Airlines sound alarm for Vegas tourism

County rejects request to halt terminal project

By Michael Mishak (contact)

Thursday, July 17, 2008 | 5:10 p.m.

Letter from Southwest asking for a delay of airport projects

Reader poll

Chris Morris

Las Vegas Sun

Man must walk before he flies (7-16-2008)
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McCarran Airport/

Airlines serving McCarran International Airport have issued the bleakest economic forecast yet for Las Vegas, recommending that officials reconsider the need for a terminal that is under construction because there may not be sufficient tourism traffic to justify it.

The airlines also have asked the airport to cancel its $114 million Heliport project and to reevaluate all other capital projects in McCarran’s five-year plan.

The airlines’ message to Las Vegas: The industry will not quickly recover from the tourism decline wrought by a combination of higher fuel prices and a sputtering economy.

County officials scoffed at the airlines’ pessimism, saying the region’s economy depends on an airport built to support more tourism traffic. The Clark County Commission on Tuesday voted to stay the course with construction of the terminal.

The airlines’ concerns about Las Vegas reflect how the industry nationwide is looking to cut costs and asking airports to reconsider expensive capital improvements. Oakland International Airport, for instance, has shelved plans for a $500 million terminal after losing three airlines, with two more to be lost in September. Passenger traffic for Oakland, the Los Angeles Times reported, is expected to fall more than 23 percent.

Airport projects such as McCarran’s $1.8 billion Terminal 3 are financed with fees paid by airlines, which pass those costs on to customers through fare increases and various charges. The airlines serving Las Vegas would begin paying for the cost of Terminal 3 after its opening, scheduled for 2012.

In Las Vegas, an advisory committee for airlines serving McCarran asked the airport Friday to take a second look at the projects in its $3.5 billion capital improvement plan.

“The current state of the industry is at an all-time low and there is much uncertainty as to what the future holds,” wrote Linda Macey, Southwest Airlines’ manager of properties and chairwoman of the McCarran committee, in a letter to Aviation Director Randall Walker. “Specifically, we request that any nonessential expenditures be deferred and that all remaining projects be reevaluated for any and all cost savings potentials.”

She added: “Only those projects with a current, justifiable need should be funded at this time.”

In particular, the committee asked the airport to delay awarding a contract for further construction of Terminal 3 so it can “further discuss and evaluate the risks and benefits associated with proceeding ... at this time.”

The letter carried little weight with the Clark County Commission, which, at Walker’s behest, voted Wednesday to approve a $1.2 billion contract for Perini Building Co. for construction of Terminal 3.

Walker said he would reconsider other capital improvements in August.

County officials were adamant that nothing be done to jeopardize Las Vegas’ ability to fill 30,000 more hotel rooms scheduled to open in the next three years.

“For the last number of decades the challenge we’ve had is to keep up with the growth,” Walker told commissioners. “If we do not build Terminal 3, it will be a self-fulfilling prophecy that those hotels cannot get filled.”

There are also the considerable costs associated with delaying construction, he said.

Commissioners agreed, voting 6-1 to approve the construction contract.

“Our choice is to decide to step back and ensure we don’t have the capacity to make our tourist-driven economy successful,” Chairman Rory Reid said. “The only reason to do that is to serve the short-term interest of the airline industry ... It’s not in the community’s interest.”

Las Vegas has been a reliable bet for the airlines for the past 25 years, but the industry now seeks “to make sure the capital plans are rational and that they will work in this new economy,” said Bob Montgomery, Southwest Airlines’ vice president of properties and a spokesman for the McCarran airline committee.

Airlines, chafing from the abrupt increase in the cost of fuel in recent months, have announced plans to cut capacity as tourism travel drops — driving up the price of remaining seats — as a way of coping with higher operational costs. Analysts say cuts by major airlines could result in 15 percent fewer seats available to travelers. The Air Transport Association, the industry’s lobbying group, predicts 2.7 million fewer people will fly this summer than in summer 2007.

In Las Vegas, the largest capacity cuts are expected to come from Phoenix-based US Airways, the second-busiest carrier at McCarran.

The airlines say that on average, it costs $299 in fuel to transport one passenger on a round trip, about twice as much as it did a year ago. In 2000, it cost about $70.

Effective Sept. 3, the number of daily US Airways departures to and from McCarran — as high as 141 less than a year ago — will drop to 81. By the end of the year, the airline will cut another seven flights.

Southwest is the largest operator at McCarran, with 42 percent of travelers. McCarran was handling more passengers than its rated capacity just a year ago, a fact Walker used to underscore the need for the new terminal. But air travel has fallen sharply since, and, after four consecutive years of record passenger traffic, the airport expects numbers to be down this year.

According to the latest figures, from May, McCarran saw a 5 percent drop in passengers compared with the previous May. Overall, passenger numbers are down 2 percent for the year.

“We just don’t know the impact to business or how long it will take to recover,” Montgomery said. “Right now we have lots of questions and very few answers.”

In the end, the city will need the new terminal, UNLV economist Keith Schwer said. Casinos “are going to try and put heads in the beds and that will take more flights coming in.” And although he noted that some carriers would likely not live to see new Strip construction, others will take their place.

Analysts at Fitch Ratings took a dimmer view: “The U.S. (airline) industry’s current structure is unsustainable in the current fuel environment.”

(This story has been corrected. In an earlier version, it said that the Clark County Commission voted Wednesday to approve a contract for McCarran International Airport's Terminal 3. The commission voted Tuesday.)

Sun reporter Richard N. Velotta contributed to this story.

Discussion: 9 comments so far…

By outtatown

7/17/08 at 4:36 a.m.

Suggest removal

Speed Train Anyone???
By scouser

7/17/08 at 6:22 a.m.

Suggest removal

"Build it and they will come"

I don't think so!
By dart330

7/17/08 at 7:06 a.m.

Suggest removal

Even a regular train would be nice.....
By musaraca

7/17/08 at 10:19 a.m.

Suggest removal

2 questions: Amid warnings from airline experts, is the city council in the pocket of Steve Wynn, or the construction company?
By vsestini

7/17/08 at 7:18 p.m.

Suggest removal

Who will be left holding the bag should the airport not be able to utilize the new terminal when airlines reduce their flights to Las Vegas?

Does anyone smell anything rotten in this whole thing? Who is getting paid off to advance this expensive and probably unnecessary waste of money?

This sounds like another political boondoggle like so many we have seen in the past. Remember all of the proposed, alleged assured uses for the UP property downton: a gigantic sports arena?Remember the world class cancer medical research institute that never developed?

Remember the expenses put out to put on a one time indy type car race through downtown Vegas? That waste of money did absolutely nothing like so many other things that have been, and probably will continue to be proposed...

Who dreams up this stuff and envisions outlandish ways to waste taxpayers money? McCarran air port needs a new terminal in this economic climate like I need to buy and wear a fur lined parka snow shoes and own a dog sledge team in July...

We need to watch this one very closely...its going to be a big waste of money, our money, and it will cost plenty when the planes don't come and the terminal is unused for decades...Remember you read it here first!
By united777

7/18/08 at 9:28 a.m.

Suggest removal

Being optomistic is one thing, but unfortunately the build it and they will come theory does not apply here. I think Walker needs to either resign or is due for a reality check. Airlines are cutting back and not expanding in the Las Vegas market, and any optomism on his part that this will only last a few months is nuts. Starting in September we will be going from 44 daily flights down to 32. And just because this man is building a new terminal we are not suddently going to pull a 777 off international runs, and substitute it for Las Vegas. This will last at least two-three years, before anything changes. And who needs 3,000 more hotel rooms ?? The city can't fill what they have now, but want to open more. Good luck with that. You think the casinos are scrambling now, just watch later. Further proof that the local government of Clark County is clueless about reality. The sad thing is that locals as they are called keep re-electing them. I have yet to see one politician or official with any vision or brains, other than the vision of feathering his/her own nest and leaving a dent on the state. The rest of the US laughs loudly at Nevada..................
By Steven

7/18/08 at 8:59 p.m.

Suggest removal

Talk about a gambling mentality!

I tend to think the truth is somewhere between the two extremes, the county is being overly optimistic and the airlines are being excessively pessimistic.

Las Vegas will grow in the future but I think the extraordinary growth seen over the last few years is over, too many obstacles such as lack of water, cost of fuel, power generation and so on are getting in the way. These obstacles can be overcome but when you look at the costs involved geography, i.e. investing somewhere else, is going to win out in many cases (e.g. back east closer to cities).
By gold1020

7/19/08 at 10:33 a.m.

Suggest removal

I think the airlines are correct in this situation. Fuel is never going back down to the levels of prior years due to world wide demand. The economy now and for the foreseeable future is not gonna have much discretionary money to throw around. People can't sell their homes much less come to Vegas & gamble. With high travel prices-if people want to gamble-they'll do it at their local riverboat casino & not spend $1200 for 3 days in vegas.
By donmatrix

10/11/08 at 12:44 p.m.

Suggest removal

Porno King "Gone Wild" will give them a ride..,
He's got the WYNN under his Wings !