Wednesday, March 20, 2013

Berlin airports economic effects

Berlin airports economic effects 

by Priksz Tamás

The numbers of Berlin’s airport is decreasing. By nowadays Berlin has only two airports – Tegel, Schönefeld - and in a longer perspective the aim is to build only one called Berlin Brandenburg Willy Brandt Airport. And the BER is starting to operate in one year from now, in 2013. The question is why this new airport is constructed what was the motivation to concentrate the aviation services and what kind of economic effects it already have and what effects are predictable for the future? I will investigate these questions from economic aspects.

Historical overview

By the mid 20th century Berlin possessed decent infrastructure for air traffic but due to the World War II. the city became occupied by the Soviets and Allies which divided the city to a western and an eastern zones. Each zone had its own airports. For West Berlin Tempelhof and Tegel, the former played a great rule during the Cold War in supply the western part, for the east part Schönefeld. During the Socialist era three airports were operating simultaneously. After the reunification in 1990 many things had changed, economic preferences have come into view.

Airports have an important function in the aviation system. Airports take part in the process of transporting passengers and freight from one place to another. Airports increase the wealth of the region they are located in, providing new employment possibilities and bringing more tourists their region. In case of Berlin due to the greater scale of passengers and cargo volume all the three airports became overcrowded. It had two reasons, once these airports were designed with the demand of earlier times, second since 2003 with the start of Low Cost Carriers increased the number of passengers in a dynamic way. Two of the airports – Tempelhof, Tegel – had no opportunity for expansion. Tempelhof was situated close to the city center, in a high density residential area which prevented expansion. Tegel is also closely situated to the city and the expansion would highly increase noise pollution for the inhabitants. To solve this problem Berlin decided to expand the capacity of Schönefeld and build a new airport outside of Berlin in Brandenburg Province. This project based on the concentration of aviation services.

The economics of airport 

The idea of the Berlin Brandenburg Airport is based on increasing the efficiency of the aviation system since airport investment has an indivisible aspect. Land and runways are the most important factors in indivisibility since the cost of finding appropriate land area to construct an airport is quite high especially in large cities. Landing system, lights and terminal navigation systems are also the part of indivisibility. If there is an appropriate land for the airport it is much easier to increase the capacity of terminals so this is not the part of indivisibility. Looking at the characteristics of airports from the supply side brings that the concept of economies of scale plays a great role in industries with high fixed cost such as aviation. Runways had strong economies of scale but there can be diseconomies of scale in terminal facilities investments. Sunk cost is another economic factor is related to specific investments such as runways and transport connections with the city. These investments can only be recouped by appropriate level of passenger traffic. This is the reason why with the opening of BER the other airports of Berlin will be closed down. The economies of scale can be also investigated from the demand side. If passengers and airlines use only one airport in a city create benefit to both of them. Serving passengers in a concentrated way provides greater economies of scale both to airports and airlines which based on the theory of network benefit.

Berlin Brandenburg Airport

Berlin’s new airport is situated in a special geopolitical place called Schönefelder Kreuz which is a highway intersection. This region is one of the most dynamic economic areas in Central Europe. The completion of 4.2 billion euros project of the new airport enhances the economic growth in the region. Not just by creating 40,000 new jobs but with supplementing the Berlin-Potsdam growth axis to a triangle. 

From economic aspect the establishment of the new airport also provides better returns on the transport services between the city and the airport. The transportation investments in connection with BBI are based on the mentioned network benefit theory. That is why the missing part of the Highway A113 was finished and why will be the train lines integrated into the underground level of the terminal of BER. Moreover simple train lines, S-Bahn and ICE lines will also be integrated into the terminal. BER terminal is designed to 22-25 million passengers with the possible expansion to scale of 40 million.

As the north part of the city became quieter also losing some economic weight and accessibility. On the other hand the conversion and the reuse of the areas of closed airports are vague but provide many opportunities for utilization and new quarters of living. In the future we will see if these urban planning questions are solved successfully and whether BER brought greater economic prosperity to the area.


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