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Report Claims Las Vegas Will be Unable to Maintain 4% Annual Increases in
 Visitor Growth Without a Solution to the Capacity Crunch at
 McCarran International Airport
By Benjamin Spillman, Las Vegas Review-JournalMcClatchy-Tribune Business News

Dec. 2, 2006 - Shorter buffet lines and desolate casino floors could be in the cards at many Strip hotels as early as 2010 unless something is done to bypass heavy congestion at Southern Nevada's largest airport.

Researchers at the investment firm Deutsche Bank say that if hotel development continues at its current pace, Las Vegas resorts could face a shortfall of up to 7 million visitors annually by 2017, the soonest a new airport could be up and running.

That would leave operators of the latest and greatest megaresorts to cannibalize the customer base of existing casinos to make ends meet, said authors of a Nov. 30 report on the issue distributed to investors.

It's a scenario that would hit everyone from board room executives to parking garage valets squarely in the wallet.

"It is going to be extremely tight, and someone might lose," said Deutsche Bank research analyst Bill Lerner. "There are just all kinds of implications."

Lerner and Grant Govertsen, another researcher, said the report is the most detailed look to date at the airport crunch from the perspective of gaming company investors.

They urged developers to be cautious when planning new rooms and suggested that tourism boosters do more to increase the number of people who come to Las Vegas by car.

Airport officials said Friday that the authors painted an overly pessimistic picture of the future. "You could do anything with numbers depending on the assumptions you project," said Rosemary Vassiliadis, Clark County deputy director of aviation.

The report's authors project a short-term annual shortfall of about 600,000 visitor arrivals by 2010. But that will be alleviated by the addition of a new terminal in 2011.

Once the new terminal is in place, Vassiliadis said, technology improvements in tracking planes, airspace expansions and airport streamlining will keep pace with growth until 2017. That's the earliest a $7 billion airport could be operating in the Ivanpah Valley between Jean and Primm.

"There is no reason for me to believe we will not keep rolling along," Vassiliadis said.

Currently more than 44 million people arrive and depart annually from McCarran, the fifth busiest airport in the United States.

Air passengers represent 47 percent of the visitors who occupy the city's approximately 136,000 hotel rooms.

McCarran officials say the airport can handle 53 million arrivals and departures annually, a figure it could reach by 2011 or sooner.

But hotel operators plan to add another 41,746 hotel rooms by the end of 2012, according to the report.

To maintain occupancy in existing hotels and fill the new rooms would take about 23.3 million visitor arrivals at McCarran in 2012, Lerner and Govertsen estimated. The airport, however, will reach capacity at about 21.2 million visitor arrivals, leaving hotel operators to look elsewhere for about 2.1 million customers, they said.

The discrepancy between the number of people needed to maintain existing growth rates and the capacity at the airport would grow until 2017.

As that happens, competition would intensify as casino operators looked at each other's customers as a source of new income.

The capacity crunch at McCarran also could increase the cost of tickets to Las Vegas. That, combined with intensifying competition, would hit older, value-oriented properties hardest.

"It is pretty far off. But it is something we continue to evaluate," said Mark Lefever, chief financial officer of the Riviera, which has more than 2,000 rooms and more than 2,500 Las Vegas employees to support.

Lefever said he was confident the property would continue to find customers. "There are still a whole bunch of people coming by car," he said. "This town will be fine."

Others said that counting on a new airport operating in the Ivanpah Valley by 2017 was an optimistic assumption.

The proposed location is close to the Mojave National Preserve, a 1.6 million-acre refuge in California. Environmental groups question whether an airport ferrying up to 35 million people annually should be placed next to a national park known for desert solitude.

"It does seem like it is a fairly fast turnaround when you are looking at the significant environmental issues involved here," said Ron Sundergill, Pacific region director of the National Park Conservation Association. "You have this major asset which needs to be protected."

Lerner said projecting airline traffic and hotel development more than 10 years into the future is difficult and resulted in numbers that could change depending on countless factors.

But that didn't change the core point of the report. "I know we are splitting hairs on specific numbers" he said. "But the over-arching point is it is going to be real tight."

TOURISM GAP PREDICTED TO WIDEN:

Las Vegas will be unable to maintain annual 4 percent increases in hospitality growth and visitor traffic without a solution to the upcoming air passenger capacity crunch at McCarran International Airport. Here's a look at how many air visitors are needed to maintain the current development pace and the projected shortfall until 2017, the earliest a new airport could open:

Year / Visitor arrivals required / Visitor shortfall

2010 21.5 million 600,000+

2011 22.4 million 800,000+

2012 23.3 million 2.1 million

2013 24.2 million 3 million

2014 25.1 million 4 million

2015 26.1 million 5 million

2016 27.2 million 6 million

2017 28.3 million 7 million

Source: Deutsche Bank

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To see more of the Las Vegas Review-Journal, or to subscribe to the newspaper, go to http://www.lvrj.com.

Copyright (c) 2006, Las Vegas Review-Journal

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