Benefit-Cost Analysis of a Proposed Runway Extension

This paper describes a benefit-cost analysis of a proposed $1.4 million runway extension at Kelowna Airport, in Kelowna, British Columbia (Canada's westernmost province). Lengthening the runway as proposed would allow Pacific Western Airlines to operate their Boeing 737 aircraft out of Kelowna with heavier payloads, thereby reducing the occurance of situations where the combined passenger and cargo demand exceeds the available weight capacity of the aircraft. The problem is complicated by the fact that the maximum payload weight permitted on take-off varies considerably with the air temperature and wind speed and direction at the time of departure. On hot summer days, when the problem is most severe, it is sometimes necessary to remove all of the cargo from the aircraft, and, at times, to limit the number of passengers taking the flight to less than the number of seats. An alternative means of achieving the objectives of the runway extension was also considered: lowering the average demand per flight by simply increasing the number of flights out of Kelowna. The "Runway Extension" and "Additional Flights" options were evaluated in terms of their net economic benefits, as compared with the "Do Nothing" option. Net economic benefit is the present value of economic benefits less the present value of economic costs. The economic benefits depend upon the extent to which unsatisfied passenger and cargo demand would be reduced, and on the unit economic costs of unsatisfied passenger and cargo demand. Estimates of the reductions in unsatisfied demand were obtained by means of a probability model that is similar to ones used to solve single-period, stochastic inventory planning problems. The unit economic costs were not estimated; rather, the economic benefits were expressed as linear functions of the unit economic costs of unsatisfied passenger and cargo demand. The economic cost of the "Runway Extension" option was the cost of constructing and maintaining the runway extension; the cost of the "Additional Flights" option was the cost to Pacific Western Airlines of providing the additional flights out of Kelowna. The numbers of such additional flights were chosen to produce the same amount of unsatisfied passenger demand as that which had been estimated for the "Runway Extension" option. Those responsible for deciding whether the runway should be extended were asked to judge the values of the unit economic costs of unsatisfied passenger and cargo demand, thus determining which of the three options was preferred on economic grounds. Prior to the study. Transport Canada had formally recommended the proposed runway extension to the Treasury Board (the Cabinet Committee of the Canadian Government that controls government expenditures). The Treasury Board requested the Department to reconsider the project, and as a result, a benefit-cost analysis was undertaken. Because of the conclusions of the study. Transport Canada decided to postpone indefinitely the lengthening of the runway. The runway may still be lengthened sometime in the future to accommodate aircraft that require a longer runway than does the Boeing 737, but only if a subsequent analysis shows that the resulting benefits would exceed the costs. Having been successfully applied at Kelowna Airport, the methodology developed in this study has now been adopted by Transport Canada for evaluating proposed runway extensions at other Canadian airports.