THE BATTLE FOR LAX
By Joe Brancatelli
May 1, 2013 --Just when we thought that mergers meant unholy and unhealthy oligarchies in the skies, a good, old-fashioned airline war is breaking out in Los Angeles, the nation's second-largest travel market.
The spoils of victory: a dominant slice of our business at Los Angeles International Airport, the inelegantly named (and some would claim inartfully and annoyingly configured) LAX.
Like New York, by far the nation's most important and profitable airline market, Los Angeles is too large to be controlled by a single airline. The total Los Angeles "catchment area," industry jargon for number of potential customers, is a gargantuan 16 million people. Like New York, Los Angeles serves both as a major transoceanic international gateway as well as a magnet for O&D (origin and destination) traffic, the industry term for passengers who start their journey at or are trying to reach the local market.
Unlike New York City, however, where three airports share the immense business-travel pie, Los Angeles and Southern California is basically a one-airport town. According to government statistics, LAX ranked fifth in domestic and eighth in international passenger enplanements in 2012. Taken together, that's around 60 million departing and arriving fliers a year, more than the combined traffic of all of the other airports in Southern California, including Burbank, Long Beach, Palm Springs, Orange County, Ontario and San Diego.
"LAX is the pot of gold at the end of a very rare rainbow," an airline executive recently told me. "Billions are at stake and no airline sees a profitable path forward without having a meaningful presence at the airport that defines the Los Angeles market."
With about 19 percent of the market in the 12 months ending in January, United Airlines has traditionally been the LAX leader. But American Airlines, with more than 18 percent, has always been a close second. After a 20-year drive to dominate the so-called California Corridor of intrastate flights, Southwest Airlines is a solid number-three with an estimated 15.7 percent market share. Atlanta-based Delta Air Lines has recently been an LAX also-ran even though it began its rise to national prominence thanks to a 1986 merger with Los Angeles-based Western Airlines.
But those are figuratively and literally last season's numbers. At least two carriers are making flashy runs at the LAX market this spring.
In April, American launched nonstops to Raleigh-Durham. Starting next month, it adds seven new destinations to its LAX operation. That'll boost American's Los Angeles presence to 51 cities, not to mention the panoply of LAX flights operated by its Oneworld Alliance partners: Air Berlin, British Airways, Iberia of Spain, Cathay Pacific of Hong Kong, Qantas of Australia, Malaysia Airlines and the Latin American carrier LAN.
Delta Air Lines is also bulking up at LAX. It is adding new flights or additional frequencies in more than a dozen markets. It has forged marketing ties with Virgin Australia, which flies into LAX, and is buying 49 percent of Virgin Atlantic, which is strong on the LAX-London run. A regional powerhouse, Seattle-based Alaska Airlines (NYSE: ALK), one of Delta's code-share partners, has moved into LAX Terminal 5, which Delta dominates and will help renovate.
As befits a market as diverse and nuanced as Southern California, the battle for LAX has a cornucopia of angles that could turn the tide for one of the major airline players.
American, for example, will pick up the market share of US Airways when the two carriers eventually merge. But since US Airways' management will run the combined airline, the future of American's so-called "cornerstone strategy"--focusing vast resources on large global cities like Los Angeles, New York and London--could change. US Airways currently operates about 99 percent of its flights from its own fortress hubs like Philadelphia and Charlotte and it has historically retreated from competitive towns rather than fight it out.
Delta Air Lines' investment in Terminal 5 shows how important ground facilities are at LAX. United's LAX operations sprawl over three terminals, an unwieldy and passenger-repellant arrangement. And like most other carriers, long-haul international flights operated by United's code-share partners depart and arrive from the Tom Bradley International Terminal (TBIA). In contrast, American's domestic presence at LAX is concentrated in Terminal 4, which has the advantage of being the closest to the TBIA, from where its Oneworld partners operate.
Airlines regularly complain about a shortage of gate space as well as an uninspired public areas, retail space and dining options, which airport officials are belatedly rushing to improve. That can't continue long-term, however, because a 2005 compromise that ended a 20-year battle over LAX's future essentially caps both the number of gates that can be operated and the number of passengers that can be served.
And while out-of-town fliers don't hate LAX with the passion they reserve for airports such as O'Hare in Chicago or Kennedy in New York, there's not much love there, either. In fact, LAX's only iconic feature isn't travel-related at all, but the futuristic Theme Building that opened more than 50 years ago.
The intra-airline competition itself is multi-faceted, too. Although it currently has the largest passenger market share at LAX, statistics show United Airlines is a distant fifth in revenue. That's because United mostly competes regionally from LAX and is locked in a slugfest for control of shorter-haul intra-California flights with Southwest, San Francisco-based Virgin America and even Alaska Airlines. However, United also has to guard its long-haul flanks on transpacific service and the high-profit, high-profile transcontinental service to New York.
"LAX is, um, vexing," one exasperated airport executive admitted to me last month while discussing the facility's ongoing renovation. The nearly $5 billion project almost always angers some interest group, including this week's complaints by nearby homeowners concerning the relocation of runways.
"No one is ever going to be fully satisfied with what we do here because no one uses the airport in the same way," he say. "What long-haul [international fliers] want is different than what the [California Corridor] travelers want. New York-LA customers are unique. And then there are the needs of the everyday O&D fliers. The twain never meets here."
ABOUT JOE BRANCATELLI Joe Brancatelli is a publication consultant, which means that he helps media companies start, fix and reposition newspapers, magazines and Web sites. He's also the former executive editor of Frequent Flyer and has been a consultant to or columnist for more business-travel and leisure-travel publishing operations than he can remember. He started his career as a business journalist and created JoeSentMe in the dark days after 9/11 while he was stranded in a hotel room in San Francisco. He lives on the Hudson River in the tourist town of Cold Spring.
THE FINE PRINT This column is Copyright © 2013 American City Business Journals. All rights reserved. Reprinted with permission. JoeSentMe.com is Copyright © 2013 by Joe Brancatelli. All rights reserved.