ONT and LAWA Regionalization
Prepared for:
LAWA Board of Airport Commissioners
December 15, 2011
Regionalization: LAWA Stipulated Settlement Agreement
“LAWA shall develop a regional strategic planning initiative to encourage the
growth of passenger and cargo activity at underutilized LAWA-owned
commercial airports in the region (currently Ontario International Airport and
Palmdale Regional Airport). The regional strategic planning initiative will be
prepared annually and will describe potential marketing strategies, potential
opportunities for increased utilization of under-utilized facilities, and other
techniques by which LAWA can coordinate and support regional strategic
planning for LAWA-owned commercial airports within the region.”
After 18 months in which LAWA, the USDOT, and the City of Palmdale
spent more than $238 per passenger to subsidize air service at
Palmdale Regional Airport, United discontinued flights and LAWA
transferred the airport operating certificate to the City of Palmdale
Note: LAWA owns 17,500 acres of land at Palmdale Airport, the airfield belongs to the Dept. of Defense, not LAWA
1
Passenger Traffic Continues to be Dispersed More Evenly Among Southern
California Airports, Despite Unprecedented Changes in the Airline Industry
Share of Southern California Passenger Traffic by Airport
Total Passengers, 1990-2010, for years noted
Note: Includes Domestic and International Passengers in Both Directions
Source: U.S. DOT, 298C and T100 Databases, Database Products Inc.
2
Although passenger traffic has returned to positive growth at LAX over the
past two years, its share of regional passenger traffic is below 2000 levels
Share of Southern California Domestic Passenger Traffic by Airport
1980-2010
74%
64%
65%
57%
58%
59%
60%
Source: Airport Records
3
Airlines have radically transformed their business models since the global
economic downturn began
Prolonged economic recession has driven airlines to cut seat capacity
through consolidation and/or partnerships with alliance partners
–
Most of the seat capacity cuts have been in less-profitable domestic markets
Most U.S. carriers are profitable again, due to growth in revenue from
ancillary fees and an unprecedented focus on international flying...
... however, fuel costs continue to threaten airline profitability and
growth
Low-cost carriers (LCCs) now focus on flying to primary airports in
large U.S. markets, at the expense of secondary airports like ONT
4
The pace of consolidation within the airline industry has quickened during
the global economic recession…
2000
vs.
2001
2011
TWA merged with American
2005
America West merged with US
Airways
*
2009
Frontier became a subsidiary of
Republic
*
2010
Northwest merged with Delta
2010
Continental merged with United
2011
AirTran acquired by Southwest
*Single Operating Certificate is Expected in 2012
Note: Includes airlines with at least $1.0 billion in annual revenue
5
…and airline consolidations have driven a new round of industry-wide seat
capacity cuts that have begun this quarter and will continue into 2012
Percent Change in Weekly Seats from 2010 by Month, U.S. Airlines, System-wide
2011
Source: OAG Schedules
6
Most U.S. airlines, some of which operate at ONT, will be cutting seat supply
across their networks…
Percent Change in Scheduled Seats from the Prior Year, U.S. Airlines, System-wide
4th Qtr 2010 vs. 4th Qtr 2011
Source: OAG Schedules
7
Most of the seat capacity cuts will come from culling uneconomical flying by
high-cost RJs… aircraft that typically serve smaller markets like ONT
U.S. Carrier Active Aircraft Fleet for Selected Aircraft Types
2007 vs. 2011
-9%
-16%
Small Regional Jet
(<= 50 Seat)
Narrow body
Jets
Source: ACAS, September 2011
8
Network airlines now focus on more profitable international flights and have
“re-trenched” to gateways, at the expense of secondary airports like ONT
Primary Airport Share of Regional Domestic O&D Passengers in Select Multi-Airport Markets
CY 2006 vs. 12 months ending March 2011 (latest year of available data)
Source: U.S. DOT, O&D Survey; Note: Bay Area includes: SFO, OAK and SJC; Los Angeles
includes LAX, ONT, BUR, SNA and LGB; and Boston includes BOS, PVD and MHT.
9
LCCs have also moved into these primary airports, to back-fill network
airlines’ domestic cuts -- again, at the expense of secondary airports like ONT
Change in Low-Cost Carriers’ Nonstop Seat Capacity Levels
August 2007 vs. August 2011
Weekly LCC Seats
By Airport
LCCs have increased
seat capacity at large
hub U.S. airports by
9.2% during the past
four years...
...but cut seat
capacity at medium
hub U.S. airports (like
ONT) by -3.2% during
the same period
Source: OAG Schedules, Note: Low Cost Carriers Include AirTran, Frontier,
JetBlue, Southwest, Spirit, Sun Country and Virgin America
* Includes Airports with Largest Increases in LCC Seats
10
Airports in ONT’s peer group have seen the largest declines in seat capacity
during the past four years
Large hub U.S. airports have seen airlines cut seat capacity by 5.4%
since 2007
Medium hub U.S. airports (of which ONT is one) have endured 20.2%
seat capacity cuts during the same period
Although medium hub U.S. airports only account for 18.4% of total U.S.
seat capacity, they accounted for 43.4% of seat capacity cuts during
the past four years
Source: OAG Schedules
11
Airlines’ seat capacity reductions at ONT have been much higher than the
national average for its airport peer group…
Percent Change in Weekly Seats
August 2007 vs. August 2011
Delta = Consolidation + RJ fleet cuts
United = Consolidation + RJ fleet cuts
Alaska = Q400 fleet cuts
US Airways = RJ fleet cuts
Southwest = Consolidation + New Market Growth
Source: OAG Schedules, Note: United Includes Continental
12
... and ONT has seen a larger decline in domestic passenger traffic among all
but one of its California peer airports
Percent Change in Domestic Passengers at Medium Hub California Airports
CY 2007 to 12 Month Period Ending August 2011 (Most Recent Data Available)
Source: U.S. DOT, T100 Database, Database Products Inc.; Note: Excludes
International Traffic; Note: San Jose and Oakland are large hub airports
13
Continued passenger traffic decline at ONT is the direct result of airline
responses to the changed economic environment
Total LA/Ontario Passengers
CY 2000 – 12 month period ending October 2011 (Latest available data)
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
YE
Oct
11
Source: Airport Records
14
Conventional solutions will not work in the current market environment
The regionalization report recently submitted by a LAWA consultant
is not tailored to the current airline industry landscape and global
economic environment
LAWA’s 2008 strategy presented to the BOAC was not designed to
respond to a changed U.S. airline industry
LAWA must revise its strategies to fit the current competitive
environment of the U.S. airline industry
The success of any solution at ONT will depend upon sustained
economic recovery in the Inland Empire
15
LAWA’s efforts during the recession have positioned ONT to enjoy sustained
traffic growth when the U.S. economy recovers..
Lowered airport costs at ONT at a faster rate than passenger traffic has
declined
Reduced cost per enplaned passenger (CPE) from $13.50 during FY 2010
to $11.76 during FY 2011
Spent $731K on airline outreach and advertising/ marketing initiatives for
ONT since FY 2008
Conducted nearly 150 meetings with airlines’ network and schedule
planning decision makers regarding ONT since January 2008
16
Next steps to consider
Reduce the $4.50 passenger facility charge (PFC) that passengers pay
each time they board a departing flight at ONT
Evaluate airline consortium proposal for operating cost reductions
Explore the possibility of consolidating all traffic at ONT into one
terminal to further reduce operating costs
Explore the feasibility of temporary landing fee incentive or revenuesharing incentives for new non-stop service
– Requires approval of the FAA
– Requires agreement of signatory air carriers at ONT
– Requires an amendment to the ONT ULA
Based on future airline schedules for ONT, conditions continue to
worsen before they improve
17