Wednesday, February 3, 2016

This Is Why No Airline Will Ever Dominate LAX

American and Delta would each like to be Los Angeles’s “hometown” airline, but LAX is a different bird.

It’s a battle for Los Angeles that may never have a clear winner.

American Airlines Group Inc. and Delta Air Lines Inc. are fighting to be the biggest airlines at Los Angeles International, the largest airport in one of the world’s most lucrative air travel markets.

Earlier this month, American said it will build two gates at LAX to allow 20 new daily flights, bringing its total to 220 flights and 70 destinations. It comes after Delta celebrated the completion last summer of a $229 million renovation of LAX’s Terminal 5, at which it operates, including a private entrance for celebrities and other elite travelers.

Delta says it has doubled its nonstop destinations from LA, to nearly 60 since 2012, and has doubled its seat count since 2009. With 15.4 percent of passenger share, Delta still trails American, which has 17.8 percent, as well as both United Continental Holdings Inc. and Southwest Airlines Co., according to the latest federal statistics.

“Right now it’s a race between us and Delta to be the biggest at LAX, but we feel good about our chances of winning that race,” said Doug Parker, American Airlines’ chief executive officer, on Jan. 13 in an employee newsletter. Almost 75 million passengers went through LAX in 2015, the second record set in as many years.

Despite the terminal renovations and flight expansions, it’s unlikely that LAX will ever be a true “fortress hub” like Atlanta (Delta), Dallas-Fort Worth (American), or Newark, N.J. (United), in which a single airline can command as much as 75 percent of the traffic.

For one thing, LAX isn’t the only game in town. It splits air traffic with four other airports within 55 miles, all with more than one airline offering service. An additional influential factor is how popular Los Angeles is as a tourist and business destination.

Most dominant hubs are skewed toward connecting service, with only about one-third of passengers starting or ending there, noted Andrew Nocella, American’s chief marketing officer. “In LA, you see almost the reverse,” he said.

This dynamic is also evident in such other major cities as New York and Washington, which haven’t evolved into dominant hubs. At Chicago O’Hare, United and American have hubs and split passenger share.

Geography also plays a part. The fact that LAX is perched on the Pacific means it’s not as useful as a connection hub for east-west domestic flyers. Most of the connecting flows at LAX today are to and from Hawaii and Asia. “LA is just in a different set of circumstances,” Nocella said. “We’d like to go significantly higher, but we don’t anticipate LA would be a hub the size of a Dallas or Charlotte.”

Big airports also like to have as wide an array of airlines as possible to help stoke competition, curb fares, and expand destinations, said Michael Sikes, Southwest’s senior manager of network planning and performance. “If you’re an airport, I think you probably like a diversification of carriers.”
Delta and Los Angeles World Airports, the city department that manages LAX, recently signed a non-binding letter of intent to negotiate a lease for Delta to relocate to Terminals 2 and 3. A variety of international airlines use Terminal 2, while 3 is home to Frontier Airlines, JetBlue Airways Corp., Virgin America Airlines, Spirit Airlines Inc., and a few others.

American is spread among four terminals; any Delta relocation could be a catalyst for American to consolidate its far-flung real estate and improve passenger experience. Delta spokeswoman Elizabeth Wolf declined to comment further on the airline’s effort to relocate.

The other battlefront will be for corporate sponsorships, which can help secure business travelers and good publicity when celebrities are customers. American has signed up the Hollywood Bowl, the LA Clippers NBA team, Universal Music Group Inc., and others. Delta boasts the LA Lakers, the Grammy Awards, and the NHL’s LA Kings.

Even though LAX is unlikely to ever be a true airline hub, it has something even more important to carriers focused on landing high-value customers: Hollywood’s elite.

(Justin Bachma - Bloomberg Business News)

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