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Economic and Political Analysis

Volume V | Issue 5 | Spring 2016

Timeline of Ontario Airport pg. 2-6 A Conversation with the OIAA Board pg. 7-12 Photo Credit: Nc3D Photography | Flickr Photo Credit: California Department of Corrections

ONT Free At Last Like many in the Inland Empire, we at the Inland Empire Center have been following the developments at Ontario International Airport (ONT) with great interest. Indeed, we published an article on the decline of the airport in one of our first issues in the spring of 2011. We are pleased to dedicate the current issue to the future of Ontario International Airport, now that it will return to local authorities. First we trace the development of the airport since its inception in 1923, through the battle for local control that has spanned the past five years (p. 2). The Ontario International Airport Authority (OIAA) will now own and run the airport. We introduce you to the OIAA board members and have a wide-ranging conversation with them (p.7). Next we examine some of the challenges facing the airport, noting that the smaller airports in the Bay Area face many of the same problems (p.13). Finally, we look at the logistics sector in the Inland Empire and spotlight the growth of cargo operations at ONT (p. 20).

Challenges Remain for ONT pg. 13-20 Logistics Flies High pg. 20-23

On March 4, 2016, the Inland Empire Center will hold its first Inland Empire policy conference at the Drucker School of Management in Claremont. Kelly J. Fredericks, the newly-named CEO of OIAA, will deliver the keynote remarks. Alan Wapner of the OIAA and Ontario City Council will chair a panel on airport operations. Bruce Atlas from Southwest Airlines and David Bonner from UPS will also be part of that discussion. Ron Loveridge of OIAA, UC Riverside, and former mayor of Riverside, will chair a panel on economic development. He will be joined by Jan Brueckner of UC Irvine, Steve Lambert of The 20/20 Network and Ontario Airport Alliance, and Mike Wolfe from Lee & Associates. We at the CMC Inland Empire Center hope you find this edition of Inland Empire Outlook a useful guide. Please visit our website, www., for updates to these stories and other Inland Empire news.


ONTARIO AIRPORT: 1923-TODAY 10,880 sf terminal building opens. Commercial air service begins.

Ontario purchases an additional 470 acres surrounding the airport and approves construction of new runways.

1929 City of Ontario purchases a 30-acre tract of land three miles east of Latimer Field (in the southwest corner of the current airport) and renames the airfield Ontario Municipal Airport.


Latimer Field, named after a nearby orange-packing company, opens near San Antonio Avenue and the Union Pacific railroad tracks. A Curtiss JN4 “Jenny” is the first aircraft to land.

Timeline by Manav Kohli ‘16 and Graphic by Melissa Muller ’18



1947 1946

1942 1941

Works Progress Administration funds the construction of two concrete runways. Army Air Corps begins using the airfield as an P-38 training base and P-59 operating base during World War II.

Tr or le In


Passenger volume passes 1million.

Military departs and airport is rededicated to civil aviation.

rans-PaciďŹ c cargo ights riginating from the airport ead to renaming it Ontario nternational Airport.

1971 1970

1967 Ontario and Los Angeles sign Joint Powers Agreement and the airport becomes part of the Los Angeles regional airport system. Ontario later litigates the validity of this agreement.

Ontario acquires an additional 300 acres and expands the terminal building by 22,500 sf.

Ontario transfers ownership of Ontario International Airport to Los Angeles. Southwest Airlines begins service.

Two new terminals open. Both are currently in use. New ground transportation center opens.


1998 1999 2000

2007 2008 2009

Passenger volume passes 6 million and UPS opens its West Coast hub.


Passenger volume passes 2 million.


New runway opens, accommodating wide-body jets. 35,000 people attend dedication ceremony.

1985 1986

19 8



Passenger volume passes 4 million.

Passenger volume passes 5 million.


2015 2014 2013 2012



Passenger volume peaks at 7.2 million.




AeroMexico begins service to Hermosillo. Frontier JetExpress begins nonstop flights to Denver. Hawaiian Airlines begins service to Honolulu.


Lineas Aereas Azteca begins service to Hermosillo.

Hearing to determine legality of LAWA’s ownership at time of sale in 1985.

UPS begins flights to China using Boeing 747 cargo aircraft.

Ontario and Los Angeles request a stay to their lawsuit, scheduled to go to trial on August 17, 2015.

Passenger volume edges up to 4.2 million, from 4.1 million in 2014.


Citing a dramatic drop in passenger volume and an estimated loss of $1.7 to $4 billion to local economy as a result of LAWA mismanagement, Ontario files suit against Los Angeles, challenging validity of original transfer and alleging breach of contract. Lawsuit alleges that LAWA intentionally decreased flights and promotion of the airport in order to drive traffic to LAX.

Court rejects LAWA’s motion to dismiss lawsuit. Parties agree to stay lawsuit until Jan 31, 2014, pending settlement discussions.

2014 2015



Air Canada offers daily service to Toronto. Jet Blue Airways begins daily nonstop service to New York. AeroMexico begins service to Guadalajara and Mexico City.

Settlement discussions fail and Ontario moves forward with lawsuit. Among issues of contention, Ontario and LAWA disagree on the price of the airport with LAWA’s proposed $474 million nearly twice as large as the $250 million offered by Ontario in 2011. Los Angeles cites the $560 million invested into the airport since 1967, while Ontario officials argue that the agency-to-agency transfer of a public facility should not be treated as a commercial transaction.

2016 OIAA hires Kelly J. Fredericks as first CEO. Senator Dianne Feinstein introduces legislation to allow the transfer of ONT from LA to Ontario.


Passenger volume at 7.2 million after slight dip in previous year.


ExpressJet announces 14 new non-stop flights out of ONT.



Passenger volume drops by 1 million, falling to 6.2 million. LAWA cuts Ontario’s marketing budget by 80%.


Ontario International Airport becomes LA/Ontario International. More passengers and airline services are forecast for ONT when LAWA promises more regional airport use (as part the settlement of a lawsuit over expansion plans at LAX).

JetBlue and ExpressJet cut service to ONT.

Passenger traffic drops to 4.8 million, a nearly 23% drop in one year.

y e



Court issues Tentative Decision upholding 1967 Joint Powers Agreement between Los Angeles and Ontario and the 1985 sale of ONT to Los Angeles. Ontario appeals this ruling. Litigation on breach of contract and other issues continues.

Los Angeles City Council confirms Deborah Flint, former Director of Aviation in Oakland, as Executive Director of LAWA.

Los Angeles loses motion to dismiss lawsuit, allowing Ontario’s claim for breach of fiduciary duty, contract, and covenant of good faith and fair dealing to go to trial.

OIAA President Alan Wapner and LA Mayor Eric Garcetti sign Settlement Letter of Intent to transfer ONT to Ontario, pending negotiation of long form agreement. The agreement brings an end to years of litigation and kicks off the process of seeking approvals from the Federal Aviation Administration and local government agencies.


Total passenger volume sinks to 3.9 million from its peak of 7.2 million in 2007, a drop of 43%.

San Bernardino County and City of Ontario enter Joint Powers Agreement to form Ontario International Airport Authority. LAWA adopts OIAA releases strategic business resolution establishing criteria to consider potential transfer plan for managing airport of airport to Ontario.

2011 Ontario’s appeal of Tentative Decision gets a favorable initial response when the 4th District Court of Appeal in Riverside issues a writ suggesting merit to Ontario’s petition to dissolve the agreement that had given Los Angeles control over Ontario Airport.

Ontario and Los Angeles finalize long form agreement to transfer ONT to Ontario for $250 million and settle lawsuit.


Timeline Bibliography

Timeline Bibliography

Brooks, Richard. "ONTARIO: Airport Passenger, Cargo Volumes Climbed in 2015." The Press Enterprise. January 26, 2016. Accessed February 21, 2016. City News Service. "Council Confirms Deborah Ale Flint as New Head of Los Angeles World Airports." Daily Breeze. June 23, 2015. Accessed February 21, 2016. De Atley, Richard K. "AIRPORT LAWSUIT: Ontario Claims Billions in Damages." The Press Enterprise. July 15, 2015. Accessed February 21, 2016. De Atley, Richard K. "ONTARIO: How and Why the Airport Saga Got so Ugly." The Press Enterprise. October 27, 2014. Accessed February 21, 2016. "Feinstein Introduces Legislation to Enable Transfer of Ontario International Airport." The San Bernardino American. January 21, 2016. Accessed February 21, 2016. Kohli, Manav. "Inland Empire Outlook: Ontario Airport Comes Home." The Rose Institute of State and Local Government. September 23, 2015. Accessed February 21, 2016. Stone, Sam. “ONT: An Airport in Crisis and at a Crossroads.” The Rose Institute of State and Local Government. 2011. Accessed February 21, 2016. Marquez, Liset. "In Ontario Airport Lawsuit, Judge Denies L.A’s Attempt to Get Dismissal." The Daily Bulletin. April 23, 2015. Accessed February 21, 2016. Marquez, Liset. "Lawsuit over Control of Ontario Airport to Move Forward." The Daily Bulletin. February 5, 2014. Accessed February 21, 2016. Marquez, Liset. "Los Angeles Scores Legal Victory in Ontario Airport Suit." The Daily Bulletin. January 22, 2015. Accessed February 21, 2016. Marquez, Liset. "Ontario Airport Lawsuit against Los Angeles to Go to Trial in August." The Daily Bulletin. February 18, 2015. Accessed February 21, 2016.\ Marquez, Liset. "Ontario, Los Angeles Make Their Cases in Airport." The Daily Bulletin. November 14, 2014. Accessed February 21, 2016. Marquez, Liset. "Ontario Airport Lands New CEO." The Daily Bulletin. January 20, 2015. Accessed February 21, 2016. "Ontario International Airport Official Website." Los Angeles World Airports. Accessed February 21, 2016. "SETTLEMENT AGREEMENT ANNOUNCED TO TRANSFER ONTARIO INTERNATIONAL AIRPORT." The City of Los Angeles. 2015. Accessed February 21, 2016. "Timeline of Events in LA/Ontario International Airport Lawsuit Case." The Daily Bulletin. August 5, 2015. Accessed February 21, 2016. "Q&A LA/Ontario International Airport." LA/Ontario International Airport. 2015. Accessed February 21, 2016. Q AND A REVISIONS.pdf. Weikel, Dan. "L.A. Will Transfer Airport Ownership Back to Ontario." Los Angeles Times. August 15, 2015. Accessed February 21, 2016.


A Conversation with the OIAA Board Photo Credit: Jorge Diaz | Flickr


he Ontario International Airport Authority (OIAA) was formed in 2012, the result of a Joint Powers Agreement between San Bernardino County and the City of Ontario. Since its formation, its principal task has been to negotiate the transfer of control from Los Angeles World Airports (LAWA) back to Ontario, a goal that is now very close to being realized. The Rose Institute recently interviewed the five members of the OIAA board, touching topics as varied as the growth plan for the airport, the regional impacts of the transfer, and the future relationship between LAWA and Ontario Airport. Alan Wapner is currently the president of the OIAA. He has served for 20 years on the Ontario City Council, during which he has worked on a variety of projects, including the Ontario Mills Mall, the Ontario Convention Center, the Ontario Police Station, and the Citizens Business Bank Arena. He continues to be active on a series of regional boards, the most recent count has

him serving on ten. These include the League of California Cities, San Bernardino Associated Governments (SANBAG) Board of Directors, and OmniTrans, where he is the chair. Ronald Loveridge is the current vice president of the OIAA. He was the mayor of Riverside for nearly 20 years (1994-2012), and served as the president of the National League of Cities in 2010. He has served in a variety of roles on the following organizations: California Air Resources Board, California Forward Action Fund, South Coast Air Quality Management District, and the Inland Empire Economic Partnership, among many others. He is currently the Director of the UCR Center for Sustainable Suburban Development. Jim Bowman has served at various times since 1986 on the Ontario City Council, and continuously since 2006. An Ontario resident for 68 years, he has served on a variety of both local


and regional boards. Locally, this includes the Ontario Housing Authority, the Ontario Industrial Development Authority, and the Ontario Redevelopment Financing Authority. Regionally, he is involved with the California-Nevada Super Speed Train Commission, the Chino Basin Desalter Authority, the Ontario Convention Center, and the San Bernardino County Economic and Development Commission, among others. Curt Hagman is a San Bernardino County Supervisor. He was first elected to the Chino Hills City Council in 2004 and served as Mayor in 2008. That year, he was elected to State Assembly, where he was twice re-elected. In 2014, he was elected to his current position as Supervisor. He was heavily involved with the San Bernardino County Workforce Investment Board, and currently serves on the Board of Directors of the Southern California Association of

Alan Wapner

Jim Bowman Photos Courtesy of Ontario International Airport Authority

Governments, OmniTrans, and San Bernardino County Association of Governments. Lucy Dunn is the CEO of the Orange County Business Council. A frequent name on the Orange County Register’s “Most Influential List,” she has also won a variety of other awards, including: California State University Fullerton’s “Vision and Visionaries Award” in 2007, Southern California Association of Governments’ “Private Sector Partner of the Year” in 2012, and the Orange Catholic Foundation’s “Business and Ethics Award” in 2014, among many others. She has also served on the California Department of Housing and Community Development as Director and on the California Transportation Commission.

Ronald Loveridge

Curt Hagman

Lucy Dunn


Growth Strategies Moving Forward Rose Institute: What is the growth strategy for Ontario over the next 5 to 10 years? Mr. Wapner: Ontario’s air service development growth strategy is to focus on attracting new nonstop air service in Ontario’s top unserved markets as well as attracting additional air service in Ontario’s top underserved markets. We will focus on pursuing those carriers where these focus markets are strategic fits for the carriers. Mr. Loveridge: This is the question before the OIAA. Various plans are in process. Of course, the overall objectives are to increase passengers and cargo and to develop the vacant property around the airport. ONT has the possibility of being one of the most successful regional airports in the country. It is not constrained. Infrastructure is in place. It is located at the center of 19 million people in Southern California. Rose Institute: How does Ontario intend to attract more airlines to Ontario Airport? Ms. Dunn: Ontario will attract new and increased air service through (1) reductions in ONT’s future cost per enplanement (CPE), (2) showing how underserved the Ontario market is relative to all other markets of similar size, (3) showing the constraints that the other area airports face, (4) showing the opportunities and growth that the region has to offer and (5) tailored presentations to the carriers and routes that put our best foot forward. Mr. Loveridge: The simple answer is by increasing flights. The more complicated answer is found in better marketing, reduced fees, direct flights, increased amenities, development around the airport, et cetera. The OIAA also intends to reach out to Inland Southern California to be a

participant, a partner in these efforts. Rose Institute: Are there any changes to transportation policy that are being considered to accommodate a (possible) increase in traffic at ONT? Mr. Wapner: At this time, no changes to transportation policy are contemplated. In 2015, ONT served approximately 4.2 million passengers. The current facilities can accommodate 10 million annual passengers without major expansion. Mr. Hagman: Nothing right now, since we have all the freeway arteries near the airport. So at least in terms of SANBAG and the County, we’re probably not looking at a lot of changes. In the long-term, there is the possibility of light-rail with the Gold Line and maybe high-speed rail down the line. Rose Institute: How can the area around the airport best be developed to benefit Ontario? Mr. Bowman: The OIAA believes that ONT can become the centerpiece of Southern California’s first Aerotropolis. An Aerotropolis is a new urban form placing airports in the center with cities growing around them, connecting workers, suppliers, executives and goods to the global marketplace. (The Aerotropolis concept was inspired by the research and writing of John D. Kasarda, Director of the Kenan Institute of Private Enterprise at the University of North Carolina’s Kenan-Flagler Business School.) We believe Ontario is ideally suited for the Aerotropolis urban design model due to its strategic location in the regional ground transportation system, the availability of prime property on and off the airport, wide-spread community support and the political will to harness the airport’s enormous potential.


Regional Impact and Issues Rose Institute: Ms. Dunn, given your experience and work in Orange County, how do you think ONT being transferred from LAWA is going to affect Orange County, especially John Wayne Airport? Ms. Dunn: ONT is well positioned to play an integral role in accommodating the growing demand for air travel in Orange County and all of Southern California. ONT is virtually unconstrained whereas John Wayne Airport is capped at 10.8 million annual passengers until 2021. In 2015, John Wayne Airport served nearly 10.2 million passengers. It likely will reach its authorized capacity of 10.8 million annual passengers in 2016 or 2017. Rose Institute: Going forward, what will the relationship between Ontario Airport and the surrounding cities look like? Mr. Loveridge: Beginning in March, the new Airport Director Kelly Fredericks will begin an extensive outreach effort to tell the ONT story to surrounding cities. We (OIAA) recognize that ONT is a regional airport. We want ONT to be the airport of choice for cities as well as the residents and the businesses in Inland Southern California. Rose Institute: How can ONT best serve the people not just of San Bernardino County, but also Riverside County? Mr. Loveridge: Support for ONT goes well beyond county boundaries. The overarching objective of OIAA is to make ONT the airport of choice for Inland Southern California. The economic benefits of the growth of ONT will be important to both counties. Rose Institute: Especially given Ontario Airport’s economic importance to the region, how

do you expect the relationship between ONT and San Bernardino County or San Bernardino Association of Governments (SANBAG) to develop? Mr. Hagman: I think that especially Ontario and San Bernardino County work very closely together. What’s good for the city is good for the county, and SANBAG provides infrastructure for cities to grow in the county. We have a collaborative working relationship at the moment. Rose Institute: What steps is San Bernardino County taking to ensure that ONT becomes a success? Mr. Hagman: The County is serving as a backup to the City of Ontario. Ontario has the lead to make Ontario Airport successful. We’re looking at the idea of supplementing landing fees costs while development goes on at the airport. What we charge for the rent is the major factor in what airlines come to the airport. There are about 700 plus acres of possible development around the airport, and the revenue would go to the airport to lower landing fees. Until those funds start rolling in, we might use county funds to supplement those landing fees. Future of the Relationship Between Ontario & Los Angeles World Airports Rose Institute: What does the future of the relationship between Ontario Airport and LAWA look like? Mr. Wapner: During the first two years of operation under local control, the OIAA will utilize LAWA’s current employees at ONT to ensure a seamless transition of control and provide uninterrupted services. At the conclusion


of the transition period, all services at ONT will be provided by employees of the OIAA or private sector companies under contract to the OIAA. At that point, ONT will be on a level playing field with the other secondary airports in Southern California – operating independently to provide airport capacity to meet the growing demand for air service in the region. Mr. Loveridge: We reached agreement that met the objectives of ONT and LAX. We will work together in the same way we will work with Bob Hope, John Wayne, and Long Beach. SCAG and others who have studied aviation in Southern California all emphasize the importance of regionalizing airport traffic across this sprawling mega region. Working together includes regionalizing rail traffic to the airports of Southern California. Mr. Hagman: We’re not necessarily competing with them, but we’re looking to service all residents in the region. Ontario is going to pick up flights as other airports get maximized, but also add different flights. We

might expand international flights to Asia and get a lot of connecting flights. We’re focused on working to make the best service possible for the residents in the region. Reflections on the Process Rose Institute: What was the most challenging aspect of this entire process? Mr. Wapner: The most challenging aspect of the process was to convince Los Angeles to embrace the regional consensus that there was an inherent conflict of interest in L.A. controlling an airport in another jurisdiction and that it was in the best interest of all of Southern California for ONT to be under local control. Mr. Hagman: The most challenging aspect was that LAX didn’t want to let Ontario become an independent airport. There were big decisions that Los Angeles had to make about whether an independent Ontario would be a benefit or a hurt to the residents of Los Angeles. Hopefully,

Meet OIAA’s NEW CEO: Kelly J. Fredericks Kelly J. Fredericks is the incoming CEO for Ontario Airport. He has 33 years of experience in the aviation industry, most recently as the president of Rhode Island Airport Company. Before that, he was the lead for a multi-billion dollar airport expansion program at Fort Lauderdale-Hollywood International Airport that included a new terminal and runway. Other previous positions include Executive Director/ CEO at Erie International Airport (1999-2008), Deputy Aviation Director at Pittsburg International Airport (19961999), and Manager of State-Owned Airports/Improvements at Harrisburg International Airport (1980-1993). Photo Courtesy of the OIAA


though, an independent Ontario will be helpful to all the residents in Los Angeles.

resource that distinguishes us as a good place to live and to do business.

Rose Institute: Do you think that the City of Ontario should have done anything different throughout this process?

Ms. Dunn: Cities should continually assess and work to improve their relationships with other cities. That said, control of ONT by LAWA was a unique situation not likely to be replicated elsewhere in the region. This is because municipalities and other public agencies do not typically own and operate facilities outside their geographic boundaries.

Mr. Bowman: It is difficult to imagine anything different Ontario could have done throughout the process of obtaining ONT since the city’s ultimate goal is now being achieved. As soon as it was determined that Los Angeles had changed its view of ONT as it related to LAX – creating a clear conflict of interest - the only option for Ontario’s leaders was to develop and implement a strategy to return ONT to local control as soon as possible. Rose Institute: Should cities reexamine their relationship with other cities, especially larger ones, in light of LAWA’s treatment of Ontario? Mr. Loveridge: The transfer of control is old news. The good news is that a major regional airport is poised to grow. Cities of Inland Southern California need to support, and understand, future directions and initiatives at ONT. This is not the OIAA airport; rather, ONT is the airport for this region and its cities, businesses, and residents. It can be this region’s most important economic driver as well as a

By Tim Plummer ’17

Rose Institute: Mr. Wapner, how has this process compared to other major projects (Ontario Mills, Citizens Business Bank Arena) that you’ve been a part of? What aspects have been more challenging or easier? Mr. Wapner: All major projects in the City of Ontario involve a collaborative approach with our public and private stakeholders. We implemented this same philosophy when we committed to the local control campaign for Ontario International Airport as reflected in the region’s overwhelming response and support of this initiative. We focused on community engagement, public education, and cooperation. The success of the Ontario Mills Mall, the Citizens Business Bank Arena, the Ontario Convention Center, and many other major Ontario projects was a solid foundation for our team to build upon.


Challenges Remain for ONT


elly J. Fredericks, newly-appointed Chief Executive Officer of the Ontario International Airport Authority (OIAA), is optimistic that Ontario can return to its peak from nearly a decade ago. “The three things I continually think of is that Ontario is underutilized, it’s under-served, but it really points to the word of transformation. That’s why I’m here,” said Fredericks recently. Under-utilization is easy to see when examining passenger totals over the past decade. ONT’s

two terminals are designed to handle an annual volume of 10 million passengers. The total passenger volume at ONT, however, has never gotten that high. It reached a peak of 7.2 million in 2005 and hovered near 7 million for the next two years before dropping by 1 million in 2008 and another 1.3 million in 2009. The decline continued through 2013 when passenger volume was at 3.9 million. The last two years have seen modest gains, with 2015 volume inching up to 4.2 million, still 42% below 2007 levels.

FIGURE 1: ONT Ten Year Summary, 2006-2015


Passenger Departures Passenger Arrivals Passenger Total Annual Operations*


3,533, 858

















































* Annual Operations includes all commerical aircraft, air taxi, alternates, military, and general aviation. Source: Los Angeles World Airports, LA/Ontario International Airport Ten Year Summary


As shown in Figure 2, LAX passenger volume dipped slightly from 2007 to 2009, but subsequently took only two years to make up those losses. In comparison, ONT and John Wayne Airport, Orange County (SNA) have not yet been able to recover to the same level of passenger traffic. LAX had its highest traffic in 2015 with 74.9 million passengers, while performance for ONT and SNA are well under their 2007 peak of 7.2 million for ONT and 9.8 million for SNA. All three airports had their lowest traffic in different years. LAX dropped to 56.5 million passengers in 2009, but rebounded quickly. ONT experienced a drop in traffic every year from 2007 to 2013, when it hit bottom at 3.9 million passengers. SNA dropped every year from 2007 to 2011, although less dramatically than ONT. Passenger volume at SNA ranged

in the past decade from a high of 9.8 million in 2007 to 8.5 million in 2011. While JetBlue Airways chose ONT for its first West Coast flight in 2000, the airline suspended all flights at ONT in 2008. In fact, during the recession, many large legacy carriers such as American Airlines, United Airlines, and Delta Airlines lost substantial passenger volume in ONT as well. ONT’s situation is not unique. An analysis of passenger trends of California’s second largest metropolitan region tells a similar story of steady increases for the main airport while the smaller airports in the region continue to struggle to regain their prerecession levels.

FIGURE 2: Passenger Volume for Top Three Los Angeles Area Airports, 2006-2015 80,000,000 70,000,000

Figure 1: Los Angeles Passenger Volume, 2006-2015

60,000,000 50,000,000 LAX



30,000,000 20,000,000 10,000,000 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Bureau of Transportation Statistics, Los Angeles World Airports


The Bay Area region is served by three major international airports. San Francisco International Airport (SFO), Oakland International Airport (OAK), and Norman Y. Mineta San Jose International Airport (SJC).

downtown Oakland, and SJC 2 miles northwest of downtown San Jose. The Bay Area has a population of 7 million people in nine counties, less than half the population of the Los Angeles region, 18.5 million.

Among the three, SFO is the largest, touted as the ninth largest airport in the United States in terms of passenger volume and the twentyfifth largest air cargo airport according to the Bureau of Transportation Statistics. SFO is also the second busiest airport in California after Los Angeles International Airport (LAX).

The Passenger Volume chart for the Bay Area airports looks remarkably similar to the Los Angeles Area chart discussed above. Like its counterpart in Southern California, SFO dominates the Bay Area market. It has more than four times the number of passengers for both domestic and international travel as SJC and OAK each. Figure 3.

All three airports serve the broader region of the Bay Area, with SFO 13 miles south of downtown San Francisco, OAK 5 miles south of

SFO passenger volume has steadily increased from 2002 to 2014, with its lowest traffic in

FIGURE 3: Passenger Volume for Top Three Bay Area Airports, 2006-2015 50,000,000 45,000,000 40,000,000 35,000,000 30,000,000






15,000,000 10,000,000 5,000,000 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Bureau of Transportation Statistics


Figure 4: Los Angeles Area Flight Passenger Volume, Indexed to 2006 140 120 100 ALL




SNA 40 20 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Bureau of Transportation Statistics, Los Angeles World Airports

2003 at 28.2 million passengers and its highest traffic in 2014 with 45.6 million passengers.

similar decline after 2007 due to high fuel costs and airline bankruptcies.

On the other hand, SJC and OAK passenger volume has dropped after 2007 as with many mid-tier airports during the 2008 rise in oil prices and the recession. The peak of SJC and OAK were 2005 and 2007, when the airports had 10.6 million and 14.2 million passengers, respectively. Since the mid-2000s, both airports have experienced a decline in passenger volume, with a low point for SJC in 2010 at 8.1 million passengers and for OAK in 2011 at 9 million passengers. In fact, SJC lost three major East Coast flights in 2008 and lost 22% of its available seats from 2007 to 2009. OAK faced a

Figure 4 shows how each of the three airports in the Los Angeles market is doing compared to its performance in 2006. All the traffic numbers are indexed to 2006, meaning that performance for each year is compared to its 2006 passenger volume. The dotted line is the aggregate total for traffic at all three airports. ONT is faring the worst with 2014 passenger volume at only 60% of its 2006 level. In contrast, LAX has recovered from its dip in passenger volume in 2009, 93% of its 2006 level of passenger traffic, and surpassed the general trend


Figure 5: Bay Area Flight Passenger Volume, Indexed to 2006 160 140 120 100



SJC 60


40 20 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: Bureau of Transportation Statistics

we observe in all airports. LAX has experienced a 16 point increase in traffic from its 2006 level by 2014. While SNA is faring better than ONT, it has still not gotten back to its 2006 level of passenger traffic. Overall passenger volume for the three airports is higher than before the recession, but the recovery is largely driven by gains at LAX. The Bay Area market reflects a similar picture. Figure 5 shows that the airport system as a whole has recovered after the recession and regained the lost passengers to its 2006 level, as evidenced from the slow uptick in passengers from 2012 onwards. By 2014, SJC and OAK experienced a 5 point increase in traffic from their low points in

2009 and 2011. In comparison, SFO has steadily improved on its 2006 level, while SJC and OAK have not yet completely recovered. While SFO has experienced a 40 point increase in 2014 from its 2006 level, SJC and OAK have declined by 13 points and 29 points, respectively. From November 2014 to November 2015, the growth in passenger volume has reflected similar numbers across all three airports. SFO had a 5.32% increase in passengers. Similarly, SJC had a 3.95% increase.


Figure 6: ONT Carrier Share 4% 4% 5% Southwest SkyWest 13%

American 59%


US Airways Alaska Other Figure 8: LAX Carrier Share

Source: Los Angeles World Airports

Figure 7: SNA Carrier Share




American 45%




18% 17%

7% 16%




Delta 15%

American United Southwest Delta SkyWest Other

Source: Los Angeles World Airports


Source: Bureau of Transportation Statistics

The two airport markets also have similar distribution with respect to the airlines operating at each of the three airports. An analysis of carrier shares shows that both LAX and SFO have reasonable balance across the major airlines and that Southwest Airlines dominates the smaller airports in both Southern California and the Bay Area. Figure 8 shows LAX is fairly evenly split among

American Airlines, United Airlines, Southwest Airlines, and Delta Airlines with each of those carriers having between 16% and 18% shares. In contrast, ONT and SNA are dominated by Southwest, with 59% and 45% of each airport’s carrier share, respectively. As shown in Figure 9, SFO carrier share is less balanced than LAX – it is dominated by United Airlines. SFO serves as the fifth largest hub


Figure 10: OAK Carrier Share 3%



4% 5%

Alaska Spirit


Hawaiian 71%

JetBlue Other

Figure 9: SFO Carrier Share

Source: Bureau of Transportation Statistics

United 25%


Figure 11: SJC Carrier Share

American Southwest

9% 9%




Delta Other


4% 8%

American 53%

8% Source: Bureau of Transportation Statistics



SkyWest Delta



Source: Bureau of Transportation Statistics

for United Airlines, functioning as the airline’s primary trans-Pacific hub and sole maintenance hub. United Airlines comprises 38% of the airport’s carrier share, outpacing SkyWest Airlines, American Airlines, Southwest Airlines, and Delta Airlines, which each hover around 10% of the airport’s carrier share.

Southwest Airlines, with 71% and 53% of each airport’s carrier share, respectively. For both of these airports, Alaska Airlines serves as the second largest carrier with a 6% and 12% share, respectively.

In contrast, OAK and SJC are dominated by

By Nina Kamath ’16


Logistics Flies High Photo Credit: YSSYguy l Wikimedia


ntario International Airport is the fifteenth busiest cargo airport in the United States. It is home to the UPS Western Region hub, encompassing 13 states, for both air and trucking operations. In addition to serving intra-regional traffic, the ONT hub also links to UPS’s global hub in Louisville, Kentucky. UPS has been using ONT as a cargo gateway for flights to and from China since 2001. FedEx, the world’s largest airfreight express carrier and North America’s second largest trucking company, is also a tenant at ONT. These two carriers handle almost all of the freight at the airport. UPS is responsible for 72.5% and Federal Express for 24.6%. In 2015, the volume of cargo transported through Ontario Airport showed impressive gains, totaling 509,810 tons, up from 474,346 tons in 2014. The 509,810 tons in 2015 represents an increase

of 30% from the low in 2009. Although still down from a decade ago, cargo volume has been increasing steadily since then. Cargo shipments climbed 7% in the past year. Freight increased from 459,361 tons in 2014 to 483,010 tons in 2015. Air mail almost doubled, increasing from 14,985 tons to 26,800 tons. ONT is the central component of a booming logistics industry in the Inland Empire. The airport is situated with excellent proximity to the intersection of three major arteries of Southern California’s freeway system: Interstate 10 from Los Angeles to Phoenix, Interstate 15 connecting San Diego to Las Vegas, and State Route 60. It also has access major rail lines, including the Burlington Northern Santa Fe Railway and the Union Pacific Railway. Together the freeways and the railroads form critical arteries to the


ports of Los Angeles and Long Beach, the two busiest ports in America. John Andrews, Economic Development Director for the City of Ontario, noted to the Rose Institute that there is also a significant amount of land available to develop at the airport. “Of the total 1,600 acres at Ontario International Airport, there are approximately 500-600 acres of land development opportunities within the facility boundary. The goal of the OIAA is to seek out the highest and best use of runway access opportunities combined with supporting development which doesn’t require runway or gate access at the perimeter of the airport and which is compatible with existing development in the eastern portion of the city.” The logistics sector is generally defined to include inbound and outbound transportation management, fleet management, warehousing, materials handling, order fulfillment, logistics network design, inventory management, supply and demand planning, third-party logistics management, and other support services. Logistics services are involved at all levels in the planning and execution of the movement of goods. For the Inland Empire, growth within the logistics sector results in jobs not only at the airport, but also at every step of the way as cargo is transported east and dispersed throughout Southern California. In an interview with the Rose Institute, Claremont Graduate University Associate Professor of Management Gary Gaukler, pointed to the Inland Empire’s three major assets for robust

logistics: the region’s proximity to the ports of Los Angeles and Long Beach, its proximity to large population centers for regional distribution, and the availability of relatively inexpensive real estate for building distribution and fulfillment centers. Professor Gaukler viewed the strength of the dollar and decreasing oil prices as “major driving factors” affecting the logistics sector in the Inland Empire. “The decrease in oil price makes transportation cheaper. We will see this in the short term in more production being off-shored to South/East Asia, as well as South and Middle America,” observed Gaukler. “In the balance,” he said, “this means more imports of consumer products coming through the Ports of Los Angeles and Long Beach, and hence into the IE. By the same token, the strong value of the dollar also makes imports cheaper, thus doubling this effect.” Gaukler says that e-commerce and the trend towards omni-channel fulfillment will be the major driver for growth in the Inland Empire. Omni-channel is the effort by brick and mortar retailers to better integrate their stores and e-commerce channels. For example, a retailer might support a buy online, pick-up at store framework; or an order online, deliver to home from a store model. There are also several other possible paths to fulfill such orders. Gaukler pointed out that this requires very complex alignment of different sales channels and fulfillment modes. Retailers using omni-channel

FIgure 1: Ontario International Airport Freight

Air Freight (tons) Air Mail (tons) TOTAL

2008 464,986 16,298 481,284

2009 373,301 17,632 390,933

Source: Los Angeles World Airports, ONT Top 10 Carriers

2010 374,127 18,300 392,427

2011 400,645 16,830 417,475

2012 437,187 17,694 454,881

2013 443,341 17,194 460,535

2014 459,361 14,985 474,346

2015 483,010 26,800 509,810


fulfillment strategies fulfill customer orders using integrated inventory across their distribution centers and retail stores. Across the United States, e-commerce continues to grow compared to brick-and-mortar retail sales. In recent years, retail giants Macy’s and have established fulfillment centers in the Inland Empire to capitalize on the Southern California market. “E-commerce fulfillment centers need a large footprint because of the complex fulfillment activities taking place there. Thus the growth of online retailing drives huge demand for warehouse and logistics capacity to enable quick fulfillment,” said Gaulker, so, “as delivery requirements become more demanding, for example, next-day delivery, shipments by air through ONT airport will likely play an important role.” The growth of the logistics sector is having a substantial and positive economic impact on the Inland Empire. Last year marked the third year in a row the region added approximately 50,000 jobs. According to the Los Angeles Times, the logistics industry in the region experienced faster job growth in the recovery than any other sector and was responsible for a quarter of all new jobs in 2012 and roughly one-fifth in both 2013 and 2014. According to the California Economic Development Department, jobs in goods transportation and warehousing in the Inland Empire grew by 5%, or 3,500 jobs, from July 2013 to July 2014. Growth in the logistics industry has also had spillover effects for other sectors. The need for new warehouses was one factor that helped drive the resurgence of the Inland Empire construction sector. The logistics sector has especially bolstered the economy of San Bernardino County, where transportation and warehouse jobs have increased more than 18% from 2012 to 2014, according to data from Mary Jane Olhasso, Assistant Executive Officer for San Bernardino County,

Gary Gaukler Photo Courtesy of The Peter F. Drucker & Masatoshi Ito Graduate School of Management at Claremont Graduate University

cited by the New York Times. To put those figures in perspective, consider that transportation and warehouse jobs grew 4.4% nationally over the same time period. The warehousing industry, one part of the logistics sector, is booming in the Inland Empire as a result of growth in cargo volume. According to the Los Angeles Times, industrial vacancy rates in the Inland Empire have fallen to 4.5% from a high of 12.8% during the recession. Expected demand for warehouse space is driving more construction as well, in December 2014, 16.9 million square feet of industrial space was under construction in the region, representing 80% of the total in Southern California. During the summer of 2015, there was more than 4 million square feet of industrial warehouse space under construction along freeway corridors in Redlands and San Bernardino by firms including Hillwood Investment Properties, Perot Co., and McShane Construction. The Inland Empire is particularly cost-effective for warehousing because of low-cost land. Prices paid for property in the Inland Empire can be 15 cents less per square foot than the Los Angeles, Orange and San Diego markets, according to the Inland Empire Economic Partnership. A recent study by the firm The Boyd Co. Inc., a corporate site selection consultancy, looked at operating,


labor, real estate, construction, taxes, utilities, and shipping costs and found that the San Bernardino-Ontario-Riverside area is among the most logistics-friendly regions in California. Flat land allows for the easy construction of multimillion square foot facilities. Proximity to the Ports of Los Angeles and Long Beach also help keep transport costs from container to warehouse low. With ample, affordable land and proximity to ports, the Inland Empire has in recent years experienced a real estate boom for mammoth warehouses, leased by giants such as Amazon. com, Home Depot, and Nordstrom. Many other large companies are moving or expanding their logistics operations in the Inland Empire. QVC will open its first West Coast distribution center in the summer of 2016 in Ontario. “Throughout our site search, we considered a number of factors including location, size, proximity to transportation, and a qualified labor force,” said Rob Muller, QVC Senior Vice President of Customer and Business Services at a groundbreaking for the project. “When we ranked everything, Ontario was by far the best,” said Muller. The facility is expected to employ 1,000 workers by 2020. opened its sixth California fulfillment center in Rialto in December 2015, adding to existing Inland Empire facilities located

in San Bernardino, Redlands, and Moreno Valley. Amazon uses the 880,000 square foot Rialto facility to fulfill large-item orders, including appliances and televisions. In fall 2015, Walmart opened a 1.2 million square foot fulfillment facility in Chino that brought more than 200 new jobs to the region. In an interview with the San Bernardino Sun, Chino community development director Nick Liguori expressed hope that the Walmart facility would spur further commercial development. “It’s a growing community,” said Liguori, “We hope it will spur some additional commercial development and demand for service in that area.” Growth in logistics and distribution-based businesses are vital both to the continued economic growth of the Inland Empire and to the success of Ontario International Airport. As John Andrews noted, “During the downturn in passenger traffic volume at ONT, supply chain businesses saw significant growth. In Ontario’s case this includes the expansion at UPS and the recent announcement of a new QVC office/ distribution hub in the City, which is being developed now. Companies like QVC choose Ontario because of the adjacency of their facilities to UPS and FedEx shipping hubs at ONT.”

By Tyler Finn ’17


EDI TORI A L S TAFF Andrew E. Busch,




Marc D. Weidenmier,



Manfred W. Keil, PhD Kenneth P. Miller, JD, PhD Bipasa Nadon, JD

The Inland Empire Center for Economics and Public Policy is based at Claremont McKenna College. It was founded as a joint venture between the Rose Institute of State and Local Government and the Lowe Institute of Political Economy to provide business and government leaders with timely and sophisticated analysis of political and economic developments in the Inland Empire.

Marionette Moore

ST UDEN T S TAF F Francesca Hidalgo ’17 Tim Plummer ’16 Nina Kamath ’16 Manav Kohli ’16 Tyler Finn ’17 Ben Fusek ’17 Melissa mueller ’18

The IEC brings together experts from both founding institutes. Marc Weidenmier, Ph.D., director of the Lowe Institute, is a Research Associate of the National Bureau of Economic Research and a member of the Editorial Board of the Journal of Economic History. Andrew Busch, Ph.D., director of the Rose Institute, has authored or co-authored eleven books on American politics and currently teaches courses on American government and politics. Manfred Keil, Ph.D., an expert in comparative economics, has extensive knowledge of economic conditions in the Inland Empire. Kenneth P. Miller, J.D., Ph.D., is an expert in California politics and policy who studies political developments in the Inland Empire. Bipasa Nadon, J.D., has worked in municipal government and specializes in local government policy. To receive issues of the IEO electronically and news from the IEC, please e-mail us at

Inland Empire Outlook Spring 2016 Issue  
Inland Empire Outlook Spring 2016 Issue  

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