Analysts cautiously optimistic

Gaming analysts greeted Tuesday's news of a 6.7 percent jump in Las Vegas visitor volume in December with cautious optimism.

The increase, the largest monthly rise in the key economic indicator since December 1995, capped a fourth-quarter turnaround that helped Las Vegas end the year with a record number of tourists despite a flat first nine months.

Couple the bullish visitor-volume numbers with a 5.6 percent rise in December passenger traffic at McCarran International Airport, recent monthly gains in gaming win and strong earnings reports for some Strip casino operators, some analysts said, and the prospects for gaming companies may have brightened considerably.

But some analysts say it's still too early to gauge the impact of the new hotel-casinos yet to open this year on a market that has struggled through a long period of room overcapacity and transportation troubles.

"The real issue for me is the growth in the second and third quarters," said David Anders of Credit Suisse First Boston.

"Though the December number is a very strong figure, we're still cautious. That 6.7 percent increase has to jump to 15 to 16 percent by the second and third quarters this year to permit casino companies to generate the returns necessary to meet earnings estimates."

"December's increase in visitation is in line with the increase in capacity," said Harry Curtis of BancBoston Robertson Stephens.

"But the key consideration for Las Vegas as well as investors in gaming stocks is the extent to which visitor volume grows once Mandalay Bay, The Venetian and Paris-Las Vegas open," Curtis said.

One analyst who had predicted last October's opening of Bellagio would stimulate increased visitation that would benefit not only Mirage Resorts Inc. but other big companies as well is Andrew Zarnett of Ladenburg Thalmann & Co.

"I told you," said Zarnett. "The key is that Las Vegas increased room capacity by 3 percent but increased visitor volume by 6.7 percent. The concern is that those visitors aren't spending as many dollars on gaming as they used to.

"But folks like Circus Circus and Park Place Entertainment, who have a large number of rooms in Las Vegas at a low capital cost, will be the beneficiaries," he said.

Dave Ehlers of Las Vegas Investment Advisors Inc. said December's 8.6 percent increase in room nights occupied is an important indicator because it means visitors are staying longer.

"This is awfully good news," Ehlers said. "Las Vegas' long nightmare may be ending. If we can extend these gains, it would be marvelous.

"If we get a little break in the transportation bottleneck, the visitor-volume growth numbers may revert to the double-digit gains of 1994. And if that occurs, you could get firming of room prices, which is necessary to make a bull market in these stocks."

"The numbers looked really good for December," said Joe Coccimiglio of Prudential Securities. "But the proof of the pudding for investors is earnings.

"We know MGM Grand did better in the fourth quarter, but we don't have Circus Circus or Mirage earnings yet, which will give us a sense of how visitor volume is affecting net income."

MGM President Alex Yemenidjian said earlier this week that January generated "the highest cash flow in MGM history and the highest table-game drop by a big margin."

Several analysts said they've gotten early indications from both Mirage and Circus, whose fiscal year ends Jan. 31, that December and January were particularly good months for the companies. Mirage is expected to report fourth-quarter and full-year earnings later this week, Circus next month.

"I do get a sense January was quite strong, but we'll need to see a few months of 5 percent growth in visitors in a row before Wall Street takes any notice," Coccimiglio said.

"I just wish the numbers came out a lot faster," Coccimiglio said. "They're very slow coming out with them and other jurisdictions come out with them a lot faster."

Some analysts were particularly piqued at the staggered disclosure of the McCarran airline passenger volume figures, which the Sun revealed last week. Some securities analysts obtained the numbers early, but the airport didn't released them publicly until Tuesday night.

Randy Walker, Clark County's director of aviation, said the late release of airport statistics was an experiment that failed and probably wouldn't be tried again. Walker said there was an effort to coordinate the release of all of the city's relevant visitor statistics at one time through the Las Vegas Convention and Visitors Authority.

But the effort backfired when some analysts on the airport's mailing list got the December figures on the normal release date by mistake.

The overall visitor-volume numbers require more time to compile than the airline numbers. Data from scores of hotel operators and other sources is plugged into a complex economic model prepared by LVCVA researchers.

Kevin Bagger, senior research analyst at the LVCVA, said Las Vegas hotels submit occupancy data each month to the agency, which factors in average length of stay, average number of occupants per room, even the percentage of visitors who come here and stay with family or friends, all based on visitor profile studies updated annually.

"We do an estimation of monthly visitors based on the forecasting model," said Terry Jicinsky, the LVCVA's marketing research manager.

"The model doesn't necessarily represent an actual visitor count, but rather our best estimate based on information we've received from the hotels that participate in our monthly survey combined with our annual visitor profile study.

"About 75 percent of the hotels voluntarily participate," Jicinsky said. "Our agreement with the hotels calls for the information they provide to be used by the LVCVA only, so we don't release that on a by-property basis for competitive reasons.

"Like any computer program, the better information we have the better the results of the model."

The statistical abstract the LVCVA releases monthly includes a number for auto traffic at the Yermo agricultural inspection station on Interstate15 in Southern California, about 110 miles from the Nevada border.

"The Yermo numbers represent travelers heading south into California," Jicinsky said. "It's only meant to be one barometer. It does include cars that contain Las Vegas residents going to Los Angeles and other Southern California locales.

"But it's also useful in spotting trends by comparing percentage changes. We decided it's valuable to track on a monthly basis because it's one piece of the puzzle. It doesn't tell you the big picture, but it's one source of hard data," he said.

As for the airport numbers, Walker is encouraged by the trends shown in the last six months of 1998.

"And seat capacity went up," Walker said. "That's the statistic that interests analysts the most, the projected seat capacity."

Walker said when demand grows -- such as when a new resort opens -- seat capacity demand gets stronger as well.

While capacity is expected to grow in the months ahead with the new National Airlines beginning to fly and Japan Airlines adding flights from Tokyo, Walker's enthusiasm for additional capacity is tempered by other developments in the aviation industry.

Walker said American Airlines' acquisition of Reno Air and overtures United Airlines has made to buy out America West Airlines have the potential for trouble for Las Vegas. When American absorbs Reno Air, Las Vegas could potentially lose some flights. Walker also is concerned that a United buyout of America West could lead to fewer Las Vegas routes.

But Walker also noted that when America West went into bankruptcy in 1992, about 60 Las Vegas flights were cut. Other carriers quickly picked up the slack.

"There are a lot of factors that bear on this," Walker said. "It's a dynamic market and many things can happen."

Richard N. Velotta of the Sun contributed to this report.

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