How to Mismanage an Airport, Part II: High Overhead, Outrageous Salaries
As discussed yesterday, Ontario Airport has a cost problem and the city wants to take the airport back from Los Angeles World Airports (LAWA) so it can fix it. What exactly is the problem? Well it isn't debt on the new, over-sized terminal. It's actually concentrated in three different areas, all of which can be fixed.
High Operating Expenses
The overarching problem is one of very high operating costs. Take a look at this chart which shows just how high the costs are.
Now, these aren't the costs to airlines but rather the general operating expenses for the airport. There are revenues that offset these costs (like concessions, for example). But what can't be offset is charged back to the airlines, so it directly impacts how expensive an airport is for airlines.
The city of Ontario wants to attack the operating costs to try to bring them down. Where are the abuses coming from? Good question. There will be a general effort to reduce costs, but there are two areas in particular identified by the city.
The High LAWA Administrative Charge
LA World Airports runs Ontario, but it doesn't just run it for free. There is a rather high administrative charge that is tacked on to Ontario's expenses every year. This year it is expected to be $8.7 million, down from $10.2 million. Why? Because it's just a flat chunk of operating expenses. From the report:
ONT pays LAX an administrative fee of 15% of its operating expenses. For the fiscal year that began July 2010, the administrative fee will be $8.7 million. We do not know what services are provided in exchange for this charge.That's always encouraging. The quote does continue to say that Ontario realizes that some services are provided, like legal, back-office work, etc. But 15 percent of operating expenses is a very hefty price to pay for that, and it seems rather arbitrary. That's one area to reduce costs, but believe it or not, that's not the biggest fish to fry.
Huge Number of Highly-Paid Employees
Ontario has the dubious distinction of having an absurdly large number of employees compared to other airports. Take a look at the chart.
Now these aren't all apples-to-apples comparisons. For example, most airports will contract out things like janitorial and the like, but Ontario keeps it in house. But here's where it gets goofy. Ontario has 302 employees (which was slashed by about 60 people already by LAWA -- talk about bloat), and the average salary? It's $102,400.
Wow.
That's higher than average, which is surprising because you would think that having lower-wage jobs like janitorial work, in the mix, would keep the average lower. Nope, not the case.
The admin fee is 15 percent of operating expenses, so that means operating expenses must be $58 million. And wages are $31 million, or more than half, of the budget. So this is absolutely a good place to look for cost reduction.
It seems obvious that discipline in these areas could have some real, significant decreases in costs. Anything that makes it cheaper for airlines gives the airport a better shot at drawing traffic. Why LAWA hasn't focused on this may not seem logical. Then again, LAWA has no reason to draw traffic away from its crown jewel, LAX, when traffic is down there and there's a significant effort underway to bring it back.
Nothing like competing with yourself, right?
Related:
- The Battle of Ontario: How to Mismanage a Small but Really Expensive Airport
- Ontario Airport's High Costs Showcase Missed Opportunity
- Ontario's Air Traffic Glut Draws Anger Toward LA