Majestic Research

Las Vegas Business Press

Will the High Price of Fuel Force Valley Denizens to Leave Las Vegas in the Near Future?

By By David McKee
Published: February 23, 2006

Wherever the oil-price pinch is making its presence felt, the Las Vegas casino market isn’t it. Across the board, experts agree that even if one could separate fuel prices out from the other variables that determine the number and frequency of Vegas visitation, its impact would be insignificant.

Take, for instance, the vehicular traffic that the Las Vegas Convention & Visitors Authority measures as automobiles cross from California into Southern Nevada. While the rate of increase has slowed from an average of 4.7 percent during the 1991-2001 decade to an average of 2.2 percent in 2002-04, energy costs may not have been the determinant.

After all, not only did Clark County gaming revenues climb by 6.7 percent even as the rate of auto traffic was slowing, total visitation to Las Vegas also continued to increase. The LVCVA reported 37.4 million visitors in 2004, 38.6 million last year and is aiming for 43 million in 2009. 
Traffic is snarled along Las Vegas’ most famous thoroughfare, the Strip.

“People aren’t driving as much because on a Friday afternoon it takes too long to get here,” said CB Richard Ellis Gaming Group analyst Jacob Oberman, pointing to drive-in times of seven or eight hours from the Los Angeles area, 280 miles away. “It’s real hard to track gas prices with visitation. I don’t know if anybody could do it accurately.”

DRIVE-IN CASINOS

“It’s always hard to assign a cause to visitation trends,” said Matthew Jacob, senior casino and leisure analyst for Majestic Research. Noting that the Atlantic City and Midwest drive-in casino markets have seen no adverse effects, he cautioned that it’s impossible to know how much more they would have grown had oil prices stayed relatively low. “At some point, if (oil prices) essentially cause the price of visiting Vegas to go up considerably, that is a cause for concern.” For now, he doesn’t think the slowing of drive-in business is of meaningful size.

Oberman’s boss, CBRE Gaming Group Director Carlton Geer, added that short-haul fares on Southwest Airlines—combined with travel times that halve what it would require to get there by car—provide another incentive for California-based Vegas visitors to forsake the roads. He cites himself as an example, pointing out that it would cost him $125 in gas to make a round-trip drive to Reno, whereas he could make the same jaunt by air for $110—and in far less time.

The LVCVA’s Marina Nicola agreed with Oberman and Geer’s overall views, saying that travel patterns are not affected by spiking fuel prices. Even if driving were too expensive, she continued, the expectation is that would-be Vegas visitors would just find a different way of making it to Vegas.

At the moment, air is preferred. Of the Vegas visitor mix in 2004, 47 percent arrived by air, 43 percent by car, 8 percent by bus and 2 percent by RV. These numbers are consistent with the year prior, with the fly-in contingent gaining slightly in strength.

“We have not seen any appreciable impact on our business,” reported Harrah’s Entertainment spokesman David Strow, adding that the company doesn’t expect one, either. “The increase is relatively modest compared to the overall budget when customers are coming to Las Vegas.”

INSIGNIFICANT INFLATION

As for swollen prices at the pump, Strow argues that they add roughly $10 to $20 to a travel budget, an insignificant inflation compared to the overall cost of the journey: “When you consider what customers are spending on gambling, food, lodging, that is not going to deter many customers.” Jacob counters that whatever additional lucre is being expended on increased gas costs is that much less to be splurged on shopping, entertainment—maybe even at the slots?

“Downtown had a record year, in spite of extraordinary fuel prices,” reported Boyd Gaming spokesman Rob Stillwell. Nor does price inflation appear to have put a dent in Boyd’s vaunted Hawaiian traffic. “We fly some 10,000 a month on our own charter,” Stillwell said, adding that the company’s Aloha state customers get their airfare as part of a package deal that also includes food and lodging.

MGM Mirage conducts an ongoing survey at all properties and reports no measurable impact from last summer’s tumescent gasoline prices. Even the straitened conditions that have Japan Airlines mulling cessation of direct-to-Vegas service, and which now see American and United airlines threatening to pull out of London’s Heathrow, don’t faze MGM Mirage spokeswoman Yvette Monet. “There are interruptions in service,” she said. “There are airlines that go out of service completely,” but alternatives are always present.

The cost of fuel affects drivers more than airline passengers anyway, Jacob says, because air carriers fear to pass on costs to the consumer lest they lose a competitive price position. “The airline essentially has to become less profitable,” he opined.

Monet adds that energy use is but a small component of MGM Mirage’s overall budget, of which limousine service is a key expense. When it comes to energy conservation, Harrah’s has no new initiatives to report, but Strow says that for several years it has been replacing light bulbs with more efficient models as a matter of policy. Also, the much-criticized energy surcharges on hotel rooms are now a thing of the past. “That has been discontinued,” he said.

If Vegas’ drive-in customers face a disincentive, Geer offers, it’s the constricted state of I-15, long a sore point with Southern Nevadans and local government. “Additional lanes would be good,” Geer said. “That probably correlates higher (to the traffic-growth slowdown) than gas.”

While LVCVA spokesman Jeremy Handel shies away from describing Las Vegas as “inflation-proof,” he hasn’t seen inflation act as a significant deterrent yet. “Past data indicates that Vegas is a destination people want to get to.”

For the time being, more and more of them continue to do so, pump prices be damned.