Gas guzzled

Running out of runway: The first US airline casualty of the Iran war hit at the worst possible moment for Las Vegas. Spirit Airlines, the bright-yellow ultra-low-cost carrier that for years drove leisure fares into the basement, ceased operations just after midnight on Saturday (May 2).

• The news comes at a time where Las Vegas appears to have posted a tentative recovery versus the previous summer’s doldrums.
• MGM Resorts and Caesars spent their recent respective earnings calls trying to convince investors that a tentative recovery is real.

The pair posted Q1 Las Vegas numbers that were better than feared, on the back of a stacked group and convention calendar, and they were backed up by March’s positive numbers.

• Strip GGR of $780m represented a 14.4% YoY leap while RevPAR was even better, up 16% YoY.

The big tent: On his company’s Q1 call, MGM Resorts CEO Bill Hornbuckle argued that his company’s Q1 earnings was evidence that the city was adapting to new leisure market demands.

• “Today’s consumers are decisively gravitating towards live events and experiential travel in Las Vegas,” he said, pointing to the preponderance of sports attractions.
• “The ability to attract professional sports franchises and tentpole events exemplifies Las Vegas structural resilience,” he added.

Highs and lows: Over at rival Caesars Entertainment, meanwhile, CEO Tom Reeg said Vegas is “obviously in a much healthier spot than it was in the middle of last year, starting in the summer.”

• But he noted the company was still seeing a bifurcation of “exceedingly strong” weekends and weeks when the market has significant group events and “weeks that are soft.”
• Analysts remain cautious. Truist noted the “higher highs, lower lows,” dynamic, while Citizens called Q1 the trough for MGM’s Strip properties and CBRE said Vegas was “getting less worse.”

Spirit leveled: But this commentary came before the Spirit shut down. The carrier had already shrunk dramatically at Vegas’ Harry Reid International Airport, with Q1 passengers down 72% YoY, dropping it to the eighth-busiest carrier, so the immediate seat-loss is manageable.

• All 16 Vegas markets Spirit served are flown by at least one other airline, and Allegiant, Frontier and the legacy carriers are adding capacity and capping rescue fares.
• But the bigger concern is what happens to the price floor, with Spirit being seen as the operator that kept prices in check across the market.

Running out of road: Another worry is the impact of high gas prices at the pumps. Reeg was keen to stress that Caesars doesn’t see any direct correlation between higher gas prices and Las Vegas visitation.

• “I would say correlation between gas prices and spend in our portfolio is not particularly high,” he told the analysts.
• But he admitted the situation could change depending on the length of time that fuel costs stayed at elevated levels.
• “Obviously, as you can certainly get to a level or extended a period of time where that may change,” he said.

A similar hedging came from Hornbuckle. While extolling the company’s status as a purveyor of luxury brand experiences, he said that despite “many headwinds whether they be air or gas” MGM was “yet to see a slowdown.”

• But he also warned “that doesn’t mean over summer that can’t happen because booking cycles still remain short.”

It’s a mad, mad, mad, mad world: For now, Vegas isn’t the epicenter of the fuel shock. But of the major US gaming markets, none is more exposed to airline capacity, drive-in fuel costs and discretionary leisure spending all at once.

• As Hornbuckle told the analysts: “It’s a crazy world out there right now.”
• How the ongoing conflict affects the sector is hard right now to discern.

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