•Availability of work force, suppliers•Market knowledge about the drivers of future tenant demand

Location•In-country presence of traditional customer base•Access to transportation network•Multimodal connectivity•High growth rate of lease income•Tenant risk

Location•In-country presence of traditional customer base•Access to transportation network•Multimodal connectivity•High growth rate of lease income•Tenant risk

Design•Modern design•Integration with the community•Place-making, or character of the development

Design•Modern design•Integration with the community•Place-making, or character of the development

Financial•Preservation of capital•Accretive income stream•Cash flow•Deal structure

Financial•Preservation of capital•Accretive income stream•Cash flow•Deal structure

Come from their customers

The risks Investors have filters and they include the evaluation of the following risks

Required Rate of ReturnRequired Rate of Return

Go-No-Go?

Go-No-Go?

Go-No-Go?

Thank You