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Analysts Agree: Short-Term Prospects for Las Vegas are Poor

Wall Street analysts Wednesday said the current national economic downturn and the public's fear of airline travel after the Sept. 11 suicide hijackings are the two key factors limiting Las Vegas' ability to rebound from its recent slowdown.

Speaking at a World Gaming Congress seminar at the Sands Expo & Convention Center, the panel of casino industry analysts were uncertain about the duration of the downturn and how long public psychology would be affected by the terror strikes.

"If there is another terror strike on U.S. soil, I don't think Las Vegas will return to normal within a year," Bear, Stearns & Co.'s Mark Falcone said.

Even without another attack, the experts said that Las Vegas' short-term prospects are poor.

Fallout from the strikes has affected the type of customers attracted to Las Vegas, with high-end gamblers staying home and low-end tourists being lured by bargain room rates and weekend room availability.

"Las Vegas is seeing a higher proportion of drive-in customers, and the drive-in customer is a lower quality customer," Jefferies and Co.'s Larry Klatzkin said.

The average drive-in customer gambles less, dines at gourmet restaurants less and spends less on entertainment than the typical fly-in visitor, he explained.

Credit Suisse First Boston's John Leupp said one under-appreciated factor likely to cut into Las Vegas visitation is the increased attention to security at U.S. airports.

"Increased security measures are making it incredibly more inconvenient to travel by air," Leupp said. "Given Americans' impatience, I think the additional inconvenience has the potential to be the biggest issue affecting customers' willingness to fly."

Klatzkin said casino operators need to work with government officials to improve airport efficiency in light of the new security measures. “Four-hour airport waits are a big problem," he said.

McDonald Investments' Dennis Forst said he thinks the downturn is the biggest factor hurting Las Vegas.

"I'm convinced Las Vegas business will return to normal once the economy picks up," Forst said. "The more terrorist attacks occur, the more they'll seem a part of everyday life. It may keep foreign travelers away, but domestic travelers will become inured to it," noting that Israelis conduct their lives despite omnipresent terrorist threats.

Leupp noted that an MGM Mirage executive told him that the company's visits from overseas high rollers has dropped by 50 percent, while domestic high-end play has fallen by only 25 percent.

Falcone said his firm predicts that airlines will cut 10,000 to 16,000 daily airline seats into Las Vegas, but Forst said airline seat capacity isn't a problem for Strip casino operators, at least in the short term.

"Capacity's not the issue," Forst said. "Demand is the issue. People just don't want to fly."

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