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Gaming Guru

Howard Stutz

Analyst offers negative forecast for Las Vegas if energy costs rise

25 March 2013

LAS VEGAS -- The economic evaluation team at Deutsche Bank looked at how higher taxes and energy cost would negatively impact discretionary spending by consumers.

The investment firm’s high-yield gaming analyst, Andrew Zarnett, said the report didn’t bode well for the casino industry. The economic report said that a one cent increase in gas prices reduces nonenergy related consumption by $1 billion.

According to the report, when gasoline prices reach an average $4.25 a gallon, the nation’s gross domestic product growth begins to deteriorate. At $5 per gallon or above, gross domestic product growth stalls.

Zarnett said higher energy costs can hurt the gaming industry. Consumers would spend less on leisure activities, airlines would reduce capacity, and the costs to operate large casinos would increase.

“As energy is a large cost in most services and products, inflation continues on an upward trend, again forcing the displacement of consumer disposable dollars from discretionary activities,” Zarnett said.

Higher gasoline prices slows visitation to Las Vegas, Zarnett said. Automobile traffic accounts for 58 percent of the city’s total visitation. Automobile visitors spend less than visitors arriving by airline, Zarnett said. But the higher fuel prices, in the short term, could slow Las Vegas gaming revenue growth.

“With fuel prices swiftly rising, we believe there is a possibility the number of repeat drive-in visitation may decline as they did in 2008 and for a brief period in 2011, when consumers reduced the frequency of car travel to Las Vegas,” Zarnett said.

He also worried that airline travel costs could increase.

“We think it is already quite expensive,” Zarnett said.