Las Vegas may be most tourism-dependent city in U.S.

By Richard N. Velotta

Friday, Jan. 22, 2010 | 3 a.m.

We all know Southern Nevada is dependent on tourism, but a new report suggests that it’s the most tourism-dependent economy in the United States.

In the report, “The Relative Dependence on Tourism of Major U.S. Economies” by Applied Analysis principal Jeremy Aguero, six indexes measuring the tourism economy were compared among 23 metropolitan statistical areas, including the nation’s 15 largest areas and eight well-known tourism destinations.

The Las Vegas area ranked first, second or third in five of the six comparisons, and in the sixth index, it ranked fourth out of the 23.

Two other cities that could vie as most dependent on tourism, not surprisingly, are Orlando, Fla., and Atlantic City.

Orlando had the most annual visitors with 48.9 million (calculated in 2007) compared with Las Vegas’ 39.1 million (calculated in 2008). Atlantic City, meanwhile, had the nation’s most annual visitors per capita.

“Orlando’s 48.9 million annual visitors translate into 23.8 visitors per capita,” Aguero said in his report. “That said, leisure and hospitality accounts for only 10.2 percent of economic activity and leisure and hospitality employment accounts for 18.9 percent of Orlando’s workforce.

“Atlantic City ranks first nationally in annual visitors per capita at nearly 78 as well as visitor spending and leisure and hospitality gross domestic product as a percentage of gross product. That said, Atlantic City is also a much smaller economy with the lowest employment base and population among the 23 comparable regions,” he said.

Breaking down the indexes and where Las Vegas ranks builds the case that our city could be the nation’s most tourism-dependent.

Las Vegas ranks first in leisure and hospitality employment as a percentage of total employment, at 29.3 percent (250,300 of 854,400). Atlantic City is second at 27.4 percent, followed by Orlando (18.9 percent), Honolulu (14) and New Orleans (12.9).

Las Vegas also is first in leisure and hospitality employee compensation as a percentage of total compensation at 22.2 percent. Las Vegas leisure and hospitality compensation was estimated at $11.3 billion in 2007, while total compensation was estimated at $50.7 billion. Las Vegas was followed by Atlantic City (21.6 percent), Orlando (11.4), New Orleans and Honolulu (6.6) and Miami (5.6).

Las Vegas ranked first in leisure and hospitality average annual wages at $38,141. Trailing Las Vegas was Atlantic City ($37,087), Orlando ($27,930), Los Angeles ($27,129) and New York ($27,020).

The city ranked second behind Atlantic City in leisure and hospitality gross domestic product as a percentage of total gross domestic product at 19.5 percent ($18.9 billion of $97.1 billion in 2008). Atlantic City was first at 23.3 percent, and after Las Vegas came Orlando (10.2 percent), Honolulu (6.5) and New Orleans (5.7).

Las Vegas ranked fourth in annual visitors behind Orlando, New York (47 million) and Chicago (45.6 million), but ahead of Atlanta (37 million) and Atlantic City (33.3 million).

Finally, Las Vegas ranked third in the category of visitor spending as a percentage of gross domestic product at 28.9 percent ($28 billion in spending compared with gross domestic product of $97.1 billion). Atlantic City topped the list at 56.6 percent, followed by Orlando (29.9). Las Vegas was ahead of Honolulu (11.9) and New Orleans (7).

“No matter how the data are carved or the final rankings ordered, Southern Nevada’s economy is remarkably dependent on its tourism sector,” Aguero said in his conclusion. “This dependence appears to have lessened during the past decade; however, the region remains among the most tourism-dependent in the nation.”

So what does this mean?

Everyone knows the number of tourists we get and how much they spend when they come makes or breaks Las Vegas. The study, which was prepared for the Las Vegas Convention and Visitors Authority, affirms and quantifies what most of us already knew, but it shows how we stack up against other tourism centers around the country.

The most important thing the study tells me is the same thing my colleague Buck Wargo reported from the Lied Institute of Real Estate Studies at UNLV last week — that Southern Nevada has to diversify its economy.

The Lied study only emphasized strategies many business leaders have been suggesting for years.

Strategies for diversifying the economy include offering incentives to companies to build and invest in Nevada. The state’s Commission on Economic Development has a system in place to offer economic incentives to companies considering moves to Nevada. Most of them involve tax credits.

The Economic Development Commission, incidentally, is under the purview of the lieutenant governor’s office, which also oversees the Nevada Tourism Commission.

The privately operated Nevada Development Authority also markets Southern Nevada as a home for companies considering a move and streamlines the process by pointing an executive’s team to the right government agency or people to effect a move.

With all the studies that show how dependent we are on tourism and how important it is to diversify the economy, now seems to be the time to make the investment in economic diversification.

State lawmakers last year approved diverting room tax money to state transportation projects. Why not split some of that revenue between transportation and economic development?

Don’t expect the LVCVA to jump on such a plan because it was unhappy about money being diverted to transportation. Although there are still transportation needs and a case can be made that funding roads and highways benefit tourists as well as residents, the area’s economic stability is equally important.

For a city to be overly dependent on any single industry is a dangerous strategy and it may take the tourism industry to make the area stronger by allocating resources to building the well-rounded economy we need.

Higher baggage fees

Several major carriers increased their baggage fees last week while McCarran International Airport’s busiest operator, Southwest Airlines, stood firm with its “bags fly free” policy.

Continental and Delta started the move, increasing fees to $23 for the first bag from $15 and $32 for the second bag from $25 if purchased online before a flight. At the airport, the first bag costs $25 to check and the second, $35.

United Airlines, US Airways and American matched those fees a couple of days later. All of the new rates took effect this week.

Las Vegas-based Allegiant Air, which charges between $15 and $20 for the first bag, according to its bag fee policy, and $25 for the second if paid for online, hasn’t increased its fees. Allegiant bases the charge of the first bag on the length of the flight.

Most airlines began charging baggage fees in 2008 and have generated millions in revenue for the struggling industry. US Airways, the second-busiest operator at McCarran, collected $400 million in add-on costs, which include bag fees, in 2009.

But analysts say most U.S. airlines will continue to lose money. Ironically, it’s Southwest, the only carrier that doesn’t charge a baggage fee, that was expected to be the only major carrier to turn a profit in 2009.