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Tourism: Report: Loss of Airline Seats a Threat

Air seat capacity is putting the Las Vegas gaming industry's hotel occupancy rates in a "danger zone" a new Deutsche Bank report said Tuesday.

Las Vegas air service now is adequate only for maintaining reduced occupancy rates at around 80 percent, Deutsche Bank analyst Marc Falcone said. That compares with the local industry's normal occupancy level of 90 percent or more.

Barely half the seats lost by the November shutdown of National Airlines - 9 percent of total seats to Las Vegas, or about 6,000 seats a day - have returned to the market, Deutsche Bank estimated.

If there are further cutbacks, they will substantially increase the risks for gaming operators, he said.

Moreover, with the prospect of further airline bankruptcies such as American Airlines and possible closures such as United Airlines there is a serious risk that service could actually decline more sharply than in November.

"We also think investors should keep a close eye on America West Airlines near-term, which accounts for nearly 20 percent of the seat capacity into McCarran. The airline has enough cash to stave off a near-term liquidity crisis, but that could quickly turn with a prolonged Iraqi war," the report said.

Longer term, to get Las Vegas really working again, 6,000 to 9,000 seats a day need to be added to the market to restore occupancy to historically normal levels in the 90 percent range, Falcone said.

Historically, there has been a strong correlation between room demand, occupancy and the volume of casino gambling, and air service to Las Vegas, Deutsche Bank said.

"Since room demand drives room pricing growth, we believe plenty of available air service is a key to future growth in Las Vegas," he said.

"With increasing competition for the drive-in California customer from Native American casinos and significant recent and new convention/hotel capacity coming online, we believe the return of air service will become even more critical for the growth of the city," the report found.

Gaming expert and University of Nevada, Las Vegas professor Bill Thompson said the problem is difficult to address because airlines are flying fewer seats to Las Vegas not because of a problem in the market, but because of their own financial conditions.

"They're not making money. In normal times, they make money flying here, but they don't make as much on leisure travel and these are not normal times. We may be the first to get cut," he said.

That would make the airline problem Las Vegas' No. 1 crisis, Thompson said.

"The airlines are always a concern for Las Vegas. Fortunately, it's an airline market with a decent load factor, but with major carriers in bankruptcy or on the verge of it, it's becoming a big concern," said Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm.

With the onset of Operation Iraqi Freedom, the already shaky domestic airline industry was dealt another body blow, the Deutsche Bank report found.

Domestic air travel has declined by 10 percent since the war began and advance bookings that are 60 to 90 days out suggest domestic bookings are down more than 20 percent, the report said.

"While both airline passengers and airline seat miles have recovered from post 9-11 lows, they are still meaningfully below historical levels, while many of the major air carriers continue to teeter on the edge of bankruptcy," the report said.

Longer-term, therefore, Falcone said Las Vegas air service needs to be increased to 67,000 to 70,000 seats daily, up more than 10 percent from today's loads, to move resort occupancies back into the 90 percent range.

Clark County Director of Aviation Randy Walker could not be reached Tuesday for comment.

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