Big Strip operators shy away from the airline business

Gary Thompson

Friday, July 31, 1998 | 11:17 a.m.

The new Las Vegas-based National Airlines drew praise from political, tourist and gaming executives Thursday.

Three of the biggest Strip gaming operators cheered Thursday's announcement that National would bolster service to McCarran International Airport -- and at the same time explained why they didn't invest in the venture as did Harrah's Entertainment Inc. and Rio Hotel & Casino Inc.

"We looked at it and for a variety of what we consider good business reasons chose not to participate," said Hilton Hotels Corp. Senior Vice President Marc Grossman.

"We're in the hotel business and the gaming business, not the airline business. But that doesn't mean that we don't wish them absolutely the best of luck, and we hope they can bring more people to Las Vegas."

"We're not in the airline business," said MGM Grand Inc. Chief Financial Officer Jim Murren."Our interest is in bringing more people to Las Vegas and we'd like to help do that, but we're not in that business."

Murren denied rumors that MGM would revive the now-defunct MGM Grand Air, a first-class airline started by the casino company's majority owner, Kirk Kerkorian, several years ago.

"There has been talk in town of the casino operators banding together to contribute a small amount of capital to form their own airline," Murren said, "But I don't think we're having any discussions now. We're excited for Conway and we hope it works."

"It's wonderful," Mirage Resorts Inc. executive Alan Feldman said. "This is a town for entrepreneurs. There's only upside here.

"National will fly from markets that we believe are underserved. Miami is a great example of that."

But Mirage opted not to participate in National's financing, he said, "because we're investing nearly $2 billion to attract people to Las Vegas" with its new Bellagio resort on the Strip.

"We build the reasons for people to come, and the airlines bring them here," Feldman said. "We hope to work with National, just as Harrah's and Rio will."

Passengers counts at McCarran have declined or been stagnant recently as established carriers assign planes to more-lucrative business-oriented routes, at the same time as another 22,000 rooms are being added to the Las Vegas market.

Gov. Bob Miller, noting that many of those rooms are at five resorts being built on the Strip, said the new complexes will add to the excitement and allure of Las Vegas and should spur visitor demand.

Service cuts by airlines such as America West, Delta, American and TWA "just don't make sense to me," Miller said

Miller and Lorraine Hunt, chair of the Las Vegas Convention & Visitors Authority, said National will help offset those cuts.

"Las Vegas is my hometown and National is my 'hometown airline' and it will be extremely important for this community into the next century," Hunt said, using a phrase that is likely to become National's slogan.

National Chairman Mike Conway expanded on the "hometown airline" theme at a news conference Thursday, saying, "We hope Las Vegans will give their money to the company that will keep it here, not ship it off to Dallas or Phoenix."

It wasn't the only dig the former America West Airlines executive, ousted from that carrier in a power struggle five years ago, made at competing air carriers.

Conway didn't mention any airlines by name. But Dallas-based Southwest Airlines, with 140 daily flights now, and Phoenix-based America West, with about 80 a day, are expected to fight National for market share on key routes from Las Vegas.

Conway also predicted "interesting times ahead" as National gears up for its first flights about six months from now. As that date draws nearer, he said, "You'll hear a lot from some of our larger competitors about how they're boosting service to Las Vegas.

"But they won't tell you anything about the seat capacity they're taking out of the market at the same time," the blunt-talking ex-Marine said. "One or two will talk the talk, but they won't walk the walk."

He acknowledged he'd initially met with resistance from executives at several big casino companies in his quest for financing of a new carrier when visitor counts were increasing a few years ago.

"It was analogous to a patient who's perfectly healthy being told he had to go on medication to avoid a future problem," he said.

"But as the U.S. and global economies strengthened, the appetite for business travel began to far outpace the appetite for leisure travel.

"New airline economics means they now can send planes where people pay the most, even if there are fewer passengers on those planes."

Conway said he doesn't believe Las Vegas casino operators have built too many hotel rooms, because there is strong demand from many feeder markets.

"But it's dead wrong to think people will automatically pay more to get here, because a large percentage of Las Vegas visitors are price-sensitive. And those who do pay more to get here will have less money to spend."

Ultimately, Conway and his team raised more than $51 million, including $30 million total from Harrah's and Rio, though private placements of stock. Harrah's executives Hector Mon and Colin Reed will join National's 11-member board, as will an as-yet unnamed Rio nominee.

Other board members will include Conway, former Clark County Aviation Director Bob Broadbent, private investors Bob Morrow, Charles Buckingham, Robert Moses, Jock Patton and Arnold Kroll; and Ray Nakano, National's chief financial officer.

Two affiliates of the Connecticut investment firm Wexford Management LLC put up $7 million for 1.4 million shares. Wexford's affiliates hold stakes in Denver's Frontier Airlines and an Indianapolis regional carrier. They'll get five-year exclusives to provide National feeder service from markets where National isn't operating.

National initially plans flights within six months from Los Angeles, San Francisco, New York and Miami. Within five years it hopes to serve some 22 cities.

Meantime, Reno Air Chairman and Chief Executive Joseph O'Gorman said he wasn't worried about competition from National.

"We're focused on getting more of the high-fare business market," O'Gorman said in a conference call on his company's second-quarter results, Bloomberg News reported.