Business Update with Mark Lacter

What an airline merger means for passengers at LAX

KPCC's business analyst Mark Lacter says American Airlines is close to a deal with US Air.

Steve Julian: Mark, what impact will this have on L.A.?

Mark Lacter: Whenever two big airlines are combined, Steve, it often means fewer flights and higher fares, but a lot depends on the individual markets they're serving.  Now, assuming that a merger does happen (and the boards of American and US Air are set to meet tomorrow), the local impact is likely to be fairly limited.  LAX is a hub airport for American, it's the second-busiest carrier (after Southwest) with a market share of about 13 percent.  US Air by contrast ranks ninth at LAX, at about four percent.  Most importantly, there’s just not much overlap between American and US Air.  So, if anything, the merger could actually bolster the newly formed airline, especially on the Pacific routes where United Airlines still has a pretty good foothold.

Julian: Are these changes likely to happen quickly?

Lacter: Not at all.  Combining two airlines is an enormously complex process that can easily drag out for years.  They’ll have to figure out what to do with the reservations systems, with the planes, with the landing slots – you know, United and Continental merged more than two years ago, and they're still having glitches.  So, this is going to take a while.  By the way, Steve, if the American-US Air deal does happen, there will be only four major U.S. carriers: United, Southwest, Delta, and now American.  This is a very different industry since deregulation back in the late 70s.

Julian: They’re trying to make changes at Los Angeles International Airport, but it seems to be taking a long time.

Lacter: That’s right.  The L.A. Board of Airport Commissioners just voted 6-1 to recommend a modernization plan for LAX that includes moving the northernmost runway 260 feet so that large aircraft can get around the field more easily (a very contentious issue among nearby residents).  The plan also calls for new terminals, a consolidated rental car facility, and a people mover.  But it's going to be years before they even break ground on these projects - if they break ground on these projects.  Even though the airport commissioners have given their okay, the additions must still be approved by the city Planning Commission, the County Airport Land Use Commission, the L.A. City Council, the mayor, and the Federal Aviation Administration.  And, all that assumes there won't be any major holdups in court, which there probably will be.

Julian: Another airline in the news - why is Korean Air building the tallest skyscraper in West?

Lacter: Well, because the Korean conglomerate that owns the airline believes it's going to be a good investment.  The plan is for a 73-story hotel and office building that will replace the Wilshire Grand Hotel, making it the tallest building west of the Mississippi.  Completion is set for 2017.  Now, this was not the original idea.  The project was going to be much larger - with two separate towers - but the economy stayed kind of soft, so they decided to go for the one, taller building.  But, you do have to wonder whether this is such a great deal for the downtown economy.

Julian: The rap you often hear about L.A.'s downtown is too much focus on the really big projects...

Lacter: Yeah, like L.A. Live and the efforts to remake Grand Avenue.  As for economic impact, big buildings can be iffy - when one of the goes up, what you normally see is tenants from older, nearby buildings moving in (despite rents that are usually higher).  But, the economy is only enhanced if the vacated space gets filled, and that might not be realistic because many of the downtown tenants - law firms and accounting firms, in particular - are looking to downsize, not expand.  Besides, who knows what the L.A. economy might look like when the new tower is completed in four or five years?

Julian: On the plus side, you have all those construction jobs.

Lacter: That’s right, several thousand of them – and, if the proposed NFL stadium ever gets built a few blocks away, there will be lots of construction jobs with that project, as well.  Not a game-changer for the economy, but as my mother would have said, it couldn’t hurt.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


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