Vegas expected to feel airlines’ pain

By Richard N. Velotta (contact)

Monday, April 28, 2008 | 2 a.m.

The airline industry’s woes, coupled with the downturn in the economy, are being felt at McCarran International Airport and almost certainly will change the relationship between Las Vegas resorts and their airline partners.

Most tourism experts agree the airline industry’s troubles have had little effect on Las Vegas so far, but they said the trend is disturbing, especially as jet fuel costs soar.

One airline analyst said last week that if high fuel prices persist, industry profitability could suffer as much as it did after the 9/11 terrorist attacks. The number of flights coming into McCarran each day has fallen 2.2 percent over last year.

Four airlines with flights to and from Las Vegas have ended or will end service to McCarran within a six-month span. Also, two popular “legacy carriers” that fly to Las Vegas plan to merge, which could further erode passenger capacity.

Most of the city’s visitors arrive on Southwest Airlines, which commands a 42 percent market share of the seats coming in. But Southwest doesn’t fly international routes, a key tourism segment the Las Vegas Convention and Visitors Authority is targeting to fill the new high-end rooms.

The authority said 46 percent of the people who visited Southern Nevada in 2007 arrived by plane. The importance of the airline industry to local resorts will become even stronger as Las Vegas attempts to attract high-end customers from greater distances to fill CityCenter, Echelon, Encore, Fontainebleau, the Plaza and other top-tier resorts that will charge the city’s highest room rates.

Most of the carriers that quit flying after filing for bankruptcy protection were minor players in Las Vegas: ATA, Aloha and MAXjet collectively had less than 1 percent of the local market. Minneapolis-based Champion Air, a charter carrier that announced it would discontinue service in May, also is a bit player at McCarran.

Denver-based Frontier Airlines is the largest of the carriers at McCarran under bankruptcy court protection, with just over 1 percent of the seats in the market, but it has vowed to continue to fly while it reorganizes its finances.

ATA, Aloha and MAXjet each cited the same reason for the decision to quit flying — the cost of fuel, which reached $117 a barrel last week, was too much to bear.

The companies in bankruptcy court weren’t alone in pointing to fuel as an enormous problem. US Airways, the Phoenix-based carrier that is the second-busiest operator at McCarran, has 24 percent fewer flights today than it had a year ago.

Southwest, consistently the most profitable airline, announced this month that fuel will cost the company $500 million more this year than last. That’s about the total Southwest earned in 2007.

Some airlines favor consolidation to hang on. But any merger has the potential of further consolidating operations and reducing the number of flights to and from Las Vegas.

Atlanta-based Delta Air Lines and Minneapolis-based Northwest Airlines have announced merger plans. Delta is No. 4 in market share in Las Vegas.

Delta and Northwest say they won’t close any of their hubs. Since those airlines’ Las Vegas flights are mostly to and from their hubs, a reduction in flights doesn’t appear to be on the horizon.

Aviation consultant Mike Boyd of the Evergreen, Colo.-based Boyd Group said Delta and Northwest are, for now, telling various players what they want to hear — but the reality of some of the merger plans could change.

Wall Street is a big fan of consolidation. Ray Neidl, an analyst for New York-based Calyon Securities, said in a note to investors that flying fewer seats is essential for the survival of the industry.

Airlines will have no choice but to charge more for tickets because of rising fuel costs.

It galls the airline industry that room rates have climbed substantially since 9/11 but the airlines have a difficult time getting increases in ticket prices to stick because of the hyper-competitive nature of the industry.

Robert Mann, an airline analyst with R.W. Mann & Co. of Port Washington, N.Y., predicts airlines will attempt to negotiate better vacation packages with their resort partners so they can still offer attractive deals to customers but not bear the entire brunt of the fuel bill.

As for McCarran, Clark County Aviation Director Randy Walker said for now, conditions aren’t bad. In fact, the shakeout in the aviation industry slightly benefits the airport by providing a chance for it to catch its breath.

McCarran was on target to hit its theoretical annual capacity of about 53 million passengers before it could open Terminal 3 or open a reliever airport south of Las Vegas in Ivanpah Valley.

Walker said travelers now find the airport a little less crowded or chaotic, which has helped push customer satisfaction ratings higher.

A version of this story appears in In Business Las Vegas, a sister publication.