McCarran expansion: Build it, but will they come?

By John G. Edwards
Review-Journal

      Starting in June, air travelers to Las Vegas will be able to land at a new $300 million state-of-the-art terminal, but airlines' plans to expand service are on standby.
      Last year, Las Vegas hotel room capacity grew 3.5 times as quickly as the number of new visitors coming to town and some tourism officials hope the 26-gate addition at McCarran International Airport will help pump up the visitor volume.
      The additional gates, which will bring the airport's total to 93, are expected to eventually boost passenger traffic, said Randy Walker, Clark County aviation director. "But there's not a direct cause and effect relationship between the gates and the amount of traffic coming in."

McCarran passenger activity

      Individual airlines have indicated they want to lease 10 additional gates, and the county will rent the remaining new gates on a flight-by-flight basis, Walker said.
      Most of those new leases will go to Southwest Airlines, the dominant carrier serving Las Vegas. Southwest serves 31 percent of the scheduled airline travelers coming to Las Vegas.
      Southwest wants to take eight of the old gates being vacated in the C terminal by airlines moving operations to the new D gates. That will give the airline a total of 20 gates, and "that would become the Southwest terminal," Walker said.
      The question is how quickly Southwest wants to begin using the additional gates and whether it will simply use the extra room to more efficiently accommodate the same number of flights, he said.
      Southwest intends to take over additional gates as soon as they are available this summer, said Roz Santangelo, Las Vegas marketing manager for Southwest Airlines.
      "At this time, there is no immediate plan for expansion (of air service to Las Vegas) due to the lack of aircraft deliveries," Santangelo said. She referred to a backlog of orders for aircraft made by the Boeing Co.
      Southwest received four of the new model Boeing 737-700 aircraft last year. It expects to receive 21 more this year.
      "We do have plans for expansion in Las Vegas," Santangelo said. "It will be a little bit at a time."
      David Ehlers, chairman of Las Vegas Investment Advisors Inc., saw the news as further evidence of an analysis he reported about a year ago. He concluded that airlines serving Las Vegas weren't adding enough aircraft capacity to fill the growing number of hotel rooms.
      Airlines are getting higher fares from their nontourist routes -- because business travelers typically pay higher fares -- and are assigning additional aircraft to the more lucrative markets, he said.
      "There's probably some truth to that" theory, airport boss Walker said. "If you are a company and you have an opportunity to make $100 or $50, you're going to choose the $100."
      "Airline travel demand is very strong" nationally, Walker said. "Demand increased faster than capacity."
      Ehlers pointed to Southwest Airlines' announcement that its profits tripled in the last quarter of last year. The air carrier told Bloomberg News that its average ticket price rose 18.4 percent. Southwest's load factor, or the percentage of seats filled, fell to 63 percent from 68 percent because of a 10 percent increase in passenger capacity from new service and additional aircraft.
      At McCarran, however, Southwest passenger counts rose three-tenths of a percent last year, dropping 7.3 percent in December.
      America West, the second busiest carrier at McCarran, boosted its passenger count for the year by 4 percent.
      The flat airport passenger traffic, which was off 0.5 percent for 1997, comes in stark contrast to a boom in hotel room construction.
      The hotel and casino industry boosted its inventory of hotel rooms by about 10.9 percent during the first 11 months of 1997. But visitor volume climbed only 2.9 percent. The increase came mainly from motorists.
      Airline passenger traffic decreased in four of the last six months in 1997.
      Not only are airline capacity restraints throttling back tourism growth, but air fare increases are causing hotels in Las Vegas to lower their room rates. The hotels are being forced to do that since tourists have less to spend in Las Vegas, because of the larger sums they are paying for flights, Ehlers said.
      "In all due respect to the far-sighted companies and individuals who have played such a meaningful role in architecting the growth of Las Vegas," Ehlers said, "I urgently plead with Southern Nevada's leaders to recognize that the economics of the air carrier industry have been altered substantially in the the last six quarters or so.
      "Air carriers are far less interested today in flying visitors to Las Vegas than in prior times," Ehlers said.
      Ehlers applauded the efforts mentioned in the story above to start a Las Vegas-based airline.
      Walker said the airport built the D gates to meet the area's needs over the next several years. "Our goal," he explained, "has always been for the airport never to be an impediment for the growth of our main industry here, which is bringing new tourist faces."
      Walker attributed the passenger dip to aggressive airline promotions in the prior year, the diversion of Grand Canyon sightseeing airlines to the North Las Vegas Airport and because four airlines filed for bankruptcy or closed last year. Ehlers said airlines have cut back in some markets to seek higher profitability and load factors elsewhere.
      To put the results in perspective, Walker pointed out that the county-owned airport has recorded only four drops in airline passenger counts since 1960. The most recent slump cut into passenger traffic by 1.7 percent in 1984.