May 4, 2004 - From the October, 2003 issue

Imapact Of L.A. Mayor's Proposed Master $9-12 Billion LAX Master Plan on Tourism & Trade

"LAX is the shelf off of which the world buys Los Angeles," claims Michael Collins, Executive VP of LA Inc. (formerly the Los Angeles Convention and Visitors Bureau). As a result, it is critical to review the Mayor's proposed LAX master plan through the lens of its business and economic impact. MIR is pleased to present this interview with Michael Collins, in which he dicusses the current LAX proposal, as well as the continuing efforts to revitalize downtown and the prospects for the development of a convention center hotel.


Michael Collins

At the time of our last interview, the City Center CRA/Redevelopment Project had just been invalidated by a Superior court, dealing a significant blow to civic efforts to support the building of a convention center hotel in downtown Los Angeles. What are your present thoughts on how best to generate both the political will and and a financial model to support a new hotel adjacent to Staples/ Convention Center?

The city responded to the Superior Court judge's decision on a number of dimensions. One of the judge's opinions was that the formation of a public benefit corporation to build a headquarters hotel was a violation of good public policy, arguing that it would become, in effect, a gift of public funds for private enterprise. The City has argued that point and the judge concurred. The City is still in process of suits and counter suits. But the remaining time for legal rangling is shrinking. A public benefit corporation could find itself the topic of City Council action as early as this winter. This would also mean that the way would be cleared for the City to define the terms of a financing model that would be the foundation for the construction, operation and ownership of a new convention center hotel.

That is good news, but there is still an enormous amount of work that needs to be done to create a politically acceptable financing model that would allow for that hotel to be built. However, even if there was a model in place right now, the hotel would not succeed unless there was an assurance that by the time it opened up, it would be surrounded by a sports and entertainment district as proposed by the Anschutz Entertainment Group. Without the sports and entertainment district's dining, retail and entertainment around it, a hotel would not survive, even if the convention center were operating at 110% occupancy. That hotel can't really happen without having the private sector invest in a nurturing, nourishing context for the hotel.

Downtown Los Angeles is increasing becoming vibrant. Accompanying the opening of Disney Hall is the announcement of a new, bold vision for Grand Avenue. Given your visitor and convention responsibilities with LA INC, what's your view of downtown's assets and potential?

One of the things that most people recognize about downtown LA is that it has an infrastructure for office space that is substantial, and an extraordinarily user-friendly convention center. But, it lacks a couple of things. One of those things is a new hotel infrastructure that matches other aspects of the city and brings it up to the standards of our West Coast competitors. The reason that inventory is comparatively weak is because downtown has not been able to identify what I call the "fun-factor"-those elements most of us identify as distinguishing the cities we love the most.

For most major cities of the world-New York, Paris, Tokyo-the elements of life that make those cities so exciting to residents are amenities that are underwritten by visitor spending. That phenomenon has yet to fully develop in downtown LA. But the pieces are beginning to come together. The city is beginning to piece together the elements of a viable 24-hour city. As the residential community increases, there is going to be a demand for more retail, entertainment and nightlife. This, in turn, creates the "fun factor" that will build a supportive environment for more hotel construction. That is exactly the case I believe is going to happen around Staples and throughout downtown. The Anschutz Entertainment Group's sports and entertainment complex, combined with a redeveloped Grand Avenue, will create an environment that will allow a headquarters hotel to be built and to succeed.

Let's turn from downtown to the Mayor's proposed master plan for the modernization of LAX. VICA has recently taken a position on LAX. The LAEDC is about to reach a conclusion and the Chamber has just begun its Aviation Taskforce. Each of these three business organization have focused on why the mayor's office prioritized Manchester Square given its costs -$4-$5 billion plus. Being that LAX has such a significant impact on the tourism and visitor market in the basin, what is your opinion re Mayor Hahn's Alternative D plan, and of the Manchester Square remote terminal proposal?

Of all the aspects of the master plan currently under debate, the argument about the merits of Manchester Square are not, today, at the center of our issues concerns. I've learned that the Manchester Square idea can, to many audiences, make enormous practical sense if one takes into account the way we're going to be flying in five to ten years.

But these three organizations, concerned as each is about Manchester Square's cost and practicality, don't appear to be opposed to a remote terminal. Some would endorse Lot C, which is closer to the airport terminals and far less expensive to upgrade. Isn't the common question: why support a master plan with a front loaded $4-5 billion Manchester Square price tag?

Not everyone agrees that Manchester Square is the ideal location, but others think it's just right. As a trade association representing a visitor industry, what we're doing is maintaining a focus on what we believe is essentially, a very sound process. The process is going to continue to have all kinds of influence on various aspects of the plan. In the meantime, as far as the visitor industry is concerned, it is the right thing for the city's leadership to focus on the LAX's modernization as a principal, if not THE principal, bricks and mortar issue for the next three or four years.

Given the airport's regional enterprise value, do you know if there has been an impact analysis done to examine the economic significance of what the mayor is proposing?

From our point of view, the visitor economy is roughly an $11 billion enterprise. LAX's ability to preserve LA's status as an international gateway is huge. But, I also understand that that is not likely to be done by one airport. There will need to be a distribution of the demand in such a way that LAX will be seen as particularly user friendly to international travel, which happens to be the air travel market that yields the highest return per dollar invested.

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Short-haul carriers like Southwest Airlines are reportedly concerned that they will be priced out of LAX if the Mayor's plan is adopted by the City Council. How significant would a move away from LAX by short haul air carriers be for international visitors?

This is the edge of the dime that the design balances on. On the one hand, LAX has to be able to attract the international visitor and, of course, also be able to be largely underwritten and subsidized by the international cargo that's in the belly of those planes. But, the gateway status to LA will not be preserved unless LAX can also act as a distribution system for domestic air travel. When international carriers arrive in LA, they need to be able to transfer those passengers, on site, to the major domestic carriers.

Whether or not LAX becomes a hub for short-haul regional travel is a different matter. But, I do know that international carriers will not accept a facility as a gateway unless in provides access to the domestic market. Alternative D makes that provision. The major national carriers will have to be invested in this plan. Some of them are, but others aren't. And, the reason we're going through this process now is to find a way for all of the core stakeholders to see how they can find themselves responsibly putting Alternative D into their own future.

You have previously noted "that the gateway status of LA will not be preserved unless LAX can also act as distribution system for domestic air travel." Please elaborate on the risks assumed if short-haul carriers are priced out of LAX as a consequence of Alternative D being adopted without amendment.

That does not mean that LAX needs to maintain its status as the regional hub for air travel. I don't necessarily think that LAX has to exclude it. But, in thinking strategically, if you want to protect your status as an international gateway, you want to do two things: a) accommodate the larger equipment we can expect in the near future, and b) facilitate the design of the marketing plans for the international carriers to choose LA as opposed to say, Minneapolis. In order to do that, the LAX facility must be designed to encourage demand for international flights while promising passengers easy access to national air traffic distribution i.e. the longer haul domestic carriers. It does not necessarily follow that LAX must expand its capacity to local or regional air traffic. Sure I think it is desirable. But LAX can't be all things to all people.

Does LA Inc have a policy position re the City agreeing to a proposed passenger cap of 78 million for the life of LAX? Is it within the power of the city to make such a commitment? What is benefit of such a trade-off?

There are going to be certain design requirements which are going to be built in by virtue of the fact that international aircraft, over the next five-to-ten years, are going to be twice as big as what's flying right now. The enormous transformation in the equipment and the demands of international carriers will have an immediate impact on how the gates are configured. I believe that the orientation towards international is right and will deliver a practical cap as a function of the market and federal requirements. Whether this cap is 78 million or 83 million annual passengers is really a function of the design and the strategy being pursued. That strategy has been to maintain LAX as an international gateway.

Moreover, this is as much a marketing and communications strategy as it is a practical requirement. Safety and security is going to become an enormous marketing advantage, as well as a practical consideration. To be able to say that your facility has been designed in a very aggressive and calculated way to address security means a lot to international travel wholesalers-who are packaging trips-and to the individual consumer.

One of the reasons this plan has been controversial is that a good design has to be able to say what it can't do. One of the things that this plan addresses at the outset is the wholly inadequate regional system of air transportation in Southern California. What's happened, by default rather than by design, is that LAX has become sort of a de facto solution for Orange County's air transportation requirements. If nothing else, this plan can put it square in the eye of the regional leadership that we cannot build Southern California's air traffic solutions on the shoulder of a single municipality. This design is going to have to say "no" to certain segments of the marketplace, just as it will say "yes" to others.

Let's conclude with you elaborating on your assessment that Alternative Plan D needs to say what it's going to do, what it isn't going to do; and if it will or will not be a regional hub. Obviously, Los Angeles is in competition with Anaheim, San Diego, and San Francisco as a west coast destination and gateway to the U.S.

The regional market for LA is largely influenced by the automobile. That does not mean that regional air traffic isn't crucial, but LA is kind of a unique animal. LA is defined economically by visitor traffic on two fronts. One is international, and every international arrival yields about six times the domestic counterpart. The other market segment that is of enormous importance is long haul travelers from the East Coast and central US, who arrive principally by airplane. If you're an international gateway, you have to be able to provide access to major cities throughout the country-Chicago, Atlanta Washington, New York, etc.-and that's what this plan does. I don't think the plan excludes regional carriers, but it certainly will limit their ability to expand at LAX.

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