Concession Redevelopment Los Angeles International Airport. Board of Airport Commissioners May 17, 2010

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1 Concession Redevelopment Los Angeles International Airport Board of Airport Commissioners May 17,

2 A National Context Airport Concession Performance LAX concession performance is average Given its demographics, long-haul flights, and international passenger mix, LAX should be among the top performers. $14.00 $14.00 Concession Concession Spend Spend Rates Rates for for Large Large Hub Hub Airports Airports Food Food and and Beverage Beverage and and Retail Retail Only Only $12.00 $12.00 $10.00 $10.00 $8.00 $8.00 $6.00 $6.00 $4.00 $4.00 $2.00 $2.00 $- $- FLL SLC ATL SAN CLT CLT MDW DFW DEN IAD PHX ORD PHL TPA LGA BWI LAX MSP DCA DTW MCO SEA MIA LAS BOS EWR SFO JFK PIT FLL SLC ATL SAN CLT CLT MDW DFW DEN IAD PHX ORD PHL TPA LGA BWI LAX MSP DCA DTW MCO SEA MIA LAS BOS EWR SFO JFK PIT 2

3 Historical Context - Change since 1998 LAX lags other large airports in growth in spend rate over the last decade Without a modified course of action LAX will likely continue to fall behind Change in Spend per Enplaned Passenger % 145% 64% 66% 72% 74% 79% 90% 96% 97% 102% 106% 112% 112% 114% 122% 124% MCO ATL LAX DEN PHX BWI JFK CLT IAD SEA BOS PHL ORD IAH DFW EWR MSP 3

4 Future Potential Improve Passenger Satisfaction and Revenue Passenger Satisfaction - Higher sales/passenger is the best available metric Potential Sales Increase to LAWA from Food & Beverage and Retail Concessions -- Excludes Duty Free Sales -- Potential increase from program improvements Sales Potential Operating at the higher end of airport industry scale, LAX should (x-duty free sales): Current sales (including inflation for 2014) $54,004,620 $108,009,240 Realize $54m-$108m in additional annual sales Results in $500m-$1.0b in additional sales over the life of the concession agreements $342,029,259 $342,029,259 $342,029,259 LAWA Net Revenue - Improving concession fee structures will determine how much of the potential upside LAWA would receive $278,101, (CPI only) 2014 Low Range 2014 High Range Note: No increase in passenger enplanements assumed in figures. 4

5 LAX Terminals Different Needs and Opportunities Bad Passenger Terminal Concourse Condition and Appearance Good Least Constrained LAWA Ability to Flexibly Re-program Terminal Space T3 T1 T6 T2 TBIT Renov BW T7 T8 T5 Most Constrained T4 = airline-developed terminal with concessions and public space reverted to LAWA = LAWA-managed terminal 5

6 Business Models Considered Direct Leasing LAWA leases through RFP process, oversees tenant design, construction, and tenants Terminal Commercial Manager Provides vision, leasing & re-leasing, design, construction, and tenant management Leasing Agent/Manager Provides leasing & releasing, design coordination, schedule compliance, tenant management Terminals 4, 5, 7, and 8 Terminals 1, 2, 3, and 6 Bradley and Bradley West Changes since last update Terminal 2 transaction Lease premises no longer constrained by LAXTWO lease Location of international airlines more in LAWA control Expanding role for TCM in Bradley West construction Management preference to have a more efficient competitive process 6

7 Planned Approach Employ TCM model for all remaining terminals Simplifies and expedites the competitive process Establish two opportunities: 1. Bradley + Terminal 2 + Encounter 2. Terminals 1, 3, and 6 Why two? Construction/redevelopment requirements of Terminals 1, 3, and 6 International versus domestic passenger mix in packages Minimizing effects of future airline relocations, both known and unknown Facilitates competition and creates more opportunity Run parallel competitive process for the two opportunities Constrained schedule: Construction deadlines for Bradley West Expiration of existing agreements in Terminals 1, 2, 3, 6 7

8 Proposed TCM Scope Required and Optional Design and construction of terminal improvements, including concession shell space Funding improvements Developing phasing and transition plans Managing initial and recurring subtenant leasing process Managing construction by subtenants Developing opportunities for subtenants providing the following services Excluded Food & beverage, retail, free wifi, vending, ATM, currency exchange, business services, per-use and common-use lounges Advertising/media Self-operation of concession areas Subleasing to duty free operations and pay phones (reverts to LAWA) Luggage carts 8

9 Competitive Process - Four Stages 1. Qualify RFQ used to start process All qualified firms that respond would then be asked for proposals 2. Propose RFP would require LAX-specific conceptual design, marketing plan, ACDBE program, transition plan, financial proposal, etc. Responses would be ranked by staff evaluation committee 3. Negotiate Defined negotiation window for highest ranked TCM, with focus on finalizing development plan and investment requirements #2 ranked firm would be on stand-by, as would others, should initial negotiations fail to close a deal Completed negotiation and executed contracts to BOAC and City Council 4. Implement Work with incumbent operators in each terminal after award Commence process for identifying concession concepts and TCM s subtenants Undertake construction 9

10 Schedule Preliminary Schedule Qualifying Stage June Proposal Stage Through August Negotiation Stage Through November Implementation Stage December and thereafter 10