No Airline Dominates LAX but American Has Hopes

LOS ANGELES ( TheStreet) -- Merger or no merger, American ( AAMRQ.PK) is working to build a stronger hub at Los Angeles International Airport, an airport that no single airline has been able to dominate.

Instead, four airlines have market shares between 11% and 18%, according to Los Angeles International Airport passenger counts for January and February. United ( UAL) had 18%, American had 16%, Delta ( DAL) had 12% and Southwest ( LUV) had 11%. A few points should be added to the American, Delta and United shares due to uncounted flying by regional partner SkyWest.

American said Wednesday it will add nine new LAX destinations this year, bringing its LAX total to 51. The new destinations include Columbus, Ohio; Hartford, Conn; Eugene, Ore. and Indianapolis. American is also seeking regulatory approval to fly to Sao Paulo, and it plans to put a new Boeing 777-300ER on its Los Angeles-London Heathrow route in June. Currently, American offers 163 daily LAX departures with destinations including Shanghai and Tokyo.

"We have said publicly we plan to grow all of our hubs including LAX," said Virasb Vahidi, American's chief commercial officer. "The Los Angeles hub serves a key role in domestic and international routes, particularly as an extremely important gateway to Asia Pacific. Los Angeles is the largest local market for Asia."

Although United is slightly larger than American at LAX, American appears to have some unique advantages as it grows there, although it must also be said that the pre-bankruptcy American didn't appear to successfully capitalize on its Los Angeles presence.

The advantages include a large presence by American's Oneworld partners -- Air Berlin, British Airways, Cathay Pacific, Iberia, Japan Airlines, LAN, Malaysian and Qantas all serve LAX.

American's long-running narrative is that it is particularly strong in top business markets. In Los Angeles, Vahidi said, the top three business markets are New York, London and Chicago, all hubs for American or partner British Airways. (Next are Washington and Newark). American offers nine daily departures to New York Kennedy and is the only carrier with three-class service. Also, only American and Alaska ( ALK) fly between Los Angeles and Washington National.

Another American advantage is that its LAX terminal is closest to the airport's Tom Bradley International Terminal, home to most of the airport's international airlines including all of the Oneworld members. The layout enables departing passengers who are connecting to international airline partners to avoid going through security twice.

Bradley's ongoing $1.5 billion expansion project will add 18 new gates at Bradley, some with dual loading bridges, and secured corridors between Bradley, Terminal Three and American's Terminal Four. The expansion "will provide two unique opportunities -- we and our partners can co-locate, and there will be more room to expand operations out of our own terminal." Vahidi said. "Unlike New York, Los Angeles is not slot-constrained, but it is gate-constrained. The most valuable asset to have there is enough gates and terminal space, so we are very uniquely positioned. We will be able to move some operations to Tom Bradley International Terminal."

United's hub at LAX has about 200 daily departures to 55 U.S. destinations and 10 international destinations, including three in Asia. United already operates the only major airline hub in California at San Francisco International Airport, where it offers 286 daily departures to 70 domestic destinations and 19 international cities, including seven in Asia.

Besides the Bradley expansion, LAX also plans a $229 million construction project at Terminal Five, which Delta occupies. The project, set for completion in 2015, includes expanding the ticket lobby and screening checkpoints and improved facilities for Delta premium passengers and club members. This summer Delta will operate 118 peak day departures to 40 destinations including Sydney and Tokyo. Like its two principal rivals, Delta offers frequent service to the New York area.

As American expands at LAX, a wild card is the pending merger with US Airways. Vahidi noted that American is so far prohibited from discussing its LAX plans with US Airways, since regulators have not yet approved the merger. LAX is obviously a good place to be, not only the largest gateway to Asia but also the third-largest U.S. international gateway, trailing only Kennedy and Miami International Airport. Yet the philosophy that has enabled US Airways to succeed has been to operate at airports it dominates -- today, 99% of all US Airways flights involve its hubs in Charlotte, Philadelphia, Phoenix and Washington. It does not seem that any clear path to LAX domination exists.

Aviation consultant Robert Mann said LAX has historically been relatively underserved because it lacks sufficient gates. Encroachment by other Los Angeles area airports has also diminished service, as has difficulty in driving to LAX. Also, the absence of a significant hub at LAX has meant that service to smaller cities, which might benefit from connecting traffic, has been limited. Mann said LAX resembles JFK, "a coastal gateway with very fragmented shares by airlines."

In comparing American's presence at LAX with its presence at JFK, the latter benefits from domination on the JFK-London Heathrow route, the top international route from the U.S., with 2.7 million passengers in 2012. (LAX-Heathrow, the second-busiest route, had 1.4 million passengers). At LAX, Mann said, "American faces the same issues as it does at JFK, albeit without the JFK-Heathrow goldmine funding much of it."

Nevertheless, he said: "With the right amounts of regional, mainline domestic and international flying, American could carve out AA/Oneworld shares that pass for more than a fair share of a fragmented gateway. It doesn't have to be a United/Newark Airport scenario," where a single airline dominates a global gateway. "It's never likely to be that."

-- Written by Ted Reed in Charlotte, N.C.

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