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Gaming Guru

Joe Schoenmann

Ivanpah planning forges ahead

9 June 2008

LAS VEGAS, Nevada -- McCarran International Airport chief Randy Walker publicly aired his worries recently about an empty patch of desert 25 miles away that one day is expected to become a major airport.

His concerns stemmed from a delay of up to 18 months in planning for the Ivanpah Airport, a $7 billion-plus venture, because that's how long it could take the Federal Aviation Authority to study anew the airspace around Southern Nevada.

That means instead of opening in 2017, the new airport might not begin operations until 2018 or 2019.

That may seem far enough off to avoid panic, but analysts have reported that McCarran could hit its capacity between 2011 and 2014.

If Ivanpah, McCarran's pressure release valve, is not ready in time, that raises concerns over how hordes of visitors needed to fill the thousands of new hotel rooms being built up and down the Strip will get here.

At least, that's how it has always been seen.

But one airline industry analyst said Walker should stop worrying about Ivanpah and focus on McCarran.

Although others disagree, Jack Keady sees it like this: More airlines are on the path to bankruptcy, flights being cut now aren't going to return any time soon and a new airport at Ivanpah isn't needed and probably shouldn't be built.

"Why do they need it?" asked Keady, president of Keady Transportation Consulting in Playa del Rey, Calif.

"There's not going to be a big resurgence (in the airline industry) based on easy money and cheap oil. How can you possibly justify a new airport in the middle of nowhere?"

He called Las Vegas a "low-yield" market for airlines, meaning many fares are discounted so less profit is made per flight than in high-yield destinations. "It's like Hawaii," Keady said. "It's not a place where you get your full-fare first-class passengers."

But does that translate into airline number crunchers deciding it's cheaper to cut flights to Las Vegas than to keep them operating?

Indeed, some flights have been cut. McCarran spokesmen said many of those have been stopover flights, which do little to help the local economy because passengers are not getting off and staying in Las Vegas.

"More unique routes to Las Vegas have been canceled in the past six months than the 18 months prior," a late-May report by Morgan Stanley said. Unique routes are just what they imply: those that are unique and not replicated by an airline. Once that route ends, that airline "no longer services that route."

The report also says that in November 2007, "the number of deplaned passengers at McCarran International Airport fell ... (2 percent) over the prior year." That was the first such drop since mid-2003.

Even David Castelveter, communications vice president for the Air Travel Association, the airline industry's trade organization, has difficulty sounding optimistic about the future.

Fuel prices stoke his fear. Airlines for years have based plans on projected crude oil prices in the range of $70 to $90 per barrel, Castelveter said. But since 2000, as fuel costs rose 217 percent, airfares have not kept up, decreasing 0.5 percent in the commercial industry over the same period.

"And now we're paying $130, and put yourself in the shoes of an airline planner who's trying to figure out what schedule to fly based upon the yield of an airplane and the cost," he said.

By the end of 2008, 100 fewer airports in the United States will be served by commercial airlines than in 2007.

"What (airline) planners do is sit and look at the frequencies and break evens and margin of profit and start cutting where they're least profitable," Castelveter added. "We're on course for a multibillion loss in 2008. It's a worse economic situation than we were in after September 11th."

But in Las Vegas there's a sense that the glimmering draw of the Strip can weather whatever is thrown at it. The roughly 40,000 hotel rooms being constructed or planned for completion by 2012 will severely test that theory.

"I've been around for a long time and my guess is that these hotel guys are going to figure out how to fill the rooms up," said Walker, director of Clark County's Department of Aviation. "People will get to Las Vegas and a lot of them will have to get here by air."

MGM Mirage has put together more package deals to pull in customers than its corporate spokesman Alan Feldman "can remember in the last 15, 16 years."

Taking a similar historical look at downturns, Feldman talked of this being the third economic low he's experienced while working in Las Vegas. The two others came and went, as this one will, he said.

"It's not going to be this bad forever," he said. "If you look at it historically, we're in a very, very brief blip. Maybe it seems worse because we're in a different time and worse due to contributing factors. But historically, this is just a moment in time."

Similarly, gaming analyst Bill Lerner of Deutsche Bank doubts that today's fuel crisis is going to negate the need for the Ivanpah Airport 10 or 11 years from now.

"Yes, it's a consumer-led recession, there is very little liquidity in housing and a massive crisis in confidence by consumers," Lerner said. "There are higher fuel costs.

"But if the analysis is that these issues are going to preclude Ivanpah from being relevant 11 years from now, I would say that's an aggressively draconian view of the world."

Keady, though, sees the current downturn as inherently different.

"This may be a permanent downturn (for airlines) for two reasons," Keady said. "The airlines are flat on their back and it's going to take years of fighting and clawing to get back the money. And the only way they're going to get that money back is if oil goes down and prices go up."

Still, the sheer enormity of current and planned investment on the Strip, some $30 billion, necessitates continued planning for a new airport, Lerner said.

Even with renovations, McCarran, which last year handled 47.7 million passengers, has a capacity of 53 million people. And though airport spokesmen could not predict when 53 million will be reached, they say prudence dictates being ready for that day.

Neither, however, would they rule out scrapping Ivanpah if the need fails to materialize.

"I've said many times, if the demand's not there, we do not want to build it," Walker said. "But that said, we're still not going to sit on our hands for the next three to four years. We're going to continue planning, looking forward as we have been. Anything else would be irresponsible."