Bellagio may be stimulating demand for Las Vegas travel

Maybe "build it and they will come" isn't so passe after all.

Wall Street analysts say they've been told passenger traffic at McCarran International Airport jumped 5.6 percent in December, the third straight month of increased volume at the facility that delivers about 45 percent of Southern Nevada's visitors.

Coupled with an even higher percentage increase in auto traffic over the past three months, the airport figures indicate the October opening of Bellagio helped stimulate new demand for Las Vegas visitation.

And if sustained through and beyond the openings of other new megaresorts, the visitor volume increases could signal a turnaround for the struggling Las Vegas tourism industry.

Wall Street analysts warn that three months' of increases don't necessarily equal a long-term trend and that a sharp rise in visitor volume is needed to maintain high occupancy rates at all the hotel rooms that will be open this year. But they are cautiously optimistic about the latest figures.

"Obviously, the 5.6 percent increase is encouraging," said David Anders of Credit Suisse First Boston. "But for all 1999, we believe total visitation has to increase 15 percent."

He said the heavy utilization of highways leading into Las Vegas means "the lion's share of that increase has to come from airline passengers."

Anders also noted that it's too early for the visitor-volume numbers to have a major impact on casino company share prices, which have been depressed for more than two years.

"Most investors are still concerned about the openings of Mandalay Bay, The Venetian and Paris-Las Vegas this year and the additional room capacity they bring to the market," he said. "They are also looking for an increase in high-end gaming figures, which haven't shown a dramatic rebound yet."

Nevertheless, said Anders, "We're looking for 5 to 6 percent growth in air passenger traffic over the next two to three months at least, and would be discouraged if it was any less than that."

Wall Street analysts say they've received the closely watched December numbers for McCarran air traffic, though McCarran officials told the Las Vegas Sun the numbers have not officially been released and declined to release the figures to the Sun.

According to airport data obtained by selected analysts and that was subsequently obtained by the Sun, more than 2.4 million passengers went through McCarran in December, bringing the year's total to just above 30.2 million.

While that final figure for 1999 was 0.3 percent below the 1998 total, the last quarter's performance reversed an ominous trend marked by visitor declines in six of the previous nine months.

In October, passenger volume at McCarran rose 0.9 percent from the year-earlier month. The increase for November -- the first full month that Bellagio was open -- was 3.9 percent, followed by December's 5.6 percent jump.

The results support a new report by airline and gaming analysts at Donaldson, Lufkin & Jenrette.

"Our view is that new casino openings attract visitors, causing airplane load factors to increase and encouraging airlines to increase seat capacity and fly more people to Las Vegas," said Brian Egger, a DLJ vice president.

"In this context, airline seat capacity is self-correcting and last year's decrease in seat capacity shouldn't be as much concern to investors as it has been."

The report by Egger and DLJ airline analyst Jim Higgins, which was prepared before the December results were disclosed, said current and long-term airline supply-demand trends "augur for an eventual resurgence in Las Vegas airline service."

The supply of planes is growing, with seats industry-wide rising 2.6 percent in 1998 and an estimated 3.7 percent this year and more than 4 percent next year, Higgins said.

At the same time, slack demand for business travel in Europe, Asia and Latin America suggests "planes are looking for new homes, and Las Vegas represents a very desirable home," the DLJ analyst said.

The new-resort openings here will stimulate visitation, causing aircraft load factors -- thus profitability -- to increase, Egger and Higgins said.

Because Las Vegas has ranked last among the top 30 domestic markets in revenue per available seat mile for years, carriers have allocated planes to more profitable routes.

Increased load factors could boost profitability, lessening the need for higher ticket prices that might discourage leisure travel. While seasonal, Las Vegas load factors have been trending upward since 1993 and averaged above 73 percent in 1998's final quarter.

"Higher load factors prompt airlines to deploy more seat capacity in the Las Vegas market. More seat capacity facilitates an increase in number of passenger arrivals, which, in turn, drives visitor counts higher and fuels the cycle to repeat itself," the DLJ report said.

Egger said the bear market in casino stocks has been due primarily to the prospect that returns on investment would fall below expectations.

"While Las Vegas supply-demand fundamentals and the adequacy of investment returns remain important issues, we believe that gaming investor concerns about Las Vegas flight and air-seat capacity belie the favorable underlying realities of Las Vegas' growth potential as an airline destination," he wrote.

"The reduction in Las Vegas air-seat availability observed during the past year is self-correcting and several major airlines have recently stepped up their service commitments to the Las Vegas market."

Flight and seat capacity declined for most of 1998, led by big cutbacks in service by America West Airlines, which ranked second to Southwest Airlines in service to Las Vegas.

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