Managerial Economics - Aerotropolis

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MANAGERIAL ECONOMICS
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Introduction
Aerotropolis is a metropolitan area which is centered on an airport. The term is formed
from the culmination of aviation or aero and metropolis. It is made like a traditional metropolis
which comprise of a central city and the outlying computer linked suburbs. Aerotropolis is
similar to metropolis because it has the aeronautics, commercial infrastructure and logistics to
form a multifunctional airport city. Infrastructure, economy and land use are formed in relation
to the airport and forming an airport city that provides with a wide range of services. The airport
functions as city which is highly used by flight passengers, who come to new city due to several
meetings or conferences (Liou et al., 2018). The aerotropolis provides commercial services to the
business that supports the air travelers who pass through the airport manually (Rogerson, 2018).
The business mostly comprise of e-cmmerce fulfillment, advanced technological goods,
logistics, and highly valued perishable goods, biomedical equipment, destination retail, sports,
entertainment, medical complexes. It has many business parks, time-critical distribution centers
and information technology complexes for business professionals. The area also includes
conference rooms, hotels and entertainment venues which are frequently used by corporate
houses. An increasing number of consumer goods oriented firms have come in the market that
has helped in the faster development of aerotropolis (Callanan, 2016).
Visitors are able to shop and make a living in the area. It has become a major hub for the
business developers who seek to enlarge their operations among global commercials. The most
crucial part on business is the establishment of new stores for future development of businesses.
New venues are being built in new airports which has sufficient space along the transportation
corridors to enhance the performance of firms. However, the development of aerotroplis requires
additional research on planning and processing for retaining long-term profits. There are several

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crucial factors that can influence the growth of aerotropolis (Crosby & Maharaj, 2015). The aim
of the paper is to analyze the range of factors that is important for the development of aerotroplis
in an economy.
Literature review
Logistics have become an important part of businesses due to search of flexibility that is
essential for boosting the business development. . Firms decide their location in such a way they
are able to access the markets. Agility and speed are important parameters like equilibrium price
and quantity for the adoption of just-in-time strategies. Logistics are assumed as the value added
activities of the firm in correspondence to the optimization of supply chain factors. Airports are
now targeted by entrepreneurs due to its capacity of shifting air commerce towards profitable
business and acts as a new kind of Central Business District. The idea has been proposed by air
commerce researcher, John D. Kasarda during 2000 in his report relating to airport driven
economic development.
Sarkar (2016) in his paper, has analyzed about the driving force behind the organization
of territories near the airports that foster the growth of economic activities. He has started the
paper by writing about the range of model that has tried to explain the formation of urban
agglomerations around it. Airports boosts up the economic growth and productivity due to its
positive spill-over effect on commercial and business activities (Hanly, 2015). It becomes
important to analyze the activities that led to the evolution of a market structure near airport over
the years.
Suitable models for evaluating the role of aerotropolis

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The models have mostly focused about the configuration of space that had a high demand
due to its substantial growth outcomes. Experts have reported that land is not a homogenous
commodity and availed by the highest bidder. Land does not have a fixed price with respect to
market supply and demand where the price hugely varies for urban and rural location (Huston,
2015). Both the service operators and consumers compete for land. Service operators is engaged
in the provision of non-aviation and aviation services to commercial firms (Thirsk, 2014).
Aviation services not only provide air services but also include services relating to mechanical
handling, refrigerated storage, animal quarantine, freighter docks, decompression champers,
courier centers, and heavy cargoes along with equipment for operation of various radioactive
goods. Service operators have reported of extracting huge profits from their location near the
airport which drives the business with an easy accessibility of various facilities (ALMEIDA,
2016). The proposition has been further established by doing a case study of the aerotropolis area
of US to demonstrate the distinguishing features of aerotropolis. The analysis has been done by
gathering data from various industries to construct the key changes being made in the businesses
models and the results show huge amount of economic profit.
The theoretical approach of the model is quite simple and has been conducted
corresponding to two types of firms such as service operators and commercial firms. The
structure provides a special feature that is able to evaluate the degree of competitor among the
firms. The basic requirement is that aerotropolis should have a non-degraded land equilibrium
that has higher value with respect to consumer plot lands (Berawi et al., 2017). The allocated
land must have a residential area, commercial area and service area. The increased competition
for land is due to low rental and transportation cost for the visitors who highly prefer a location
near to the airport. For commercial firms and service operators, the demand elasticity of land has

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to be moderate such that both the firms can be active in the bidding process. The second part of
the study provides an empirical application of the data sets in order to identify the existence of
aeropolitan regions in US. The model bring about the effective conditions that has made airport
an attractive hub for businesses.
Role of suitable customers
Consumer preference is dependent on two parameters such as land and leisure. They
prefer land which maximizes their leisure time. An airport location of hotels and business
delegation allows consumer to access the required goods easily (Menon, 2014). The service
opertaors and commercial frms are closely related because commercial operators deliver the
production through airport which is previously given by the commercial firms. Commercial
firms get aviation as well as non-aviation services from the service operators. Delivery of
merchandise to the airport from firms involves transportation cost that is taken into consideration
by the businesses.
Aerotropolis has become an effective source of economic growth both regional and
national. Analysts have reported that the demand for airport is projected to increase by 200-300
percent within the period 2000- 2030. The establishment of aerotropolis leads to a higher
demand for air travel for huge number of potential visitors who come to the airport to drop or see
off their peers. Aerotropolis helps in the development of industries surrounding the airport with
the creation of employment opportunities for the people (Kasarda, & Canon, 2016). This strategy
of developing the airport and creation of aerotropolis stimulates business investment and foster
the development of uneconomic sectors. Airport provides with a wide range of benefits apart
from the development of industrial sectors, such as the creation of fast-paced global network for
businesses. Aerotropolis is becoming increasingly popular among businesses especially for those

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firms who deals in international trade and development. Property divisions or real-estate is being
established around various airports in order to expand the landside commercial areas and
development of regions beyond the boundary of airport (Chang et al., 2015). This development
establishes the fact that airport facilities has been expanding overtime and the structure has been
shifting from aeronautical infrastructure into complex business hub, which serves both for
commercial development and aeronautical needs. However, the expansion of airport into
aerotropolis or business hub comes up with various problems that is generated from the
transmission of transport depot into a nerve center for business development.
On the contrary, entrepreneurs sometimes fail to identify the importance of a social
infrastructure over the creation of physical infrastructure. They are unable to apprehend the
importance of connectivity which serves as the most crucial element for aerotropolis. Although,
aerotropolis act as an indicator of economic growth for most of the economies, yet the factors
relating to the creation of a successful aerotropolis remains relatively scarce. The theories
relating the growth and development of aerotropolis is limited. According to Berawi, Affiandi &
Miraj (2019), quantitative analysis and decision making method is effective for the determination
of factors positively affecting the development of the surrounding area of airport, although
negligence has been done in understanding the dependency of the system. The author has
actively used two models for understanding the development of various parameters such as
preference and the aspiration level with respect to standard of living of the economy and demand
for accommodations. However, this relation sometimes become vague when consumer
preferences and behavior change overtime that can hamper the overall functioning of the
ecosystem with respect to market-oriented outcomes (Flores-Fillol, Garcia-López, & Nicolini

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2016). A new hybrid model has been introduced in the market which shows that aerotropolis is
an efficient diver of economic growth.
According to experts, markets is highly dominated by air transport due to improvement of
trade relations across economies which has increased consumer demand for goods and services.
The airport acts as a gateway for regional growth because it acts as a city in itself that provides
all the services. It has living space for workers and their family members along with major roads
and infrastructure connections that helps top avail inputs and sources needed in most factories.
Aerotropolis help in the globalization of economies with the availability of various facilities and
opportunities for the people (Wium & Coetzee, 2014). The airport area serves as a development
of many sectors that generate economic growth due to a change in the business model. The
factors affecting the development of businesses around aerotropolis are professional personnel,
land and cost, business environment, free trade zone, transfer and transportation system,
geographic location, transportation sectors, sustainable development program, leisure and tour.
The most effective among them are the transportation and transfer system which helps to transfer
businesses in various regions with respect to market oriented outcomes (Graham, 2019).
Aerotropolis has to be built by keeping in mind about the transfer system that transports
goods at low cost. The effectiveness of aerotropolis lies in the expansion and development of a
free trade zone that improves the performance of trading environment. Enough land and has be
available in the surrounding region of airport to expand the operation of aerotropolis with respect
to a low rental price that enhance business productivity (Banai, 2017). This requires professional
personnel for an experience or knowledge about the management of aerotropolis. The area must
have relevant tax incentive structure as per tariffs and land rents to boost the productivity of
industrial sectors. There is need for a regulatory authority who would govern the growth of

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business as per the change in market oriented outcomes. The concept of aerotropolis does not
work as planned in few cases which hampers the development of business and grows the
business outcomes (Misago, 2016).
The sectors that generates most of profits are shopping sectors that is widely visited by
the air travelers or foreigners who come on holidays of for other work purpose. Tourism sector is
one of the most efficient sector that drives the revenue for aerotropolis due to the provision of
cultural facilities that is highly preferred for business development. The concept of aerotropolis
does not work as planned in few cases which hampers the development of business (Nasution,
Harisdani, & Napitupulu, 2017). The aerotropolis must have a suitable geographic location that
connects the urban sector with aerotroplis for the faster growth and development of aerotroplis.
A case study of Taiwan has been done who has global supply chains and electronic export.
Initially, they were having several problems, which occurred from the proper management of
resources, transportation cost, land expropriation difficulties and sectorial growth. With time, the
airport authorities started seeing the need for creation of aerotroplis, which eventually acted as a
center for exportation. This flexibility of supply chains increased the demand for goods and
increased the value of export earning with a growth in terms of GDP.
Problems of aerotropolis
The concept of aerotropolis does not work as planned in few cases which hampers the
development of business and has several problems. There are several empty office buildings and
underperforming logistics around the world which is the result of falling productivity of various
business operations in the aerotropolis. During the early periods of aviation, airport builders have
tried to integrate airport with wide range of services that is highly demanded by air travelers
which led to the formation of supermarkets, parking lots and sky scrapers. They predicted that

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land near to airports would be the desired place to grow businesses and increase the transport
networks across the economies as per the change in development sectors.
Airports does not have much growth like the city centers, who have attracted the
customers over the past twenty years. It could only attract business relating to the provision of
consumer goods and cannot grow industries. Airport act as a hub for logistic firms who controls
the overall regulation of goods and act as a point of contact between origin and retail stores
(Berawi, Affiandi, & Miraj, 2019). However, logistic firms want to set up their business in one
of the most cheapest areas in order to maximize their profit by offering a low price with is
backed by a low production cost structure. Setting firms in aerotropolis generally involves a high
cost, which makes the good a lot more expensive and less appealing.
Aerotropolis does not necessarily generate economic growth and in many cars it lowers
the level of profits to increases cost that poses a great threat to the economy. Aerotropolis leads
to a reduction in the farmlands and forest area that serves inputs for many industries. Firms in
aerotroplis are charged with a high rental price that hampers their growth outcomes by reducing
the business outcomes. Aerotropolis works as a hub for business but cannot influence the
performance of all the sectors. It is mainly concerned with sector related to logistics, supply
chain, food and tourism sector (Crosby & Maharaj, 2015). The concept of aerotroplis does not
work as planned in few cases which hampers the development of business in several areas.
Moreover, the rate of growth fluctuates each year and as per seasonal visits. Firms face problems
due to insufficient infrastructure, inadequate regulation and land expropriation.
Role of aerotropolis in driving economic growth

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The creation of aerotropolis has been a mainstream concept in each economy. Although,
there are some problems, yet it has the potential to raise the economic standard of the economy
with substantial social and economic benefit. It creates opportunities for the expansion of global
and local communities across economies. Experts have evaluated the effectiveness of
aerotropolis across North America and Europe, which has gained the airports and retained
substantial profits (Flores-Fillol, Garcia-López, & Nicolini, 2016). The model is attracting
businesses because of a faster development of the sectors relating to pharmaceuticals,
semiconductors, fabrication and management consulting. They understood the potentiality of
nearby airport location as suppliers are expanding their business around the globe.

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Reference List
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