Gaming industry analysts are predicting a strong Q4, especially for tourism in Las Vegas, despite a rising number of Delta COVID-19 positive cases. These have slowed the traffic at all casinos in Nevada, and the current challenges that Southwest Airlines is facing are exacerbating the situation.
Carlo Santarelli, a Deutsche Bank analyst, sent a note on Monday in which he told investors that the canceled flights of Southwest Airlines over the weekend will not impact the Las Vegas travel significantly. Domestically, the company canceled over 2,000 flights by citing air traffic control problems, labor shortages and weather. They ranged from 10% to 30% of the Friday-Monday daily schedule, and as Santarelli pointed out, 55% of the Strip’s visitations each year are via Southwest.
The analyst went on to say that the dip in travels is unlikely to have a material impact on the market and according to Southwest, the past weekend, which hosted a Raiders game and the trilogy-ending fight between Tyson Fury and Deontay Wilder, had no issues with arrivals, but the departures may be a bit more challenging.
If the Trend Continues, There Will be a 4% Impact on Hotel-Room-Demand
Stanarelli considered the cancelation trend, as well, as he stated that if this scenario occurs and full cancelations from Southwest instead of changed itineraries occur, the hotel-room-demand impact will be 4%. This is just from Southwest cancelations.
Although this is a significant number, Southwest does not think that the trend will continue, but it felt obliged to inform its investors how to think about the situation if it worsens or persists.
The foot traffic in Las Vegas, as reported by David Katz from Jefferies Securities, fell by around 300,000 visitors in the period between July and August, but was also down 8% between August and September. He did point out that this is an improvement from the 24% decline that occurred between July and August. An interesting fact here is that the revenue from the Strip for July was actually record-breaking.
Katz compared the results to 2019 and stated that the foot traffic in Las Vegas was down by 22%. The volume of locals in September was also down by 41% compared to 2019, although it was 1% higher month-over-month, compared to August. Downtown Las Vegas had a 5% decrease from August; however, it was 16% higher than in 2019.
According to Katz, the main factor that influenced the results was the rise in COVID-19 cases in mid-to-late summer in Nevada because seasonal trends indicate that September is better than August.
Las Vegas Peaked in July But Leveled Off
Shaun Kelley, an analyst with Bank of America, said that Las Vegas reached its peak in July but after it was hit with the Delta variant of COVID-19, it leveled off by experiencing room-date data slowing and group cancellations. However, Kelley pointed out that the room rates in Q4 are 6% higher than those of 2019. He added that Vegas is still a solid way to play the leisure recovery of the US.
During Q3, Kelley pointed out that regional gaming spending was resilient as it was 12% higher compared to the same period in 2019. Labor Day had unbelievable demand.
Overall, Nevada’s foot traffic in casinos in September declined by 6% from August and the volume was 23% lower compared to 2019. But, Ketz stated that it is still an improvement from August, which was 26% compared to the same period in 2019.
In Reno, volume levels in September were 24% lower than those in August. Laughlin fell by 6% and compared to 2019, the numbers were 24% lower. Lake Tahoe’s September was 49% lower than in August and 44% lower than in September 2019, as stated by the Jefferies report.
As Katz pointed out, New Orleans and the city of Baton Rouge already had a significant drop in foot traffic in the first week of September when Louisiana was hit by Hurricane Ida in late August. New Orleans’ decrease from August to September was 55%, and it was 80% lower compared to 2019.
October’s first three days for New Orleans, compared to August’s first three days, showed a 44% drop in foot traffic, while the Baton Rouge levels were lower by 27%. According to Katz, the data shows that Indiana could continue the process of recovering from Ida and the pandemic.
As for other markets, Kutz pointed out that Detroit’s month-over-month data showed a 2% increase, but was 22% lower compared to 2019. Kentucky’s volume remained strong and even though they were flat month-over-month, they were 10% higher than in 2019.
Kutz stated that Kentucky is an important market for Churchill Downs, which is planning to build a new historical horse racing building in downtown Louisville, and wants to add 200 gaming positions at Derby City Gaming. However, lawmakers may raise taxes on historical racing machines, which could influence any decisions.