Airport projects may be grounded
Don’t be fooled by the crowds this summer at LAX: Troubles loom large after Labor Day for the nation’s airlines, passengers and airports.
Thanks to higher oil prices, fares are rising, airlines are cutting flights, older gas-guzzling planes are being mothballed and passenger fees are being added almost weekly. Now improvements worth hundreds of millions of dollars at aging passenger terminals and other airport facilities are in jeopardy.
These projects are financed with fees paid by airlines that use the airport. But airline industry officials have begun warning airport operators that major service cuts are on the way and they need to consider the consequences of a prolonged economic downturn before proceeding with expensive capital improvements.
“Our message to the world at large -- the federal government, the states and airports -- is that the industry is in a severe economic crisis. We need to urge them to take that into account when making decisions,” said John M. Meenan, executive vice president of the Air Transport Assn.
Some major expansion and renovation projects are getting a second look. Oakland International Airport has shelved plans for a $500-million terminal after it lost three airlines, with two more to be lost in September. Passenger traffic is expected to fall more than 23%.
Depending on what happens later this year and beyond, airport operators say plans for LAX and facilities in San Bernardino, Long Beach and San Jose could also see revisions.
Citing robust foreign travel, LAX officials say they will proceed with a multibillion-dollar plan to improve Tom Bradley International Terminal, including installing new gates on the west side that can accommodate the next generation of large aircraft, such as the Airbus A380.
LAX is preparing to sell almost $1 billion worth of bonds to investors this month to help finance the first round of improvements.
But Gina Marie Lindsey, director of LAX operator Los Angeles World Airports, cautioned that “if airline growth continues to moderate, we might have to push back some of our long-term projects.”
Those projects include a consolidated rental car facility, a mid-field concourse and reconstruction of the two runways on the north side of the airport.
The fallout is expected to be particularly acute for smaller airports in Southern California and may damp hopes to spread domestic air travel from LAX to nearby regional airports such as Ontario and Orange County’s John Wayne. Airlines typically stick with their major hubs when cutting back service.
The industry’s financial woes may dash San Bernardino County’s plan to attract its first commercial airline to a newly remodeled former military base, where about $80 million has been spent on terminal and runway improvements.
“The downturn will result in a different aviation system in the U.S.,” Meenan said, noting that as many as 200 small cities could lose scheduled airline service this year. Bakersfield, for instance, is slated to lose more than a third of its airline service in September.
Although their losses won’t be so dramatic, regional airports in Southern California are expected to see available seats drop in September. John Wayne could lose as much as 14%, Ontario nearly 20% and Burbank’s Bob Hope Airport more than 10%. The decline is expected to worsen in November for some airports such as Ontario, where airline service is seen dropping nearly 30%.
Long Beach and San Francisco International airports are the only ones expecting service to rise. San Francisco, which expects 5% passenger growth this year, is renovating one of its main terminals at a cost of at least $380 million. In 2000, the airport completed a $1-billion international terminal.
In Long Beach, low-fare carrier ExpressJet Airlines plans to beef up flights, which would increase passenger traffic by 4% in September compared with a year earlier.
Nevertheless, airport officials say they plan to meet with their carriers to see whether any changes need to be made to a terminal renovation project.
Shortly after Labor Day, U.S. carriers plan to make sharp cuts in flights, initially eliminating about 10% of seats to levels not seen since shortly after the September 2001 terrorist attacks that grounded air travel.
Demand for air travel is falling faster than the rate at which airlines are planning cutbacks, said Joe Brancatelli, an air travel consultant. “Sept. 3 is like a magic number where they close the spigot,” Brancatelli said. “Business travelers have hit their limit in price, and leisure travelers are walking away because they can’t afford to fly.”
Airfares on average are up nearly 20% this year, and some analysts expect plane tickets to rise another 20% by the end of the year. But that still hardly compares with airlines’ fuel expenses, which are up 69% since last year.
United Airlines, for instance, said in a filing with the Federal Aviation Administration last week that fuel accounted for about 70% of the cost of flying its largest passenger jet. With a barrel of oil in the region of $140, the airline spends more than $70,000 for fuel for a 10-hour flight on a Boeing 747-400, or about $200 per passenger.
Airlines are trying to close the gap by adding myriad fees for services that have traditionally been included in the fare. Such unpopular moves are hastening the downward spiral in air travel.
Airline service at LAX is expected to drop by about 5% overall, most of it in domestic travel. But international demand is giving LAX officials the confidence to begin renovating the Bradley terminal.
Frank Clark, executive director of LAXTEC, a trade group for foreign carriers at LAX, described the Bradley terminal as “substandard” and said that the long-awaited improvements were needed.
In Oakland, airport officials are taking a more cautious approach. After more than a decade of passenger growth, last year Oakland drew up plans to build its third terminal. But since then, traffic has dropped 15% to 20%.
“No one can tell me what the business is going to be like in two years,” said Steven Grossman, director of aviation for the Port of Oakland, which operates the airport. “Why should we risk going ahead spending millions of dollars when we are not sure what is going to happen?”
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With the exception of Long Beach Airport, airlines are planning sharp cuts in flight service in Southern California after Labor Day as rising fuel prices and a weak economy hinder air travel. The changes expected in September compared with a year earlier, expressed in the number of seats per week.
Burbank’s Bob Hope Airport -- Decline of 8,726
Long Beach Airport -- Gain of 1,387
Los Angeles International Airport -- Decline of 37,654
Ontario International Airport -- Decline of 19,310
Orange County’s John Wayne Airport -- Decline of 18,138
Source: Airline passenger research firm Innovata