The summer tourist season officially begins with Memorial Day weekend. AAA has predicted the busiest holiday in 20 years. Forty-four million people are expected to travel at least 50 miles from home and 38 million will drive; that is two percent more than in 2019. Air travel is also significant, with 2.93 million people taking to the air on Thursday, the eve of the long weekend. It was the most people screened by TSA in 22 years. Summer flights are predicted to be at a record level, with 271 million people flying in summer 2024.
Memorial Day is also a retail holiday with bargains galore. Predictions for customer spending, however, are more conservative than for travel. The reasons are clear. Surveys show that consumers believe inflation is on the rise and the stock market is down; 56 percent of respondents say that we are in a recession.
The actual figures indicate the opposite; inflation is falling and the stock market is up. Most economists say the economy has fully recovered from 2020 and COVID. Full recovery means a return to pre-COVID spending patterns for many industries. The one exception to that appears to be experiential spending: travel, adventure vacations, and entertainment, like going to a casino.
Las Vegas is anticipating 343,000 people for the weekend, $432 million in visitor spending, and a total economic impact of $715 million, up 10 percent from last year. Vegas was listed as the top spot for travelers and there is no shortage of people wanting to visit Sin City. Other casino jurisdictions will probably also have a good weekend.
Though the weekend looks good, the rest of the summer is more questionable. Non-essential spending in the economy is changing and analysts are saying that customer spending is returning to pre-COVID patterns.
The post-pandemic time was an anomaly; it did not resemble any previous time. For the gaming industry, it has been very unusual. The entire industry has been on an upward trajectory since casinos began reopening in the middle of 2020. The gaming economy did not just recover to 2019 levels, it leapfrogged over all previous years to a new paradigm. Three factors contributed.
First, free-spending customers came rushing back after the lockdown in what analysts called “pent-up demand.” But the surge in business lasted too long for pent-up demand to explain it. In fact, analysts still can’t account for the surge.
The second factor was a dramatic change in margins. Because there were fewer employees and a reduction in many other operating expenses in the immediate aftermath of the shutdowns, profits shot up; for many casinos, margins were better than they had ever been.
The third factor was the growth of igaming and sports wagering. Both existed before the pandemic, but in embryonic stages.
The reopening of the economy gave igaming and sports wagering a huge boost. That growth continues seemingly unabated into the summer of 2024. That is not true of the first two factors, the surge in customer spending and reduction in costs. Customer traffic is down, in part because people have more choices than they did in the first days of the reopening. The cost reductions and margin increases haven’t only stopped, they’ve reversed. Casinos in the latter part of 2024 are less profitable than in any time in the last four years.
Deutsche Bank analyst Carlo Santarelli calls the current condition “challenging” and a “malaise” at least for regional casino markets; Las Vegas marches to a different drummer. He said that considering the outsized growth over the 2021/2022 periods, the change is not overly surprising, in particular because no one was completely certain about the dynamics that led to the surge in the first place. Santarelli believes that a decline in revenue will lead to more promotional spending and a further decrease in profits. Certainly, the recent first-quarter results illustrate the accuracy of Santarelli’s observations.
For the last 12 months, it has been clear that the gaming industry is undergoing a major shift. The pre-and the post-pandemic periods have passed. The industry is moving into a new paradigm. It is too early in the game to predict the outcome or even to understand the rules. So we will just have to watch and wait.
In the meantime, it is Memorial Day. It used to be called Decoration Day and in my family, that is still what we celebrate. We go to a small cemetery on a hillside outside of Dayton, Nevada. Except for the graves, rattlesnakes, lizards, and sagebrush, it is a barren hillside. But for my family, it is the center of our world, our netherworld. Each year for over 150 years, we have climbed that hill to decorate some 20 graves. We clean out the weeds, put flowers in jars and fill them with water, rake the sandy ground, and spread rose petals. In the process, we retell our story. It is a magical place, the dreamtime where our story begins.
Beginning Tuesday May 28, my family will return to the real world. I will go to my office, open my computer, and search for gaming news. That will be soon enough to begin the watching and waiting that will characterize summer 2024 and the rest of the year. Happy Memorial Day to everyone!
