LAX economy loses altitude
From its perch by the runways, the Proud Bird Restaurant offers a commanding view of Los Angeles International Airport. But these days, the jets aren’t screaming by as often as they did a few years ago.
The streets surrounding the airport are quieter too, as freight companies idle their cargo trucks and lay off their warehouse workers. Shuttle and parking service companies, meanwhile, are fighting for customers as never before.
“It’s just sad,” said Elizabeth Lazcano, catering director at the Proud Bird, whose banquet halls depend on steady trade from airline worker retirement parties and group luncheons. “In my 27 years, this is the first time I’ve seen it this bad.”
It’s here, in the community of businesses that surround and rely on one of the nation’s largest airports -- and Asia’s gateway to America -- that the effects of the global economic crisis are being felt as hard as anywhere.
Passenger traffic has declined about 15% in the 12 months ended in February, while cargo has dropped 24%.
The dramatic declines are made tougher for the surrounding businesses because they come at a time when LAX has seen its market share challenged by competing airports in San Francisco, Houston, Miami and other cities.
The airport was the world’s third-busiest for freight in 2000 but has since fallen to 13th, according to the Airport Council International. In the same time period, it went from being No. 3 worldwide in passenger traffic to No. 6.
The toll is especially heavy because LAX is one of the region’s chief economic engines -- a city within a city that generates thousands of jobs and billions of dollars.
As one gauge of the airport’s financial power, the Los Angeles County Economic Development Corp. looked at how much revenue was generated by a typical flight traveling round trip every day between LAX and an overseas city. The estimates included a variety of factors, including hotel and restaurant bills racked up by flight crews and the money made by truckers who pick up goods from aircraft cargo holds.
The annual total: $623 million in business revenue, 3,120 jobs and $156 million in wages to Southern California.
“It is such an important piece of our economy,” said Nancy Sidhu, chief economist for the economic development office. “Two of our key industries are tourism and international trade, and LAX is a core element in both of those.”
The ripple effect can be found just a short distance away in nearby hotels. Though slightly better than the regional averages, occupancy rates in January were still down 12.1% from a year earlier, and revenue per room dropped 17.4%, according to PKF Consulting, a hospitality research and consulting firm.
Industrial real estate executives in the area are reporting prolonged vacancies and tenants struggling to make the rent. They are hard-pressed to name any examples of companies expanding.
“The differentiating feature of this downturn is that in past downturns, we could rely on someone who was still doing well, no matter what was happening domestically,” said Harvey Beesen, a principal at Klabin Co., a real estate brokerage, and president of the LAX Air Cargo Assn. “We expect the greater LAX sub-market to remain in a defensive posture until someone, somewhere around the globe reverses current trends and resumes business expansion.”
The airport’s cargo business has been good to Keith Davis. His 16-year-old company, Sterling Transportation Inc., is situated off Imperial Highway with a clear view of airplanes taking off and landing.
Until last year, Davis’ company saw 20% growth for 10 straight years. He filled a niche market: trucking goods in as fast as three days from LAX to Miami, a trading hub for Central and South America.
Then the economy began to sour. Now revenue is down 30% from a year ago.
The difference can be seen in Davis’ warehouse, where only a small fraction of the space is crowded by the usual array of Chinese-made clothing, televisions and DVD players destined for Latin America.
“We used to be receiving all day long,” Davis said, lamenting the times when there wouldn’t be room to walk between the rows of boxes. “Now most business only comes in the late afternoon.”
In January, Davis had to lay off six employees from his warehouse and office. He had his sales staff double their daily phone calls to find more customers. He reduced his salary by a third and stopped taking clients out to expensive meals at his favorite sushi restaurant in El Segundo.
His longtime clients have pressured him to reduce his rates 10%. For others, the pressure is even greater.
Victor Tamero, who owns V&E; Trucking Inc., said he had to drop his rate in January from $373 to $125 for the use of one of the company’s tractor-trailers.
“In my 22 years in the business, this has been the worst,” Tamero said. “I had to lay off three drivers. Now I have four.”
The drivers who stayed took pay cuts that reduced their weekly wages to $700 from $1,200.
Tamero said he had no choice; his cargo volume was down by half. The father of five said the financial strain forced him to sell his home in Rancho Palos Verdes. The family moved to another house in Lennox.
“I woke up one morning in shock,” Tamero said. “I went from Palos Verdes to Lennox. It’s tough.”
Today’s declining air traffic at LAX complicates the latest multibillion-dollar plan to upgrade Tom Bradley International Terminal by 2013.
A consortium of international airlines recently expressed concern that the renovation would result in higher landing fees and terminal rents. Airport workers could also face furloughs to offset the city’s budget deficit.
It is against this backdrop that businesses around LAX try to move forward.
But it’s been tough going for the likes of airline caterers who have seen their industry shrink 40% since 2000, said Roxanne Conrad, a spokeswoman for LSG Sky Chefs, which has a kitchen adjacent to the airport.
The recession only heightens their struggles as more cash-strapped airlines eliminate meal services. In the last six years, Sky Chefs has had its orders at LAX slashed nearly in half. It has adapted by consolidating three kitchens into one, Conrad said.
With fewer travelers, transportation services to the airport have also suffered.
SuperShuttle International, with its familiar blue vans, has watched ridership drop 8% from February 2008. Company executives said the numbers could be worse had they not been able to steal away customers from more-expensive car services.
One of those companies is Airport Valet of California Inc. Manager Sean Shilleh said many of his clients were employees at Bear, Stearns & Co. and Merrill Lynch & Co.
For $23.95 a day, customers drop off their cars at Shilleh’s storefront on Sepulveda Boulevard and are ferried to their terminal. When they return to LAX, Shilleh sends a driver to pick them up and return them to their cars.
During better times, the service was a common perk for executives and celebrities. But business has declined 20% from a year ago.
“Customers have to pay out of pocket now because employers are paying less for these services,” said Shilleh, who has reduced hours for his workers. “We’re trying to ride it out until the economy turns around. But you can tell everyone is hurting around here. Nobody’s traveling.”