US Airways Study

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Elliott Pollack talks about a study his firm conducted that takes a look at the economic impact of US Airways on the Valley’s economy and losses that could occur if the company merges with another airline and moves its operational hub to another state.

Ted Simons: Good evening. Welcome to "Arizona Horizon." I'm Ted Simons. A Cochise County judge has decided that 130 ballots challenged by a supporter of Republican Martha McSally in Arizona's congressional district 2 will be counted but they will be counted separately. McSally is in a tight race with Democrat Ron Barber. Lawyers representing McSally supporters wanted the ballots blocked but the judge decided if they change the outcome of the election a lawsuit challenging the ballots will be allowed to move forward. The reason southern Arizona's district 2 is still too close to call, at last count Ron Barber was leading by about 800 votes. Lawyers for the McSally supporters claim in their suit that the ballots are spoiled because they were not properly sealed while being transferred from polling places to the Cochise County elections department. Attorneys for Ron Barber claim this is an invented technicality. A quote there. North Scottsdale chamber of commerce released a report about jobs and revenue Arizona could use if Tempe based US Airways merges with American Airlines. The report was prepared by Elliott D. Pollack and company. Here to talk about the report is company CEO Elliott Pollack. What did the study look at?

Elliott Pollack: We took a look at what the effect on the local economy would be if there's a merger and certain segments of the employment now here, as much as and hub related, left. US Airways and America west have been a huge success story. They started flights in '83, grew to be the fifth largest airline in the country. Served Phoenix well and they need to grow. This is something they need to do. However, it will have an impact. There are they are responsible for a total of basically 24,500 jobs in greater Phoenix area. There's 9300 jobs that work for the company. The suppliers to the company account for another 6,000 jobs and then the money spent by the people who work for the company and supply the company account for another 9,000 jobs. So essentially if they left in their entirety, which isn't going to happen, but there would be 24,000 jobs less. That's not going to happen. What is going to happen, the questions are in two areas. First of all the home office. In Tempe the home office has about 2,000 people. Certainly some or all of those are going to leave over a period of time. The company has renewed its lease. They are going to have a corporate presence but it can be measured. Nobody knows for sure how many are going to leave. If 500 of those people leave the total direct, indirect and induced impact is 1300 jobs. If they all leave it's really 5300 jobs. So in essence, if they all left it would have a meaningful impact. What is 5300 jobs relate to? Absent the Fiscal Cliff, greater Phoenix, grow by about 53,000 jobs next year. If this is phased in over an extended period of time it probably won't have much impact in any one year but you hate to lose a publicly held corporate headquarters. It's a big deal.

Ted Simons: In terms of the indirect and induced employment, how difficult is that to measure?

Elliott Pollack: There are two companies that's all they do is measure it. One is government related, one from the University of Minnesota called end plan. We look at both multipliers and they are about the same. In essence it's -- there are input output tables that do this. That's why economists are known as boring because they actually do this stuff. It's fairly easy for someone who is in the business. The second part of the number of jobs that are at risk are the hub jobs. There's 9300 total jobs, 2,000 are home office which means 7300 jobs are related to operations in the hub. Now, the hub is America west -- U.S. air runs what's known as a hub and spoke system. They fly people in here then take them to their final destination there are a lot of jobs in here that wouldn't be here if it was not a hub and spoke system and this was a hub. If -- American Airlines has a hub in Dallas, one in Los Angeles. It's unlikely that they are going to keep three hubs. I don't know which they would close. Nor do I know exactly what the impact would be, but again, we can give you some scale. If they closed the hub and accounted for 25% of the jobs of the non-headquarters jobs, it would have not only the 1750 direct jobs that we lost but because of the multiplier a total of 4600 jobs. So those are the two areas that are at risk. The headquarters and if they move the hub or they no long very a hub in Phoenix once again the numbers are large in total if they are phased in over a period of time and Phoenix continues to grow, we're in good shape, but for example should they choose to do this in 2013 and that happens to be a bad year because of the Fiscal Cliff, it's going to basically hurt. The Arizona commerce authority and the governor have been all over this trying to help mitigate things and they are interested because the state gets roughly 53 million from the taxes paid by all the employees. But unfortunately it's something a company has to do to survive.

Ted Simons: You mentioned the state getting 53 million. Maricopa County gets a benefit, Tempe and others.

Elliott Pollack: Not including the tourist impact, not including the fees paid for running the airport. The County gets 23 million, the cities get about 21 million, so it's a big revenue generator. You want those jobs to be here. Unfortunately, as I said the company has to do what it has to do to survive and they are going -- it's a very tough industry. It's an industry that's highly competitive and at times very low margin, so ultimately they are going to do what's most cost effective for them.

Ted Simons: As far as total economic activity you have $4.9 billion a year?

Elliott Pollack: Yes.

Ted Simons: Holy smokes!

Elliott Pollack: That's the economic activity generated by all those 24,000 employees, 24,500 employees, not direct but also the ripple effects of the 9,000 direct.

Ted Simons: Those ripple effects, that multiplier effect, air carriers a little higher than normal?

Elliott Pollack: It depends. The ripple effect is interesting enough depending on wages paid. The home office especially pays from it about wages. So that's what causes it. A company paying 100,000 a year is different from a company paying 30,000 a year. America west is the 9th largest private employer in the state. It's just slightly smaller than Intel, for example, that has a little over 10,000 employees. If Intel was going through the same thing you would hear people screaming.

Ted Simons: Why aren't we hearing people screaming?

Elliott Pollack: It's something the company has to do to survive. They are not doing this to be mean spirited. They are doing it because you have to have size in the airline industry to take the bumps that they get because it's a fixed cost business. When you're operating volume below fixed cost you have huge losses. You need to be very large. Also they have been a great corporate citizen for years and I'm sure they will do whatever they can to mitigate this by doing it over a period of years. The company has said it's going to not lay off everybody. They have renewed their headquarters lease. I think if they lay off people, if they move to Fort Worth, where American Airlines is, it will be over a period of time, at least I hope so.

Ted Simons: You talked about loss of jobs, corresponding tax revenue lost. What about just the idea if I run a company and I'm used to having a U.S. Air with a certain number of flights to a certain number of destinations and those are cut back, sometimes completely, can you measure the effect there?

Elliott Pollack: Well, if it's market based, in other words not hub related, if there's demand for it some other airline will fill it, however, America west runs 287 daily flights to 77 nonstop destinations. If they move the hub, you're not going to get on a plane and fly directly to Hawaii or directly to South America or directly to a lot of places they fly. You'll have to go to Los Angeles. It will make it more complex.

Ted Simons: So all things considered, real quickly dorks you have any other regions to compare this to where a major air carrier moved headquarters out?

Elliott Pollack: Well, there was a hub on the east coast that was closed and that caused major problem for that airport.

Ted Simons: Can the state, can the County, municipalities, pick up the slack or is that a long haul?

Elliott Pollack: Well, in the normal course of growth, if next year turns out to be an okay year, which in the absence of the Fiscal Cliff the way it's projected it will make us grow less rapidly than we otherwise would have but we'll still grow. In the long run we'll make up for it. If we were creating 100,000 jobs this year, wouldn't be much of an impact at all. If we create 50,000 jobs you'll feel it but not by a lot. If there's a Fiscal Cliff and we don't create any jobs, it's a problem.

Ted Simons: Elliott, thanks for joining us.

Elliott Pollack: Thank you.

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