The war in the Middle East has not yet affected consumer visits to Las Vegas casino resorts, but if the conflict drags on, it could result in an unexpected drop in leisure travel, two gaming analysts said Thursday.
John DeCree, the head of institutional investor research at Las Vegas-based CBRE Capital Advisors, and Barry Jonas, a gaming analyst at Atlanta-based Truist Securities, said Southern Nevada’s track record of reinventing itself during crises should prepare it to weather the geopolitical storm arising from the continuing U.S.-Israel conflict with Iran.
DeCree and Jonas provided their analysis during a two-hour panel and meet-and-greet sponsored by the Economic Club of Las Vegas at Park MGM.
“To start with the war, so much of it right now is going to be consumer sentiment,” DeCree said. “How does that consumer feel? Do they feel like they want to hop on a plane or get in a car and drive to Las Vegas and indulge? I think we’ve dealt with global issues pretty regularly, all to varying degrees of magnitude.
“And my view is that the consumer in the United States is resoundingly resilient and likes to spend money and likes to spend money on experiences,” he said. “I think at the moment we’re still seeing consumer behavior similar, if not the same, since the war in Iran started. That could certainly change the longer it goes on, the degree to which things escalate.”
DeCree suspects that resorts could get an early warning of approaching downturns by closely monitoring short-term bookings.
“If you had a trip planned 60 or 90 days out, you’re probably not canceling that trip yet,” he said.
Low-end customers are affected
Jonas added that resorts will most likely see the decline from their low-end customers and not the high end.
“When gas prices are low, it’s very helpful for casinos,” Jonas said. “When gas prices are high, it’s not a completely linear relationship. There would be a period of time where (casinos) are just going to absorb it. If you’re spending $600, $800 a night, spending an extra $50 or $60 on California gas probably isn’t a deal breaker. The low to mid-end is really feeling the brunt of the inflationary pressures and the more uncertain.”
The newest challenge for Southern Nevada resort companies now is to provide attractions that are affordable for low-budget visitors.
“It seems like a lot of the entertainment that’s developed in Las Vegas is catering to the higher end,” DeCree said. “A Knights game at T-Mobile (Arena) isn’t very cheap. You’re talking about $150 a ticket.
“Barry’s family is coming out in a couple of weeks, and, you know, taking a family of four or five to see the Las Vegas scene is pretty expensive. So I think when we look at average-oriented properties, lower income levels, there’s a little less to do in Las Vegas maybe than there used to be. And so I think some Vegas is good at reinventing these assets, and I think it’s better to reinvent these assets, and I think it’s better to reinvent those assets. to that customer segment that drives so much revenue and cash flow that we often forget about that segment or don’t pay much attention to it until we realize it’s 7 percent, 8 percent, or 10 percent of the visit.
Deconsolidation?
Jonas and DeCree also talked about the possibility that some of the biggest Las Vegas operators will sell some of their assets in the future because they have found they no longer need a large number of resort properties to be profitable.
“I think most executives would say we don’t need to have that many properties,” Jonas said. “When Caesars got rid of the Rio, I would say the bulk of that (cash flow) they kept in-house.
“MGM has divested some regional assets. I think there are times where you need to focus on your strategy and things evolve. When deals were made, properties were initially developed, there were probably only a handful of competitors within three hours and it’s evolved.”
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