Las Vegas Casino & Hotel Market Outlook 2015
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OCTOBER 2015|PRICE $500 LAS VEGAS CASINO & HOTEL MARKET OUTLOOK 2015 Author Shannon Okada Associate Director, Gaming Vice President, Consulting & Valuation Editor Linda Gee, Senior Editor HVS.com HVS Gaming Division 8170 W Sahara Avenue, Suite 201, Las Vegas, NV 89117. USA Las Vegas remains a premier destination: over 41.1 million people visited Las Vegas in 2014, an all-time high. The market continues to benefit from its variety of demand generators, including gambling, dining, entertainment, convention/meetings, and shopping. The trending declines in the percentage of people who gamble and gaming win per visitor are further evidence of the continuing need for Las Vegas market operators to monitor and focus on total revenue being spent per patron. Las Vegas’ pipeline of development activity, including The LINQ, The Park, and the proposed Resorts World Las Vegas, will help the market maintain its iconic image and will also serve to increase the generation of non-gaming revenue, which will enable the market to better withstand any economic downturns in the future. VISITATION The number of visitors to the Las Vegas market TABLE 1 – LAS VEGAS (CLARK COUNTY) VISITORS exceeded 41.1 million visitors in 2014, an all-time high. Demand and visitation have continued to Year Total Visitors grow through the first seven months of 2015 as Percentage Change 2005 38,566,717 3.2 % people continue to seek out the new and unique 2006 38,914,889 0.9 experiences found only in Las Vegas. Table 1 2007 39,196,761 0.7 illustrates the visitor volume to Clark County 2008 37,481,552 (4.4) beginning in 2005 through the year-to-date period 2009 36,351,469 (3.0) 2010 37,335,436 2.7 ending in July 2015. Visitation to Las Vegas from 2011 38,928,708 4.3 2010 to 2014 increased at a compound annual 2012 39,727,022 2.1 growth rate (CAGR) of 2.4%, evidencing the 2013 39,668,221 (0.1) market’s recovery from the declines exhibited in 2014 41,126,512 3.7 2008 and 2009 as a result of weak economic conditions and reduced discretionary spending CAGR (2005-2014): 0.7 % during that time. CAGR (2010-2014): 2.4 Year-to-date July: The percentage of visitors who arrived via ground 2014 24,247,457 -- transportation (58%) versus air (42%) remained 2015 24,743,578 2.0 % stable in 2014 compared to 2013. Overall, the Source: Las Vegas Convention & Visitors Authority number of visitors arriving by ground has trended upward over the last several years, from 54% in 2007. As nearly half of all visitors to Las Vegas arrive through McCarran International Airport, passenger levels and capacity are important to the market. McCarran International Airport’s Terminal 3 opened in June of 2012 and increased the capacity of the airport to approximately 53 million passengers annually. Terminal 3 contains 14 gates, half of which can be used for international arrivals. Since the opening of Terminal 3, passenger capacity from Mexico, Canada, Europe, and Latin America has been expanded. lnterjet, Magnicharters, Volaris, and VivaAerobus have offered new routes from Mexico in the past few years. In 2013, Canadian airline WestJet became the first foreign-flag carrier to bring 1 million passengers to Las Vegas in a calendar year, a record it surpassed in 2014 with 1.1 million passengers. Air Canada increased the number of passengers it served by 24.3% from 2013 to 2014. British Airways has added service from London-Gatwick and Edelweiss Air offers direct flights from Zurich, Switzerland. Copa Airlines, with service from its hub in Panama City, Panama, connects Las Vegas with Latin and South America; the airline’s increase in passengers from 2013 to 2014 was 57.1%. As indicated in Table 2, passenger levels in 2014 increased for the fourth straight calendar year to nearly 42.9 million passengers. LAS VEGAS CASINO & HOTEL MARKET OUTLOOK 2015 | PAGE 2 TABLE 2 - MCCARRAN INTERNATIONAL AIRPORT OPERATING STATISTICS Percent Percent Year Passenger Traffic Change* Change** 2005 44,267,362 — — 2006 46,193,329 4.4 4.4 % 2007 47,729,527 3.3 3.8 2008 44,074,642 (7.7) (0.1) 2009 40,469,012 (8.2) (2.2) 2010 39,757,359 (1.8) (2.1) 2011 41,479,814 4.3 (1.1) 2012 41,667,596 0.5 (0.9) 2013 41,857,059 0.5 (0.7) 2014 42,869,517 2.4 (0.4) Year-to-date July 2014 24,960,361 — — 2015 26,089,232 4.5 % — *Annual average compounded percentage change from the previous year **Annual average compounded percentage change from first year of data Source: McCarran International Airport Airport passenger traffic has grown by 4.5% in the year-to-date period through July 2015 compared to the same period in 2014, above the growth rate of the number of visitors overall (2.0%). The Las Vegas Convention and Visitors Authority (LVCVA) issues the “Las Vegas Visitor Profile Study” annually, which is based on 300 in-person interviews conducted each month. The demographic profile of those surveyed since 2006 is set forth in Table 3. TABLE 3 - DEMOGRAPHIC PROFILE OF VISITORS 2006 2007 2008 2009 2010 2011 2012 2013 2014 Mean Age 48.0 49.0 50.6 50.0 49.2 49.0 44.8 45.8 45.2 Female 48% 50% 49% 50% 50% 49% 49% 50% 51% Male 52% 50% 51% 50% 50% 51% 51% 50% 49% U.S. % of Visitors 87% 88% 85% 86% 82% 84% 83% 80% 81% California % of Visitors 32% 31% 28% 31% 30% 31% 33% 33% 33% Non-U.S. % of Visitors 13% 12% 15% 14% 18% 16% 17% 20% 19% Retired 24% 26% 28% 28% 27% 25% 19% 20% 20% Source: Las Vegas Convention & Visitors Authority The survey data from the LVCVA indicates that the average age of visitors to the market is declining and a smaller percentage of visitors are retired. The Silent Generation (those born between 1925 and 1945) comprised 7% of all visitors in 2014; Baby Boomers (those born between 1946 and 1964) comprised 30%; Generation X (those born between 1965 and 1980) comprised 37%; and Millennials (those born between 1981 and 1993) comprised 27%. The increasing percentage of non-U.S. visitors is a positive trend for the Las Vegas market, given that foreign travelers tend to stay longer and spend more than domestic visitors. Overall, 23% of all visitors to Las Vegas in 2014 were non-white; the fastest growing ethnic group were Asian/Asian-Americans which comprised 10% of all visitors, increasing from 2% in 2009. LAS VEGAS CASINO & HOTEL MARKET OUTLOOK 2015 | PAGE 3 The visitor reports from LVCVA also indicate that vacation or pleasure was the primary reason for visiting Las Vegas for 47% of all visitors in 2014, up significantly from 41% in 2013. The percentage of visitors whose primary purpose for visiting for vacation or pleasure since 2006 ranged from a low of 39% in 2008 to a high of 51% in 2010. Nineteen percent (19%) of 2014 visitors indicated they were first-time visitors to Las Vegas; the majority of first-time visitors continue to come primarily for vacation or pleasure (69%). The proportion of visitors who said they visited Downtown Las Vegas in 2014 was 36%, up from 30% in 2013; the percentage of Las Vegas visitors who visited Downtown Las Vegas generally trended downward, from 48% in 2006. The percentage of visitors that gambled while in Las Vegas declined from 87% in 2006 to 71% in 2014, and the average time spent gambling per day trended down from 3.4 hours in 2007 to 2.6 hours in 2014. The LVCVA survey data further reveals that the average trip gambling budget for visitors declined from $652 in 2006 to $448 in 2011 before increasing to $530 in 2014. In 2014, the per-night lodging expenditure (non-package and non-comp) was $87, with 2.1 occupants per room, on average. Additionally, visitors in 2014 spent over the course of their entire stay in Las Vegas an average of $282 for food and drink (compared to $279 in 2013) and $150 for shopping (up from $141 in 2013). Visitors also spent an average of $69 for local transportation (up from $60 in 2013), $48 for shows (up from $38 in 2013), and $14 for sightseeing (up from $9 in 2013) during their stay. Table 4 sets forth the CAGR from 2006 to 2014 for visitors’ gambling budget and other expenditures by category. TABLE 4 - EXPENDITURE CAGR (2006 TO 2014) Food and Local Gambling Lodging Drink Shopping Transportation Show Sightseeing Budget Expenditures Expenditures Expenditures Expenditures Expenditures Expenditures Average (2014) $530 $87 $282 $150 $69 $48 $14 Average (2006) $652 $107 $261 $141 $69 $51 $8 CAGR (2006-2014) (2.6) % (2.6) % 1.0 % 0.8 % 0.0 % (0.8) % 6.9 % Source: Las Vegas Convention & Visitors Authority Competition for visitor spending is now even fiercer with nightclub, restaurant, and lounge revenue consuming a greater proportion of spending. As a result of the shift in spending patterns away from gaming activities, the percentage of total revenue from gaming for the properties along the Las Vegas Strip corridor with over $1 million in gaming revenues, also known as the “Las Vegas Strip $1 Million and Over submarket,” dropped, from approximately 58% in 1990 to 37% in 2014. Table 5 sets forth the breakdown of total revenue for the Las Vegas Strip $1 Million and Over submarket for fiscal years 1989/90 to 2013/14 ending June 30.