Up in the Air?

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When Thuan Le opened a Robeks Juice shop just yards from the Bob Hope Airport in Burbank, he gambled by paying a premium rent – nearly $4 per square foot a month – because he thought airport traffic would make it worthwhile.

But Le’s bet hasn’t paid off.

As the number of airport passengers has plunged by more than one-quarter over the past few years – and will likely fall further when American Airlines leaves next month – sales at his Robeks location have fallen 25 percent since opening in 2008. Over the same period, sales at two other Robeks franchises he owns fell less than 10 percent.

“The landlord charged a lot more per square foot here,” said Le, who pays $1 to $2 more a square foot than restaurant owners at other Burbank strip centers, according to CoStar Group Inc.

“People were saying that, being near the airport, the business would double compared to a normal location,” he said. “But that’s not the case. It’s not even close.”

That’s the same story told by other business owners.

Since 2007, when nearly 6 million passengers traveled through Bob Hope, passenger traffic has fallen about 28 percent. The airport expects to lose an additional 7.5 percent of its passengers this year because struggling American, which now flies two round trips a day from Burbank, will leave the airport Feb. 9 in a cost-cutting move.

Those huge losses have hurt more than just restaurants near the airport. Nearby hotel bookings are down and rental car companies have seen less demand for vehicles.

The impact on rental cars is especially worrisome for airport officials, who fear the loss of American in addition to the overall passenger decline could hamstring a $125 million parking and transit center project at the airport.

Officials are scrambling to find ways to lower the price, which would mostly be paid for by rental car companies. But airport commissioners are concerned that the struggling airport might not be able to finance the project anyway, especially if rental car companies decide to pull out.

“It seems like the water keeps getting hotter,” said airport Commissioner Rafi Manoukian, during a recent meeting. “When are we going to jump out?”

Boom and bust

Through most of the last decade, Bob Hope, Ontario and other regional airports saw increasing numbers of flights and passengers as carriers spread beyond Los Angeles International Airport, which, until 2006 and 2007, had its expansion and modernization plans tied up by community opposition.

Between 2002 and 2007, the number of passengers at Bob Hope shot up by 28 percent to 5.9 million. Orange County’s John Wayne Airport saw 26 percent growth and Ontario saw 11 percent more passengers.

But traffic at all three regional airports nosedived in 2008 with the recession and has continued to plunge. LAX took a hit, too, losing passengers in 2008 and 2009. But unlike its competitors, the region’s dominant airport saw more passengers last year and the year before as a $4 billion renovation moved forward.

Jack Keady, a former American Airlines executive who runs airline consultancy Keady Transportation Consulting in Playa Del Rey, said LAX has fared better not only because of the renovation, but because airlines are flying fewer planes and concentrating on airports that can draw the most passengers.

What’s more, as airlines struggle for profitability, Keady said they are offering fewer seats but charging more. And as ticket prices go up, travelers are more likely to hold out for a good deal even if it means the inconvenience of driving out to a large airport.

“There’s usually a lower fare out of LAX than out of Burbank, and people are willing to travel,” he said.

For businesses serving Bob Hope travelers, that has meant a big drop in customer traffic. Metropolitan Culinary Services, a Burbank company that runs two restaurants inside the Bob Hope terminal, has seen its revenue drop by 16 percent since 2007.

“In 2006, 2007, when you’d pull into the airport on a Thursday or Friday, there were cars lined up all the way to Hollywood Way,” said Steven Mora, a Metropolitan executive. “It used to be a crush of people all at once.”

Now, he said, the airport is rarely packed.

Indeed, Angel Mendez, who owns a Subway franchise next to Robeks in the strip mall near the airport’s main entrance, said his sandwich shop is noticeably less busy now than when it opened in early 2008.

“Business was booming for a while, but then we started seeing it decrease little by little,” Mendez said, putting the decline in sales at around 10 percent. The restaurant is still busy at lunchtime, with airport employees walking over, but he doesn’t see as many unfamiliar faces these days.

Le, the Robeks franchisee, said the airport location isn’t profitable and that he might close it after a few of his employees leave college later this year. His lease was set to expire this month and rather than renegotiate another long-term deal he opted for a month-to-month arrangement.

“The kids that work for us, they’ve been with us since day one. Now they’re a semester away from graduating,” he said. “I’ll think about it after that.”

Big money

More than making small businesses rethink their plans, the downturn at Bob Hope is forcing airport leaders to reconsider the $125 million transit center, parking garage and rental car facility project.

The project would be paid for by rental car users and rental car companies, though the airport could have to contribute as well. But the airport, which gets most of its operating funds from parking fees, concessions and rent from airlines, has seen its revenue fall 17 percent since 2007. Airport officials are concerned that rental car companies might not be interested in paying for the facility as the number of customers continues to drop.

The transit center and car rental facility would be paid for up front with bond debt taken out by the airport, which would be repaid by a $6-per-day airport fee on rental cars and payments directly from rental companies.

Airport spokesman Victor Gill said there will be no project without the rental car company interest.

“There’s no conceivable (airport fee) that would finance the whole project. It still depends on the companies being able to justify paying for it,” Gill said.

John Hatanaka, the airport’s senior executive deputy director, met with rental car companies last week and said they are still interested. Rental car companies did not return calls for comment.

Fitch Ratings put the airport’s rating on negative watch status last year, citing the proposed project’s price and the airport’s flagging traffic. Now, airport officials are looking for ways to cut project costs.

The main element of the project, a two-story garage that would house rental cars as well as a public transit center, was scheduled to go out to bid Friday. Just days before, airport commissioners voted to ask contractors to bid on two options for the structure: the original, more expensive version using steel support columns and a less expensive alternative using concrete columns. Airport staff estimated the second option could lower the price tag to $116 million.

Airport General Manager Dan Feger recommended the change because of American’s impending departure, which he said will further erode airport revenue and rental car demand.

It’s the second time in less than a year airport officials have tried to trim the project budget. Initial bids received in May started at $159 million and officials called for a redesign.

If the project doesn’t move forward, there are consequences for the car rental companies. Hertz and other companies store rental cars in lots just yards from Bob Hope’s runways. The Federal Aviation Administration has said the companies must clear out of that space by 2015 to improve airport safety. Without a garage, they would have to park them off airport property, inconveniencing customers.

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