What have we learned in the three months since the Las Vegas Strip reopened for business? Simply this: that until airborne tourism and the convention trade return to something like pre-pandemic levels, the market will remain a shadow of what it was.
On the plus side, the most recent numbers from the Las Vegas Convention and Visitors Authority show tourism slowly clawing its way back. Volume totaled a little more than 1 million in lockdown-shortened June, and better than 1.4 million for the full month of July. Combined, that’s about 40 percent of the pre-lockdown months of January and February.
What’s worth noting, though, is the sequential improvement: from minus-70.5 percent year on year in June, to minus-61 percent in July.
Traffic in and out of McCarran International Airport through June and July was about 33 percent of its pre-lockdown volume, but improved from June to July by more than 500,000.
Likewise, viewed on a percentage basis, the recovery on the gaming side has been promising. As of July, it stood at roughly 52 percent of where it was prior to the lockdown, according to the latest figures available from the Nevada Gaming Control Board. The total for the 26 days of operation in June, $282.2 million, was down a little more than 61 percent compared to last year. This improved by almost $50 million in July, albeit for a decline of 39 percent.
Speaking to the gaming side of the ledger, Steve Gallaway of Global Market Advisors, an industry-focused research and consulting firm, said it’s “definitely a positive.”
“The people we’re seeing come to Vegas are your core gamers,” Gallaway told GGB News. “Counts are down, but they’re getting good revenue out of those gamers. It shows that operators are working their databases, and it shows that gamblers want to gamble.”
The problem is that the Strip, unlike the regional markets, doesn’t live on gamblers anymore. It’s evolved away from an emphasis on gambling to the point where, in a normal year, casino win, factoring out comps, constitutes less than one-third of total revenues.
The gaming side isn’t growing much, either. In 2019, it didn’t grow at all on the Strip, despite near-record visitation to Southern Nevada of 42.5 million.
Where Did Everybody Go?
Gaming’s diminished place in the market hasn’t bothered too many people. Considering the unprecedented headwinds raging through the market right now𑁋with hotel rooms and restaurants idle, showrooms and nightclubs dark, convention facilities empty𑁋the focus naturally is on that 60 percent of visitation still absent from the mix, the non-core gamers, and, more pointedly, the 6 million-plus visitors who regularly come each year to attend conventions and trade shows.
Fiscal 2019 figures from the Gaming Control Board show the Strip’s 142,000 or so hotel rooms ran at an average occupancy of 92 percent, the envy of the hospitality industry. At an average daily rate of $180, those rooms generated $5.25 billion—and 83 percent of it was cash business.
The margin on food sales ($3.03 billion), of which 89 percent was cash, was 76 percent; on beverage sales ($1.37 billion), of which 67 percent was cash: 85 percent; on the rest of the non-gaming ($2.41 billion) the margin was a whopping 93 percent.
As Gallaway noted, “Non-gaming has become really important to profits, and with no profit centers there, you’re hurting.”
Strip occupancy in June and July ran at less than half the 88 percent seen in January and February. Midweek was under 37 percent, reflecting the absence of convention attendance, which, since April, has been exactly zero. For the 30 percent or so of hotel capacity in service, rates are down on average anywhere from $30 to $50 a night. Revenue per available room, the standard measure of hotel profitability, is down from the average for January and February by around 64 percent.
And When Are They Coming Back?
So, when does it become safe to bring the full range of non-gaming attractions back to capacity𑁋that 70 percent of the market that defines Las Vegas as the unique destination it is? And will people feel comfortable enough with long-distance air travel to patronize them as they once did?
For Gallaway, as for most observers, it’s not a question of if, but when. “The tourism industry is going to come back in full force,” he said. “Once people can travel and have fun, they’re going to do it.”
So much for the if. As to the when, “Until there’s a vaccine,” he said, “I don’t see how you get enough people to get to that critical mass.”
Then there’s the conventions and meetings trade, which comprises around 15 percent of Las Vegas visitation and an outsized share of that cash spending on rooms, food and beverage and entertainment.
As Hard Rock International Chairman Jim Allen put it recently, speaking to the local Fox Business affiliate, “Frankly, we’re obviously doing interviews like this through Skype and Webex. Roadshows financially are now being done online. I definitely think that business model is changing, and to have two, three, 400,000 square feet of meeting space, that may be something that needs to be revisited in the future.”
Gallaway agreed. “The whole group industry, nationwide, worldwide, is going to decline. Businesses have learned that they can do a lot remotely and save a lot of money. So, the question is, how does that recover?”
If he’s right in his belief the old normal is not coming back, it’s quite possible that segment of market won’t recover, not fully, anyway.
“It’s definitely going to be a challenging time for Vegas, but you have the best operators in the world there,” Gallaway said. “They’re battening down the hatches and figuring it out.