But Erbacci’s real trial by fire came barely a month into the job as the Covid-19 pandemic slammed China and other Asian countries, prompting a steep decline in international passenger traffic at LAX.
That was the start of what has been the greatest sustained challenge LAX has faced. By April, as the pandemic-induced shutdown gripped the nation, passenger traffic at LAX had fallen by 95%, reaching levels not seen since the mid-1950s.
Erbacci, 57, joined LAWA in 2016 after serving in executive posts with airlines in Europe and at United Airlines Inc. in Chicago. In June 2019, he was named chief operating officer, charged with overseeing the modernization of the airport’s terminals and its ground access, including the $2 billion people mover project and the $1 billion consolidated car rental facility.
In January, Erbacci became interim chief executive, replacing Deborah Flint, who left abruptly to take the chief executive post at Toronto’s airport system. On July 1, he was confirmed as the permanent chief executive.
Erbacci spoke with the Business Journal about those modernization projects and trying to get the airport back on track even as a new surge in Covid cases once again threatens to bring flights to a halt.
The pandemic brought air travel to a near halt within weeks of your start as interim chief executive. What was that like?
What were some of the steps you took as the crisis hit in March?
Actually, the situation began for us in January when we started seeing a drop in international traffic. And we were also trying to contain the virus from entering into the country. We could see this was getting worse and we knew there would be far fewer passengers because they would not want to fly.
So, we initiated austerity measures in early February, including a hiring freeze, limits on overtime and looking at how to reduce our operating budget. We looked at our capital programs to see which ones would continue and which would be put on hold. We also created special task forces with each of our stakeholders that met weekly or even more frequently.
What impact did the steep traffic decline have on the budget for LAX?
Our non-aeronautical revenues — including our share of concession revenues, car rental and parking fees and the like — were down pretty much in sync with passenger traffic. But that’s only about 30% of total revenue. Much of the rest comes from fixed costs, including aircraft landing fees and terminal rents paid by the airlines. So that helped, as did the $323 million in (federal) CARES Act money we received. We also were able to achieve some success in refinancing our debt to take advantage of lower interest rates.
How much did you cut from the budget and what got cut?
We identified $147 million in cost reductions, with $67 million of that in personnel costs and $90 million in other cuts. Some of the cuts took effect in May and June, bringing our total operating expenses for the fiscal year ending in June to about $935 million. For the 2021 fiscal year, our budget is $816 million, which represents about $120 million in savings. In making that 2021 budget, we forecast an average passenger decline of about 65%.
You said when the Covid crisis first hit, you looked at reducing capital programs. Yet almost all of the $14 billion in airport modernization projects have continued full steam ahead. Other airports have put enhancements on hold. How were you able to keep going?
As we looked at our budget, there were two major things we wanted to continue to do. We wanted to make sure we were able to operate the airport efficiently and safely for our employees and passengers. Then we also wanted to do everything we could to maintain our capital projects that were already in progress.
These capital programs are long in coming to LAX as we were behind the curve in investing in airports. And we have several major international events coming to the area, including the 2028 Summer Olympic Games. So, these were crucial capital programs. But also, we were in better financial shape than many airports coming into the Covid crisis. That said, we did make some reductions in consulting contracts.
With many people choosing to avoid LAX or flying altogether during this pandemic, what are you doing to regain passenger trust that it is safe to fly?
We are investing in technology and processes to make sure terminals are as clean and healthy as possible. We are paying special attention to cleaning the airport terminals, bringing on board more cleaning crews, ultraviolet cleaning technologies to purify the air and high-contact surfaces, adding touchless components throughout the terminals.
We’ve also put in all types of signage wherever possible to tell people what they need to do to continue with their journey in as safe a way as possible. This includes signage for physical distance guidelines.
What other technologies are you implementing?
We’ve set up health screenings, including a pilot thermal camera program in the Tom Bradley International Terminal to measure body temperatures of passengers entering the facility. We are the first airport to do this.
We now have technologies in place to allow passengers to order food and beverages on their mobile devices ahead of time and then simply pick up their food orders.
We also have biometric boardings for international passengers: Instead of being handed a boarding pass, a passenger simply looks into a camera and the identification takes place without the need of any paperwork or photo identification cards.
Really? How does that work?
The Customs and Border Patrol personnel already have passport photos and green card photos of passengers on their desktop or laptop. So, it’s just a matter of the camera identification matching up with these documents they already have in their system. Again, this is for international passengers only.
This sounds like it has called for a lot of additional money being spent. How much has come out of your budget for all this?
The total cost for these Covid measures has so far come to about $3.5 million. Some of this has been funded by private companies through public-private partnerships and have not cost LAWA any money. Other initiatives have been sponsored by our federal partners.
That is correct, we’re still down 85% or so, largely because of many international government restrictions and quarantine requirements.
First, we must instill confidence in the cleanliness and touchless components at LAX and, as mentioned previously, we’re working on that front.
We are also working with a group of nine international airports to exchange best practices and develop the air bridge concept: ensuring identical hygienic and cleanliness standards so that when a passenger travels between airport A and airport B, they are able to do so with a high level of confidence in their safety.
And we are also putting (Covid) testing protocols in place to have passengers test either upon arrival or departure to shorten or avoid quarantine periods once they arrive at their destination. But trying to get governments to accept this has been challenging.
How so?
We’ve tried taking this to the airlines and the federal government to encourage the government to open up these air bridge concepts. It’s just been difficult to get movement on this front.
Some airlines are testing this. And Hawaii had implemented this: A negative Covid test means you can avoid quarantine upon arrival.
We’re hoping to be able to get this in place to stimulate pent up demand for international travel.
First, as you know, we had some good news last month: On Delta Air Lines’ Terminals 2 and 3 project, we’ve been able to accelerate that program by about 18 months ahead of schedule. The shutdown of Terminal 3 in the spring due to the pandemic allowed construction to be completed more rapidly there and on the consolidated headhouse (the arrival and departure area) for Terminals 2 and 3.
Meanwhile, we have two new terminals coming online early next year. In the first quarter, Terminal 1.5 should be ready — that provides additional passenger processing capacity for both Terminals 1 and 2. Then, by the summer, the Midfield Satellite Concourse that connects with the Tom Bradley International Terminal should open.
So Covid did not delay these projects?
The Midfield Satellite Concourse project was delayed a bit as it was more of an indoor job. There were some impacts with worker shortages on certain days. That said, we’re still trying to achieve the construction delivery date in January. Then it will take at least a couple months to get the building operational.
How are the $5.5 billion in ground access improvement projects going?
The automated people mover project is going quite well. If you look across the airport to the east, you will see the guideway columns being erected. Work will start soon on the guideway itself. On the consolidated car rental facility, about 60% of the structure is completed. And for the intermodal transportation facility — which for now is primarily a parking structure — the concrete has been completely poured, and it’s on track to open next summer.
Have you been able to accelerate work on these projects with the reduced traffic around LAX due to the Covid-induced plunge in passengers?
We’ve been able to accelerate work on both the consolidated car rental and intermodal facilities, shutting down lanes and streets more than we originally anticipated. But on the other hand, there have also been some delays, as exposure to Covid has forced some construction workers to stay home. But because most of the landside access projects are outside, these delays have been relatively minimal.
Indeed, cargo traffic started to come back much quicker. Airlines realized there was demand for cargo and began using passenger flights to take cargo — both international and domestic carriers. We are now at a point where air cargo is up 21% over last year.
Also, LAX has become the leading destination in the U.S. for imports of personal protective equipment such as N95 respirators. There’s been a huge increase in PPE coming through LAX.
Prior to the pandemic, we were 10th in the world in air cargo. We can significantly increase our standing in that ranking if we make the proper investments. Beginning in the first quarter of next year, we are launching a study to determine what is the best way for us to handle significantly more air cargo. It’s much more than just putting in a building. There are also many operational changes that can increase our capacity, such as more sorting and handling capabilities.
We expect next year to issue a request for proposals that will include development of cargo facilities — and not just a terminal. It will also likely include cold storage and warm storage facilities as well as improved processing capabilities. We’re envisioning something similar to a FedEx or Amazon facility. As for timing, we could see building begin in 2022 — maybe.
