Friday, April 17, 1998 | 10:57 a.m.
There's no quick fix in store for the deepening slump in Southern Nevada's air-traffic service.
Airline and gaming industry officials said Thursday visitor demand for Las Vegas must increase before more flights are added to the area, which faces declining air service on the eve of a big jump in hotel-room supply.
And boosting demand will require a new marketing strategy aimed at capturing more business travelers, particularly in traditionally slow mid-week periods, they said.
The consensus at Thursday's U.S. Senate Commerce subcommittee hearing chaired by Sen. Richard Bryan, D-Nev., in Las Vegas offered little hope for a short-term resolution of the transportation problems threatening $7 billion of new resort development under construction on the Strip.
As Circus Circus Enterprises Inc. President Glenn Schaeffer said, "Las Vegas is an island." More than 95 percent of the 30 million annual visitors that support the state's No.1 industry get here by flying or driving, and the highways serving Southern Nevada are in dire need of improvement.
But airline officials indicated "revenue-guarantee programs" -- subsidies from hotels -- could provide incentives to add flights to Las Vegas, which provides the lowest revenue per passenger mile among the top 20 air-traffic markets in the United States.
Bryan also noted "the very real possibility that a new airline proposed by (former America West Airlines President) Mike Conway to be based in Las Vegas will begin service soon."
Conway, who is about $8 million away from raising the $50 million needed to finance a low-fare carrier serving Las Vegas, wasn't invited to the hearing. But Bryan said the new carrier would concentrate on key long-haul markets, "particularly on the East Coast," and would be "a major asset in meeting our growing air-service needs."
Bryan convened the meeting of airline and gaming industry executives in the midst of a week in which gaming regulators reported a 15.8 percent drop in casino win for March on the Strip and McCarran International Airport officials disclosed air-passenger traffic fell once again. March's 3.8 percent drop in passenger traffic at McCarran continued a trend that has seen year-over year declines in seven of the past eight months.
"The facts before us are fairly simple," Bryan said. "We will see more than 20,000 new rooms opening in Las Vegas in the next three years. At a time when air service to Las Vegas is leveling off, we need significant increases in air service to fill these rooms."
Pressed by Mirage Resorts Inc. executive Barry Shier to commit to a specific increase in service, airline representatives demurred, saying passenger demand would drive their decisions.
"We can't commit to any new flights," said Hershel Kamen of Continental Airlines. "We need to evaluate where Las Vegas comes in with the other cities vying for service."
"We will have a net growth in the number of aircraft in our fleet and are in the process of figuring out where to put them," said Peter Bowler of American Airlines. "If you can create demand, (seat) capacity will follow. It's a matter of how quickly you can drive that demand."
"At the end of the day, the issue is creating demand by marketing and promotion," America West Airlines Vice President C.A. Howlett said. "And whatever can be done to keep the regulatory cost and tax burden off this low-yield market is important."
Gerard Carusi of Global Aviation said the average yield per passenger mile for carriers servicing Las Vegas is 8.74 cents, the lowest of the top 20 airline destinations in the country and below the break-even point for some airlines.
Every other top 20 destination offers double-digit yields, fueled in part by a high percentage of business travel related to the booming economy.
Las Vegas, though, has been promoted for years as a "value" destination, with low air fares, room rates and entertainment and food costs. The low yields have prompted several big scheduled carriers to allocate aircraft to more lucrative business routes.
Even charter airlines have begun the move to better markets. Bill La Macchia of Sun Country Airlines said his company has shifted aircraft from Las Vegas service to Mexican routes because "the profits are two to 10 times greater."
Commenting on estimates that 6 million more visitors will be needed to maintain current hotel occupancy rates when the new rooms are built, MGM Grand Inc. Chairman Terry Lanni said Las Vegas must better educate airlines, tour operators and independent travelers about what the destination has to offer.
And that marketing effort must be carefully thought out and coordinated, Shier said.
"We failed to deliver on the promise of becoming a family-oriented market," the Mirage executive said. In any revamped promotion of Las Vegas, "we must all be on the same page ... so we don't disappoint again."
The big resorts currently under construction on the Strip are expected to draw more upper-income tourists and business travelers who are accustomed to paying higher air fares. That could prompt air carriers to boost ticket prices.
"Orlando doesn't promote itself as a cheap destination because they have a high-quality product and visitors understand going in that they've got to pay to access what's offered," said a hotel executive who didn't attend the hearing.
"In Las Vegas, we have a high-quality product."
Yet, as Shier pointed out, "The $7 billion in new resort investment on the Strip isn't aimed at a family market."
And promoting that high-quality product won't automatically lead to the increase in demand and the subsequent rise in air service to this market that is needed to produce the net gain in the number of visitors required to fill the new rooms.
"This is truly a price-sensitive market," said one airline executive who asked not to be identified. "The gains you make on the high end could be more than offset by the losses on the low- and middle-income travelers who decide it's just too expensive to get here -- especially when they can find a casino a lot closer to home."
Conway's new carrier and existing charter airlines could offer the lower fares scheduled airlines can't match, negating the potential loss of budget-conscious customers. But the charter carriers rely on packaging tours and need to be assured of consistent blocks of rooms to maintain long-term service here.
While it didn't offer any quick fixes, Bryan's hearing Thursday clearly identified the challenges facing the airlines, resort operators and convention officials charged with selling the city to the broadest possible spectrum of potential visitors.
The next step, Bryan said, is for them to work together on the solutions.
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