National shutdown deals blow to Vegas economy

By Liz Benston

Thursday, Nov. 7, 2002 | 11:22 a.m.

National Airlines' failure will have an immediate ripple effect on tourism in Las Vegas, though other airlines are expected to eventually fill the void, experts said today.

Rob Powers, a spokesman for the Las Vegas Convention and Visitors Authority, said the agency is disappointed by the news.

"National has been an asset to the community as well as to the tourism industry," Powers said. "It's nothing anyone wanted to see."

Vacancies left by other airlines in other cities have typically been replaced by other carriers, however, he said.

"Given the demand for Las Vegas as a tourist destination, other carriers will pick up the slack."

That's an argument that has been presented by major casinos that rely on air traffic and that have refused to invest in National when approached for help.

Harrah's Entertainment Inc., the sole gaming company to offer National financial support, wrote off a $30 million investment in the airline in 1999. It has repeatedly extended a $12.5 million letter of credit to allow the airline to obtain advance payment for ticket purchases.

The letter of credit, from which National could draw cash monthly for its operations, remained in effect until the airline's Wednesday announcement that it was closing down.

After the writeoff, the casino company didn't invest further in National -- maintaining that it didn't want to continue subsidizing an airline that only served a small percentage of Harrah's customers.

"We're obviously sad for National and its employees and people who have enjoyed traveling on that carrier for the last several years," Harrah's spokesman Gary Thompson said.

"The people at National have worked very hard to provide quality service at a low cost to this city," Thompson said. "But it seemed we were subsidizing the operations of business at other hotels in Las Vegas (that) needed to step up to the plate."

It's too early to tell how much of a loss Harrah's will take on the letter of credit because the company doesn't yet know exactly how much National drew from the account to fund its operations, Thompson said.

Harrah's is now focused on making other airline arrangements for customers, he said.

Any interruption in air service is bad for business, said Steve Miller, chairman of the economics department at UNLV.

"Given that the economy had certainly been through the wringer in the last year and a half, it's not needed," Miller said.

"It's going to be a negative for the Las Vegas economy. But how big of a negative is the question."

Wall Street analysts covering the casino industry said the shutdown would have some effect on major Las Vegas Strip casino resort operators such as Harrah's, MGM MIRAGE, Mandalay Resort Group and Park Place Entertainment Corp.

National supplies 7 to 10 percent of the airline service into Las Vegas, analysts estimate.

The discount airline not only added capacity but also kept overall fares to Las Vegas cheaper for visitors, casino industry analyst Robin Farley of UBS Warburg said.

The shutdown "could make the average cost of a Las Vegas trip increase," which would not be good news for the major casino companies, Farley wrote in a research note to investors today.

Marc Falcone, an analyst with Deutsche Bank Securities, said the closure will be a "near-term negative" for at least the next six months.

Convention-goers to this month's Comdex technology mega-tradeshow will have to re-book on other airlines, which may decrease attendance, Falcone wrote in a research note. Overall seat capacity will likely decline and discount travel and tour package operators will experience cancellations.

On the upside, "(T)here continues to be significant demand for Las Vegas out of long-haul markets," Falcone wrote. Continental, America West, Southwest and JetBlue are likely bidders on National's routes.

The disruption "could exacerbate what we had already identified as weakening trends for lower-end casino properties in the city," Merrill Lynch analyst David Anders said.

"We believe that other carriers will likely selectively pick up National's routes, however, we do not believe that they will likely rush to do this in the fourth quarter as this is the seasonally slowest quarter for Las Vegas," Anders wrote in a research note.