Fewer Passengers, Higher Costs Pressure LAX Retailers

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Airport concessionaires, slammed by the abrupt drop-off in traffic, may not see relief until at least next year, even if air traffic approaches something approximating pre-attack levels.

Shops specializing in gifts, news, food and beverage sales have reported revenue decreases ranging from 30 percent to 70 percent since returning to business after the airport reopened on Sept. 13.

This, coupled with product delivery difficulties and inventory restrictions, have made business horrible for operators who were benefiting from an air travel industry that, up until this year, had been booming.

“We’re taking a hit on the revenue side,” said Les Cappetta, senior vice president of North America business development for Bethesda, Md.-based HMSHost Corp., which operates 37 of the 69 food and beverage operations at LAX. “We also think we’re going to be impacted on the cost side.”

Larger operators have seen sales drop at least 30 percent from pre-attack levels. But for Jetway Express, a small operator that has three gift and news shops and three See’s Candy carts, the hit has been more significant.

Chih Hsing Pei, president of Jetway Express, estimated that sales for her Terminal 3 gift shop and See’s cart were down 70 percent. “It’s not even enough to pay rent,” said Pei, whose airport business generates $5 million in annual revenues.

Unsure of when air traffic will pick up again, both Cappetta and Peter Cohen, general manager of Los Angeles-based Eurotal Inc., which operates the two Euro Coffee and Haagen Dazs stores at the airport, said a rent adjustment clause in airport leases could offer relief for businesses.


Sudden reversal

The attack undoubtedly will reverse the increasing trends of passengers and concession sales at LAX. Some 67.3 million passengers used the airport last year, according to Los Angeles World Airports, which operates the facility, a 4.7 percent increase over the previous year.

HMSHost, a subsidiary of Milan, Italy-based Autogrill, had benefited from increased air traffic, as well as from its use of brand-based franchises Burger King, Starbucks and Gordon Biersch brewery. This boosted its comparable store sales in the U.S. by 8.6 percent in 2000. Its four new operations at LAX in 2001 were expected to generate $4.3 million in sales this year.

The downward rental adjustment would depend on how severe the fourth quarter decline in air traffic turns out to be. If the total number of passengers at LAX for 2001 falls below 60.6 million, 90 percent of last year’s level, merchants would receive at least a 10 percent adjustment in rental rates.

Officials from Los Angeles World Airports declined comment.

A rent reduction along with a step-up in business will be needed to offset some of the increased costs generated by additional security measures. Product deliveries to Sushi Boy take two to three times as long as they did prior to the attack, according to Sushi Boy President Masayoshi Yokota.

He estimated the airport’s Sushi Boy, which generated $1.3 million in sales last year, had been increasing revenues by about 10 percent a year since its 1996 opening.


Non-ticketed business

The biggest challenge for retailers is the FAA requirement limiting gate access to ticketed passengers. Cappetta, who estimated that more than 90 percent of HMSHost’s LAX operations are beyond security checkpoints, said non-ticketed customers, or “meeter/greeters,” made up between 15 percent and 20 percent of HMSHost’s airport revenues, which totaled about $45 million at LAX. Company-wide revenues in North America were $1.2 billion last year.

Pei said the meeter/greeter business accounted for as much as 30 percent of her business at Tom Bradley International and as little as 10 percent at Terminal 1.

Even the few businesses in front of the checkpoints have been hurt. Jetway Express’ 700 square-foot Terminal 3 store, which used to generate much of its business from travelers needing to make change to tip the now-absent sky caps, is being bypassed. “Now they just rush to come and rush to go,” said Pei.

Overall, revenue expectations have been diminished. “If we could achieve 70 percent of last year’s level,” said Cappetta, “we’d feel pretty good.”

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