LAX officials gird for revenue drop.

With much of the airline industry in increasingly desperate financial straits and war with Iraq threatening to wreak further damage, a major shakeup at Los Angeles International Airport appears in the offing.

United Airlines, whose parent UAL Corp. is operating under bankruptcy protection, and other carriers like American Airlines that are near bankruptcy may be forced to pare back flights and even some gates at LAX as they try to slim down their operations.

In the short ran, this could cost the airport much needed revenues. But airport analysts said other air carriers, especially major Asian airlines, could snap up many of those routes in order to strengthen their position in one of the nation's most lucrative air travel markets.

"In the long term, the passenger demand is there at LAX," said Andrew McKenzie, director of aviation simulations at Citigroup Technologies in Los Angeles. "If some airlines are in trouble, other airlines will try to get a piece of the market."

That's what happened a decade ago after the first Persian Gulf War, according to former Los Angeles World Airports Director Jack Driscoll, now an industry consultant. On his watch in the mid-1990s, Pan American Airways and Eastern Airlines went out of business. The Asia routes to and from LAX were picked up by Northwest Airlines and United.

Concessions hit

In the short term, though, the biggest impact of the war and expected airline shakeout is likely to be a drop in revenues from landing fees and concessions, much as in the aftermath of the Sept. 11 terrorist attacks and the first Persian Gulf War.

Projections now call for passenger traffic to decline 10 percent to 20 percent nationwide in the opening weeks of war with Iraq. At LAX, as at most airports, landing fees are directly related to the number of flights and the number of passengers, according to airport spokesman Tom Winfrey. With fewer people passing through, concession revenues are also likely to decline.

In the fiscal year ended June 30, the airport took in $156 million in concession revenues, or 39 percent of its total revenues of $400 million. Landing fees, which totaled $115 million, accounted for another 29 percent.

Reductions in these two largest revenue streams would put further pressure on airport administrators to cut costs at precisely the moment when they need to spend more money to increase security. Since Sept. 11, the airport has spent roughly $1 million a month for additional security measures.

"A 10 percent drop in the budget is quite reasonable to expect given these circumstances," Driscoll said. "And while that's not catastrophic, it will certainly be felt."

Other financial pressures may follow, especially if financially strapped airlines come to airport administrators with requests to renegotiate terminal leases. Leases accounted for about $80 million--or 20 percent--of LAWA's revenues in the last fiscal year.

United, acting under orders from creditors through the U.S. Bankruptcy Court, could be the first airline to push for renegotiation later this year, airline industry consultants say. This would set an unwelcome precedent for airport administrators.

"If we do lower the lease rates for one carrier, then the rest would bang on our doors for the same treatment," said departing LAWA Commissioner Leland Wong. "That's why this must be a policy discussion at the commission level before any such decision is made."

United Airlines spokesman Alan Wayne said the carrier has not made any request to lower lease rates. Further, he said, the airline has made all its scheduled payments after its Dec. 9 bankruptcy filing. All bills prior to the filing are now tied up in U.S. Bankruptcy Court.

Available gates?

A more dramatic shakeup could be in the offing if United is forced to liquidate its assets, as several industry analysts speculated last week. In that scenario, all of United's gates and terminal assets, along with its flight routes, would be auctioned off. In 2001, the last year for which figures are available, United accounted for 20 percent of all air carrier takeoffs and landings at LAX, making it the largest carrier. Data for 2002 is due out next month, and that share is not expected to change.

How many of United's gates and routes would be snapped up by other airlines is uncertain. Consultants Driscoll and McKenzie said they expect most of them would be acquired.

But Denver-based air travel consultant Mike Boyd is not so sure. "Most of United's routes are already flown by other airlines and there is 15 percent too much capacity in numbers of flights already," Boyd said. "I don't see anybody else rushing in."

One airline often discussed as a candidate to enter LAX, JetBlue Airways, said it has no plans to do so in the foreseeable future.

"We fly out of Long Beach and have no plans to fly out of LAX at this time," said JetBlue spokeswoman Carla Frio.

But Southwest Airlines, which already has 117 departures from LAX to 19 cities, might jump at the chance to expand its LAX presence.

"Southwest Airlines always looks at opportunities as they come," said spokeswoman Angela Vargo. "We especially look for opportunities in cities that we already serve, since that doesn't require setting up a whole new station."

Whatever the case, there is consensus on one point: LAX is perhaps best poised of all the nation's major airports to ride out the current troubles. Analysts cite three reasons:

* LAX has the greatest percentage of orb gin and destination flights in the country. More than two-thirds of all flights start or end in Los Angeles, while fewer than one-third are connecting flights. At other airports, like Atlanta, that ratio is reversed. Connecting flights can easily be shifted to other airports as airlines restructure their operations.

* No single airline dominates LAX. United, the largest carrier, has only 20 percent of passengers; American's slice is about 12 percent. By contrast, at Chicago's O'Hare International Airport. United comprised about 42 percent of total passengers in 2001, while American comprised about 30 percent.

If both United and American Airlines were to go into liquidation, nearly three-fourths of all flights at O'Hare would be impacted; at LAX, that figure would be only about one-third. "LAX is not as vulnerable as other airports because no one or two airlines dominate;' said Boyd.

* LAX has a relatively small debt load, about $186 million in 2002, according to Standard & Poor's. By contrast, Denver International Airport is still paying off billions of dollars in bonds.

This low debt allows LAX to keep its landing fees relatively low--$2.30 per 1,000 pounds of landed weight--compared to $3 to $5 at most other airports, Driscoll said.

"In a revenue crunch, LAX does have room to raise its landing fees by 25 cents or 30 cents per thousand pounds and still remain very competitive with other airports," Driscoll said.

Such a measure may prove necessary, especially if the war against Iraq drags on or several airlines cut back routes all at once.

Airport officials also have their eye on new revenue streams. One of them could be installing concessions near the baggage claim areas, according to airport spokesman Winfrey.

For now, though, airport officials hope that the war against Iraq lasts mere weeks, not months. That way, passenger traffic could rebound in time for the peak summer travel season.

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