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LAXintl
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LAX Airlines Cry Foul Over New Rents

Wed Dec 20, 2006 3:05 am

As previously posted in an a archived thread that I cannot add onto, the Los Angeles Airport Commissioners yesterday voted 7-0 to approve new rental rates for airlines in T-1,3 and 6 whom are not on long term exclusive leases.


LAX terminal fee hike approved

Rents for low-cost carriers would be nearly quadrupled. Some experts fear airlines will pull flights. There may still be renegotiation.
December 19, 2006


Over the strong objections of air carriers, the Los Angeles Board of Airport Commissioners unanimously approved on Monday what airlines decried as the largest terminal fee increase in industry history.

Although the potential effect on passenger ticket prices remained unclear, the rate hike, which is to go into effect Feb. 1, would nearly quadruple rents and other fees for low-cost carriers in Terminals 1 and 3 at Los Angeles International Airport, from $76 million over five years to $292.8 million, according to carriers.

Airlines at those terminals flew about 31% of the domestic passengers at LAX last year, leading some experts to worry that the increases could prompt them to pull flights

Airport officials said the increases would raise the cost per boarded passenger at LAX by about $4.19 for carriers in Terminal 1, to $9.89. For airlines in Terminal 3, costs would jump about $5.45, to $11.60. Even with these gains, LAX would still be cheaper than many large facilities nationwide, they argued.

"We believe these rates and charges are just and reasonable and fair," said Karl Pan, the airport's chief financial officer.

But low-fare carriers argue that it isn't easy for them to raise fares, saying that frequent fliers rely on them to keep ticket prices low.

"We have to price our service on a competitive basis," said Southwest's Ricks. "If we say we're going to increase our fares by $30 to $40 a ticket, it might not mean that much to a wealthy lawyer, but it means a lot to our customers."


The entire article can be read at; (free registration required)
http://www.latimes.com/news/local/la...story?coll=la-headlines-california

And the previous post and discussion about the then proposed rent increase can be viewed at; http://www.airliners.net/discussions..._aviation/read.main/3108283#menu26
From the desert to the sea, to all of Southern California
 
socalatc
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RE: LAX Airlines Cry Foul Over New Rents

Wed Dec 20, 2006 3:12 am

Hopefully LAWA will take the extra rent money and do something with it. Like repair the decrepit terminals, not buy new cars or give pay raises to employees that are already over paid and under worked.
 
gmcc
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RE: LAX Airlines Cry Foul Over New Rents

Wed Dec 20, 2006 3:25 am

Quoting Laxintl (Thread starter):
Rents for low-cost carriers would be nearly quadrupled

Does this mean that rents for "high-cost carriers" like AS, QX and other are not going up.  no  It really affects all carriers in T-1 and T-3. How do these rates compare to the other terminals. If the are similar they I don't think the carriers in the affected terminals should complain. They can complain but should not. However, if rate at other terminals are cheaper then I can see why the airlines are upset.
 
ikramerica
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RE: LAX Airlines Cry Foul Over New Rents

Wed Dec 20, 2006 3:35 am

Quoting Laxintl (Thread starter):
"We have to price our service on a competitive basis," said Southwest's Ricks. "If we say we're going to increase our fares by $30 to $40 a ticket, it might not mean that much to a wealthy lawyer, but it means a lot to our customers."

This is how you know their argument is just whining:

When faced with increased costs of $5, they say it would force them to charge 6 to 8 times that to the customer?

Give me a break.
Of all the things to worry about... the Wookie has no pants.
 
AeroWesty
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RE: LAX Airlines Cry Foul Over New Rents

Wed Dec 20, 2006 3:40 am

According to the article:

"The city's airport agency does not rely on tax dollars but has a separate budget, funded primarily by landing and terminal fees from airlines and revenue from airport shops, restaurants and parking."

It appears LAX is successful enough as a destination that it doesn't require local taxpayers to fund it to draw passengers or subsidize flights. Good for them.

Quoting Laxintl (Thread starter):
"We have to price our service on a competitive basis," said Southwest's Ricks. "If we say we're going to increase our fares by $30 to $40 a ticket, it might not mean that much to a wealthy lawyer, but it means a lot to our customers."

I didn't understand this complaint from Southwest at all. LAX is talking about raising fees less than $5 per passenger, not $30-$40. If Southwest is going to argue against the price hikes, they should argue the facts, not absurd theoreticals.
International Homo of Mystery
 
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LAXintl
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RE: LAX Airlines Cry Foul Over New Rents

Wed Dec 20, 2006 3:45 am

Quoting Gmcc (Reply 2):
It really affects all carriers in T-1 and T-3. How do these rates compare to the other terminals.

The rate hike effects all airlines in T-1, T-3 and Continental in T-6.

Remaining airlines such as AA, UA etc.. operate under multi decade, long term exclusive lease holds, which include regular annual adjustments.

The new rents for T-1, T-3 and CO cover airlines which have been on month to month leases whose rates expired back in 2000. So in other words they have been paying what could probably be rightfully said to be "sub-market" leases all these years.

I dont believe any of the airlines really have a problem with a rent increase after all these years parse, its just that the airport is beginning to follow the lead of other airports in the country calculating the lease rates in a formula besides what actual office/ticket counter/gate footage you might be leasing.
The new formula takes variables such as number of flights and passenger volume and divides up the cost for all public use facilities also based on the airlines size/volume. Prior to these LAX carriers only paid for the actual amount of square footage leased, not on their actual use of the facility.

Ultimately, while this increase might come as a shock, LAX remains one of the cheaper major US airports to operate at with places like SFO, DEN, ORD etc having significantly higher rental rates.

just my $.02
From the desert to the sea, to all of Southern California
 
travelin man
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RE: LAX Airlines Cry Foul Over New Rents

Wed Dec 20, 2006 3:47 am

Quoting Gmcc (Reply 2):
How do these rates compare to the other terminals. If the are similar they I don't think the carriers in the affected terminals should complain. They can complain but should not. However, if rate at other terminals are cheaper then I can see why the airlines are upset.

But AA, UA, and DL have all paid to update their terminals. They are not "community" terminals like T1, T3, and T6.

Given LAX will still be cheaper to operate out of than many other airports, I don't think this is "unfair".

I do hope LAWA takes the extra money and fixes up those terminals, however.
 
jcavinato
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RE: LAX Airlines Cry Foul Over New Rents

Wed Dec 20, 2006 4:50 am

T-1 is pathetic. There have been times when there wasn't a single seat available. Add to that those folks lining up to get whatever decent seat they can get on their Southwest flight, and you've got a floor that is sometimes unnavigable.

The only improvement I've seen in that terminal was TSA opening more lines and figuring out as smooth a flow as possible...and their folks seem efficient and accommodating given their tasks (even though the lines often are outside on the unloading sidewalk).

I bet not a single cent of this rent increase will go to improving that terminal and situation.
 
PanAm747
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RE: LAX Airlines Cry Foul Over New Rents

Wed Dec 20, 2006 4:53 am

Question: Has it been decided yet if there's even going to BE a terminal 1, 2, and 3? Didn't one of the long-term plans include moving runway 24L to the south necessitating their demolition? Or has the land been acquired to relocate 24R to the north?

In answer to the cries of "foul", I would expect nothing less for the airlines. Standard business negotiating tactics dictate you push to see what you can get away with, but in the end, it's all a game of chicken disguised as a bull fight.

The airlines know that LAX is consistently a profitable route - and why airlines don't sign long-term contracts is beyond me. Perhaps this will (a) get LAX to renovate some of its terminals - starting with the set of the movie "Airplane!", and (b) convince the airlines that they need to get long-term status now so when the capacity limit is eventually reached, they can have certain gates grandfathered in for their long-term use.
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jcavinato
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RE: LAX Airlines Cry Foul Over New Rents

Wed Dec 20, 2006 4:58 am

PanAm747, you're right on the money. It's a classic economic constraint situation, so nailing down what can be done now with long term contracts is the only option. Then, those that have will be those who get (don't know whoever said that, but it seems to be an old truism).
 
Tom in NO
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RE: LAX Airlines Cry Foul Over New Rents

Wed Dec 20, 2006 5:16 am

Quoting AeroWesty (Reply 4):
It appears LAX is successful enough as a destination that it doesn't require local taxpayers to fund it to draw passengers or subsidize flights. Good for them.

The vast majority of US airports gain their revenues and operating funds from user fees.....very few are supported financially by local taxpayers.

Tom at MSY
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futurecaptain
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RE: LAX Airlines Cry Foul Over New Rents

Wed Dec 20, 2006 5:19 am

Quoting AeroWesty (Reply 4):
It appears LAX is successful enough as a destination that it doesn't require local taxpayers to fund it to draw passengers or subsidize flights.

IIRC all major airports have to be self sufficient. Someone correct me if I'm wrong.
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LAXintl
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RE: LAX Airlines Cry Foul Over New Rents

Wed Dec 20, 2006 7:58 am

Quoting PanAm747 (Reply 8):
Question: Has it been decided yet if there's even going to BE a terminal 1, 2, and 3? Didn't one of the long-term plans include moving runway 24L to the south necessitating their demolition? Or has the land been acquired to relocate 24R to the north?

That part of the Masterplan which called for North runway relocation and a new single large Northside terminal concourse replacing T1-3 was not one of the sections that was green lighted as part of the Master Plan court settlement.

In recent weeks however as the Southside runway work is nearly finished up two months early ( http://www.airliners.net/discussions...general_aviation/read.main/3139264 ) there was a blip about the airport looking for funding to study the Northside relocation, however I'm not sure how serious they really are as Mayor Villaraigosa whose been a supporter and drive behind getting the stalled Master Plan back on track has publicly stated he is against that portion of the plan and the community impact it would have on folks to the North of the airport.
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AADC10
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RE: LAX Airlines Cry Foul Over New Rents

Wed Dec 20, 2006 8:02 am

Quoting Gmcc (Reply 2):

Does this mean that rents for "high-cost carriers" like AS, QX and other are not going up.

Their leases will probably go up also, since I believe that they do not have long term leases either. It is figured that WN and US will take the biggest hit. CO may also get an increase along with the other airlines for their portion of the shared T6, UA and DL. AA, UA, DL and NW have long term leases and have made direct investments in their own terminals

Quoting Futurecaptain (Reply 11):
IIRC all major airports have to be self sufficient. Someone correct me if I'm wrong.

I believe that all major airports are self sufficient, but they do not have to be. Most cities contribute infrastructure such as roads leading to the airport and some smaller cities will build facilities in the hope of attracting flights. At the same time, FAA rules do not allow profits to be diverted to city coffers.

I still think this is a move to put pressure on LCCs to move flights to ONT. LAWA would be free to make "improvements" to T1,3 & 6 and pass along the costs to the airlines. WN wanted to boot US out of T1 and send them to T8, but UA is squatting on T8 by moving UAX there. This will kill WN's desire for more gates at LAX, since the additional gates will have the higher lease rates to go along with them.

There will be a slight benefit to passengers in that there probably will be some improvements to the dumpy shared terminals.
 
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LAXintl
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RE: LAX Airlines Cry Foul Over New Rents

Wed Dec 20, 2006 8:38 am

Quoting AADC10 (Reply 13):
Their leases will probably go up also, since I believe that they do not have long term leases either. It is figured that WN and US will take the biggest hit. CO may also get an increase along with the other airlines for their portion of the shared T6, UA and DL. AA, UA, DL and NW have long term leases and have made direct investments in their own terminals

The cost increase covers all airlines in T1 & 3, including AS/QX but only CO, Copa and AeroMexico(ticket counter lease) in T6. Both UA and DL presence in T-6 are covered under their respective longer term exclusive leaseholds with UA for example expiring in 2021, while DL's lease is still up in the air due litigation as part of its Ch11 process.
From the desert to the sea, to all of Southern California
 
gmcc
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RE: LAX Airlines Cry Foul Over New Rents

Wed Dec 20, 2006 8:45 am

The simple solution is for some airline in T-1 and T-3 to step up and sign a long term lease. I don't think any airline will but it is time for some airline free the terminals from the LAWA orphanage and turn them into places people want to travel out of.
 
jfk777
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RE: LAX Airlines Cry Foul Over New Rents

Wed Dec 20, 2006 9:23 am

I don't feel sorry for lcc at LAX. Miami and JFK, the other 2 mainly international airports of the USA charge more then LAX does. Southwest chooses to fly to LAX, JetBlue flies to Long Baech ? Could it cost less in LB, yes. SW should pay the same price Cathay, BA, Qantas and all the big guys do if they want a seat at the LAX table. In Florida Southwest flies to Fort lauderdale not Miami.

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