LAX Seeks Increase from Carriers

Tuesday, December 19, 2006
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.
By Jennifer Oldham
The Los Angeles (CA) Times

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.

The action would also double maintenance fees charged to all airlines, including those with long-term leases not subject to new terminal rents, including United, Continental and American.

“In the 25 years I’ve represented Southwest Airlines, I’ve never seen a fee increase of this magnitude,” said Ron Ricks, the carrier’s executive vice president of law, airports and public affairs, in a telephone interview after the meeting.

The airlines contend that the city’s airport agency already makes a profit and that it has not justified the increases. Airport officials argue that rate hikes are necessary to cover the agency’s costs and that the agency needs the money to make improvements to the aging airport.

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

The dispute threatens to return the city to the difficult relationship it had with the airlines in the early 1990s, when officials raised landing fees at LAX, leading to years of court challenges and straining then-Mayor Richard Riordan’s business-friendly reputation.

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.

Airlines said they planned to lobby the City Council to review the increase. The carriers have already pressed their case downtown in recent weeks, lobbying Mayor Antonio Villaraigosa.

Carriers with long-term leases at LAX threatened to sue over the new fees, saying that they violate the terms of existing leases. Airport officials contend that the leases don’t specify a formula for calculating charges.

During a sometimes testy exchange between airline representatives and commission members, the low-fare carriers argued that the new terminal rents were discriminatory because they wouldn’t apply to carriers with long-term leases.

Airport officials said they met 40 times this year with carriers to discuss the new rates, making little progress. Airlines argue that the airport agency is unwilling to change the method it’s using to calculate the new costs.

“We’ve had two mediation sessions; this mediation needs a little breathing room,” said Roy Goldberg, a partner at Sheppard Mullin in Washington, D.C., who represents Southwest, Alaska, US Airways Group, Frontier and AirTran.

Commission President Alan Rothenberg said, “With all due respect, there’s been a lot of time to breathe.”

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.

Commissioners said it shouldn’t be difficult for the airlines to pass the increases on to their customers.

“I don’t believe there would be a public uprising if the cost per ticket went up $4.80,” Rothenberg said. “I don’t appreciate the implication that we’re anti-business.”

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.”

Airport officials said they still wanted to negotiate with carriers to reach a compromise and avoid a lawsuit. Carriers said they were also open to further negotiation.

“We hope that by the commission taking action to impose the leases, it puts all feet to the fire to beat the Feb. 1 deadline and come up with a deal we can all live with,” said Lydia Kennard, the airport agency’s executive director.

Editor’s Note: We published this story to show that all airports are facing challenges. The difference is of course, that the airlines are multi-million dollar businesses that can bring huge pressure to the issue at hand. While GA has much more difficulty in doing so.

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