The airport runway is the most important Main Street in any town
— Norm Crabtree, Former Aviation Director for the State of Ohio
To address the topic of an international airport, one need not be an expert with the Federal Aviation Administration nor the U.S. Department of Transportation. In fact, to analyze the economic impact of an airport with respects to regional influence, one may simply look to common sense. Moreover, understanding the economic value of an airport will allow us to examine the current dilemma faced by Ontario City officials in regards to Los Angeles’ control of Ontario International (ONT Int’l). By analyzing this issue, we can then address a fundamental solution in terms of economic recovery for the Inland Empire.
The Problem:
Ontario International Airport, one of the oldest operating facilities in the United States, was developed primarily as a secondary “residual” airport. Frequently accommodating diverted air traffic from Los Angeles International (LAX), ONT Int’l became a significant factor in addressing the growing transportation demands of the 1950’s and 60’s. Being the principal airport servicing Southern California, LAX ultimately contracted an agreement with the City of Ontario to take responsibility of the facility; as the majority of operations at ONT Int’l centered on servicing overflow from LAX. In 1967, a Joint Powers Agreement (JPA) facilitated the transition of control over to Los Angeles, which created the arrangement both cities felt would benefit the passenger needs of the region overall. Furthermore, section 9 of this agreement also specifies the duty of Los Angeles to attract additional airline service for LAX-ONT to further develop air transportation ability for the area. Therefore, the principle component of this agreement centers on regionalizing Southern California’s airline capacity, whereas developing passenger services from the Inland Empire would allow an increased ability to meet growing market demands. Unfortunately, as seen in recent years, this concept is far from recognizable considering todays declining passenger service for the two airports. Since 2007, ONT Int’l has seen a significant reduction in passenger service, resulting in the loss of major international airlines, significant revenues and thousands of jobs. Many experts point to the ongoing recession, which may partially attribute to the loss in service, but high operating costs could be a much better explanation for the significant decline in passenger service respectively. Currently, ONT Int’l has some of the highest operating costs in the nation, which was not always the case. As we will begin to see, high operating costs associated with ONT Int’l are seemingly arbitrary; especially when viewed through the lens of Ontario City officials.
For the sake of argument, operating costs are typically determined by analyzing the cost per enplaned passenger (CPE). The CPE is the sum of the charges paid by the airlines to the particular airport divided by the number of passengers departing from that airport. This estimation will vary considerably, but provides airlines an overall guideline for capital investments, as they generally look to market value when determining new locations. Thus, low CPE’s and growing demand encourage new investments from competing airlines; ultimately resulting in market growth and economic development for any region serviced. According to recent figures, the U.S. median for CPE is approximately $6.78. ONT Int’l, according to a report released by Los Angeles World Airports (LAWA) however, has a CPE of more than double that figure; projected at nearly $16 or higher for 2010-2011.
Additionally, due in large part to the regulative nature associated with airfares and market demand, airlines are essentially restricted from charging higher air fares to offset high CPE cost. Accordingly, travelers would not pay higher fares in a competitive market just to fly from ONT Int’l. Thus, airlines are not incentivized nor encouraged to operate out of ONT Int’l, leaving a large gap in air travel capacity for the Inland Empire; as airlines are encouraged to operate at low cost airports in neighboring counties. Therefore, the effects of higher operating costs associated with ONT Int’l are counterintuitive to the JPA designed to facilitate regionalization and economic development overall.
Until recently, low overhead and the fact that ONT Int’l retained relatively low debt-to-investment ratios, the airport was able to operate at extremely low costs. In fact, JetBlue and ExpressJet, two low-fare international airlines, capitalized on this opportunity and made ONT Int’l home to their west coast operations before many others. In fact, ONT Int’l was the first airport to accommodate Jet Blue’s west coast operations, with the first terminals opening in 2000. Unfortunately, higher operating costs and heavy regulatory fees forced the airlines to eliminate flights serving ONT Int’l. Consequently, this reduction in service has had dramatic effects with respects to the region as a whole, as it has amounted to nearly $400 million in lost revenue and the elimination of 8,000 jobs overall.
One may attribute high operating cost associated with ONT Int’l with higher fuel prices. Although fuel rates are significant in their own right, this is only partially correct. To get at the root of the above average operating costs, we must examine another potential factor of influence. For instance, ONT Int’l has a larger than usual employee workforce when compared to other facilities. In fact, for the 2010 fiscal year, ONT Int’l had budgeted 302 employees for its workforce, which is extremely high for any secondary airport. Moreover, compensation for the airport’s workforce is unusually higher than normal as well. In fact, when analyzing compensation for the FY 2010 budget, which is approximately $30.9 million, the average compensation per employee equates to roughly $102,400 annually. ($30.9 million ÷ 302 employees = $102,400) Furthermore, an $8.7 million administrative fee, which is paid for by the airport, is used to cover an additional 85 LAWA employee salaries. (85 LAWA Staff X 102,400 = $8.7 million) The amount of employees and the extreme compensation amounts are nearly double that of John Wayne Airport, (175 employees) Long Beach International (124 employees) and roughly the same as San Diego’s International Airport. It is worth mentioning that San Diego’s passenger volume is approximately three and half times that of ONT Int’l. The question remains as to the reason for these high compensation costs. Ultimately, as the aforementioned issues suggest, management of ONT Int’l by LAWA authorities has generated significant criticism; largely coming from Ontario city officials. Overall, the general lack of attention given to correcting these matters has provoked serious reevaluations of Los Angeles’ authority over ONT Int’l. In fact, given the current decline in passenger rates for LAX, one can draw the conclusion that poor management and severe neglect are deliberate attempts to boost revenue for LAX, as Los Angeles County is now home to all low cost carriers in the area. (Southwest airlines is the only low cost carrier that remains at ONT Int’l) In a Press Enterprise article addressing this matter, San Bernardino 4th District County Supervisor, Gary Ovitt, gave a simple explanation for LAWA’s neglect stating:
With the economic downturn, LAWA will prop up LAX before coming to the aid of ONT, said Ovitt, a former Ontario mayor.
The Solution:
With the current economic crisis, it’s reasonable for any city to boost revenues that support fiscal security exclusively within its borders. Hence, the assumptions made about the high cost and disregard for ONT Int’l are justified in LAWA’s actions. Further, with individuals focused on low-cost service, especially during economic downturns, there is no incentive for Los Angeles to focus on cutting rates at ONT Int’l; as inland residents will continue to commute to LAX for cheaper service. The contradiction this poses with respects to the JPA originally agreed upon is antithetical to any regionalization efforts outlined in that arrangement. More importantly, the effect this has on generating a competitive market by attracting new airlines to the area with low overhead, which ultimately lowers cost overall, is subversive to any regional development. Therefore, the solution to this matter will derive from a new arrangement between the two cities that would focus the necessary attention on ONT Int’l. Fortunately, for I.E. residents, a new bill recently introduced in the California State Senate attempts to do just that. California State Senator, Bob Dutton, representing the 31st District, has proposed legislation that would create the Ontario International Airport Authority. (OIAA) Essentially, this new authority would transfer control back to the City of Ontario by effectively placing membership of the board of directors in the hands of Ontario and San Bernardino County officials. The Rancho Cucamonga representative drafted the bill in direct response to the mismanagement of ONT Int’l by LAWA officials. Unfortunately, this measure only places significant pressure on the Los Angeles agency to relinquish control of ONT Int’l, as the arrangement proposed in the legislation ultimately relies on cooperation from LAWA officials. It is worthy of note, however, that new developments at San Bernardino International Airport may generate the additional support for the proposed legislation. By considering the Inland Valley Development Agency’s redevelopment of Norton Air Force Base, located in San Bernardino, one can begin to see new incentives for Los Angeles to hand over authority to the City of Ontario. For example, the recent upgrades and modifications to San Bernardino International Airport, formerly Norton Air Force Base, with respects to a new customs administration building suggest an attempt by San Bernardino County officials to encourage new international passenger service. Though this has been in talks for many years, the situation at ONT Int’l may generate more than just lip service from county officials in terms of follow through.
Accordingly, by increasing international flight capacity and maintaining relatively low debt on capital investment loans, the City of San Bernardino may actually become home to future low cost international flights. One could only speculate as to which airline would operate from a newly redeveloped San Bernardino International, but seeing a market for low cost service, it would be reasonable to assume carriers such as AeroMexico could easily lease new terminal space; fostering market growth and economic development for the Inland Empire. Thus, generating a competitive low cost market in the Inland Empire outside the constraints of LAWA’s management of ONT Int’l, Los Angeles would be forced to compete for low cost international passenger service with San Bernardino Int’l. Therefore, operating costs would significantly have to reduce to maintain current levels of revenue. If reducing operating costs reduces revenues for LAWA, there may be no incentive to maintain authority over ONT Int’l. Thus, OIAA could ascertain authority of the facility and focus on new development and productive activities. This is the aim of S.B. 446. This is why we, as residents of the Inland Empire, must support this legislation.
In summary, by obtaining and reclaiming authority over ONT Int’l by passing a bill like S.B. 446, significant economic development would surely follow. Moreover, with an unemployment rate hovering around 14%, it is crucial for all Inland Empire residents to understand the urgency of this matter, as reclaiming ONT Int’l is paramount to our economic recovery.
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