How the airline industry’s recent financial problems affect Vegas

By Jeff Simpson (contact)

Sunday, April 27, 2008 | 2 a.m.

I’m generally a guy who sees the glass as half full, but today I’d like to share a couple of conflicting views of our local economy.

I’ve been working recently with Sun and In Business Las Vegas tourism reporter Rick Velotta on a series of stories and columns about the airline industry, and I’m convinced that the troubles facing the airlines could mean big trouble for our tourism-based economy.

There’s no denying that Las Vegas resorts are symbiotically linked to the airlines that bring in almost half of the city’s visitors, but recent trends make clear that the city’s dependence is about to get stronger.

The two newest Strip resorts, Palazzo and Wynn Las Vegas, and resorts under construction, including Encore, CityCenter, Fontainebleau and Echelon, are the kinds of places less likely to attract drive-in customers.

Upscale customers are much more likely to fly.

An interesting statistic from the Las Vegas Convention and Visitors Authority shows that the portion of city visitors making $100,000 or more per year has jumped from 10 percent in 2003 to 24 percent in 2007.

Resort operators expect that upward trend to continue, and that’s why they have invested billions to build palaces that can command $300 for rooms and $150 meal tabs.

But just as the city is in the process of adding more than 20,000 luxury rooms and suites, it’s looking more as if cutting jet capacity is Wall Street’s preferred solution to the airline industry’s problems.

And make no mistake, airlines are in trouble, as evidenced by dramatic losses by most big carriers and bankruptcies and closures by a host of others.

As jet fuel costs have skyrocketed, airlines have been unable to raise ticket prices enough to compensate.

As Rick notes in his cover story in last week’s In Business, Wall Street sees industry consolidation that will lead to a reduction in seat capacity as the way to change the supply-demand dynamic enough to dramatically raise ticket prices.

Las Vegas resorts have no control over the airline business.

All casino operators can do is build and operate resorts that the public will want to visit.

As I see it, if the Wall Street airline experts are right, Las Vegas resorts face big trouble whether or not the industry consolidates and cuts seat capacity.

If capacity is cut, the number of seats available to bring folks to town goes down.

And if capacity isn’t cut, the airlines themselves are in danger, a scenario that is potentially even worse.

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On the bright side, Sun and In Business real estate reporter Brian Wargo reported in last week’s In Business about a few promising signs for the troubled Las Vegas homebuilding business.

While the real estate market remains terrible, resale home inventories are sky-high and Nevada foreclosures are still the worst in the nation, the moribund homebuilding business is showing signs of life.

Homebuilders cut staff and stopped building homes last year as sales slumped, but there are signs that, for the new-home market at least, the bottom may have been reached.

New-home inventory has dropped to a recent low of about 1,500 homes, and about 500 of those are age-restricted for those 55 and up.

Meantime, new home sales rose for the third straight month in March.

Although the numbers are still well below those in recent years, the signs are looking a little better for homebuilders.

And that is good for Las Vegas, as the homebuilding industry has been a longtime economic driver.

With Encore opening in eight months and CityCenter and Fontainebleau opening in about 20 months, I’m hoping an influx of new residents eager for resort jobs will boost demand enough to shrink the inventory of resale homes and fuel a resurgence of our homebuilding business.