Americans are pining for social interaction. Las Vegas has plenty of that, in quantities like nowhere else. Now it’s a matter of counting down the weeks until it’s safe to visit.
That’s the theme of a new report from investment bank Truist Securities whose author, Senior Equity Analyst Barry Jonas, forecasts a “tidal wave of pent-up demand” for the kinds of experiences Sin City offers when Covid-19 vaccinations become widespread.
“We think investors are looking past near-term pressures, with an effective vaccine rollout drawing enthusiasm for the 2021 outlook,” Jonas writes.
The key is herd immunity, as the medical phrase goes, which should take hold when vaccination rate reaches around 75 percent of the adult population, according to the best science currently available.
Senior Equity Analyst Barry Jonas
“By late summer, all adults who want a vaccine should have access,” Jonas writes. He foresees a “Roaring 20s” style of recovery once that plateau is attained for U.S. gaming as a whole, and especially for tourism-dependent Las Vegas.
As widely reported, the town has endured probably the most punishing year in its history. Nevada’s No. 1 industry was shut down for 78 days between March and June 2020, and is still operating at capacity limits of 25 percent, along with a strict regimen of health, safety and cleaning protocols.
Gaming revenues statewide plunged by more than 34 percent compared to 2019. The total of $7.87 billion was the lowest since 1997, according to results compiled by the Nevada Gaming Control Board.
It was worse on the Las Vegas Strip, where the meetings and conventions trade has all but disappeared, and with it much of the midweek business that sustains hotel profitability. Visitation to Southern Nevada topped 42 million in 2019. In 2020, it barely surpassed 19 million. It was the lowest annual tally in 30 years.
On the gaming side, the market took a hit of more than 43 percent. The total of $3.73 billion was the lowest since 1996. December’s $272 million, a 50.6 percent year-on-year decline, was the lowest for the month since 1993.
But Jonas believes the Strip can claw back more than 23 percent of the losses this year, shaving them by more than half.
“We think it’s going to entirely rest on the vaccine,” he told GGB News. “I think it’s pretty clear that when people are reassured about safety, it will release a lot of pent-up demand. People are eager to make up for lost time.”
In terms of revenue per available room, a closely watched measure of hotel profitability, this could play out in an increase of as much as 25 percent, he said.
“When you look at the weekends, it’s basically been OK from an occupancy standpoint. It’s been close to 2019 levels. The question is more midweek. That’s the part we’re concerned about.”
As noted, the pandemic has battered convention-based tourism, the business that has largely driven the Strip’s growth in the 21st Century. For nine months in 2020, attendance was exactly zero. The year ended with a total of 1.7 million, down from 6.6 million in 2019.
Unlike with the leisure segment, the issues clouding the return of conventions are far less predictable. Companies have grown used to their employees working remotely and conducting meetings remotely. It may not be ideal, but the savings are difficult to argue with.
“There may be some structural changes” Jonas suggested to GGB News “some near-to-mid-term, some may be permanent where travel is deemed unnecessary in the current environment, in part out of health concerns. But it’s an expense issue, too.”
Which doesn’t diminish the value of meeting in person and doing business face to face, Jonas said. “There’s something about in-person that will never die.”
What’s unknown is how the new world of remote commerce will impact the number of live events, their frequency and the numbers of delegates companies will pay to send to places like Las Vegas.
“This could be a combination of more acceptance for video calls as well as a focus across business for more efficiencies and lower costs,” he said. “I’m not saying it will never return. But there will be a lag. Whether it’s a few quarters or a few years remains to be seen.”
Adding to the near-term unknowns is the sizable new room supply coming online this year in the form of Virgin Las Vegas and Resorts World Las Vegas, slated to debut in the second and third quarters, respectively.
Still, there’s a lot to be said for confidence.
Recent polling conducted by San Francisco-based Destination Analysts, a travel research company, found that 63 percent of Americans say they “desperately” need a vacation, and 84 percent are looking forward to planning a vacation in the next six months.
A Virginia-based firm, Heart+Mind Strategies, recently was commissioned by the Las Vegas Convention and Visitors Authority to conduct surveys aimed at gauging the future of business travel. More than 90 percent of respondents said in January that they miss the face-to-face interaction of in-person conferences. Fifty-eight percent professed to being burned out on virtual meetings and conferences. Seventy-seven percent said they would prefer attending conferences, conventions and trade shows in person. And 74 percent said they believe Las Vegas is best prepared to host them safely.
For Jonas, too, it’s a story he expects will end well, though it will take some time to unfold.
“Once we get to full vaccine rollout, looking ahead to 2022, I can see real enthusiasm around Las Vegas. Ultimately, gaming is an experiential endeavor. It’s the element for which there’s nothing quite like Las Vegas.”
