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Report Says LAX Key in Attracting Corporate HQs to Southern California

September 26, 2007

Last year, nearly 17 million international passengers passed through Los Angeles International Airport (LAX). Many of those passengers were businesspeople who rely on convenient access to international flights to keep their companies in touch with partners, customers, divisions and markets all over the world. International flights out of LAX have played a key role in positioning the Los Angeles region as the largest manufacturing center in the U.S. and as a national high-tech leader. In fact, a recent report from the Los Angeles Economic Development Corporation (LAEDC) estimates that an average daily transoceanic flight out of LAX sustains 3,120 direct and indirect jobs, generates $156 million in wages, and adds $623 million to the region's economic output.


That same report, however, finds that Los Angeles' competitive advantage in access to international flights is now in danger of disappearing, as other large airports expand their overseas offerings and a handful of up-and-coming international gateways begin to offer daily international flights. Between 2000 and 2006, LAX - the country's second largest international gateway - experienced a decline of 8 percent in international passengers. Meanwhile, expanding gateways in Charlotte, Las Vegas, Phoenix and Denver all expanded by at least 50 percent and other larger airports, such as Washington Dulles, Houston and Atlanta, posted significant gains.


The threat of these competitors could have dramatic economic consequences for the Los Angeles region, the authors contend. Transoceanic flights are becoming increasingly important to companies operating in the international marketplace. Global companies want direct flights between their corporate headquarters and emerging markets in India, China, Europe and Israel. The LAEDC report observes that many airports are now competing for direct flights to these markets in order to cater to the needs of global businesses travelers without requiring extended layovers. These flights play a particularly important role in serving corporate headquarters where executives frequently rely on them.


To put this all in perspective, a 2005 study by Germa Bel and Xavier Fageda in Public Economics reported that a 10 percent increase in the supply of intercontinental flights can lead to a 4 percent increase in the number of headquarter of large firms located in the surrounding urban area. Bel and Fageda's analysis of European airports and corporate headquarters also found that knowledge-intensive sectors were much more affected by the presence or absence of these flights. A separate study by Vanessa Strauss-Kahn and Xavier Vives, published last year, examined the decision of U.S. companies to relocate their headquarters between 1996 and 2001. The authors found that access to high-quality airport facilities, including international flights, was one of the most important factors in determining whether or not a company moved and where that move took them.


The benefits of convenient international passenger flights extend beyond the passengers themselves. More than half of all air cargo is transported in the cargo hold of passenger aircraft. LAEDC points out those industries that depend on LAX flights to ship their goods overseas are often involved in high-tech manufacturing, such as electronics and bio-medical instrument companies, and that proximity to international flights is a significant boon for regional exports.


The LAEDC report recommends that LAX facilities be upgraded to accommodate the latest generation of passenger planes, including the Airbus A-380 and the Boeing B-787. This will help the airport and the economy remain competitive against smaller-but-expanding airports. Given current market trends, the group estimates that LAX could add 11 new daily nonstop international flights by 2011, and these flights could generate as many as 34,000 new jobs and $1.7 million in new wages within the Los Angeles region.


Download "The Economic Activity Dependent on Overseas Flights at LAX" at: http://www.laedc.org/consulting/projects/2007_LAX_OverseasFlights.pdf