Fitch Ratings says Las Vegas Strip’s coronavirus recovery could last until 2024

October 15, 2020 11:23 AM
  • Howard Stutz, CDC Gaming Reports
October 15, 2020 11:23 AM
  • Howard Stutz, CDC Gaming Reports

More than six months after the coronavirus pandemic began ravaging the nation’s casino industry, Fitch Ratings Service said regional gaming jurisdictions have rebounded and are gaining back lost business.

Story continues below

Las Vegas is another story.

The Strip, which relies heavily on airline travel and conventions to fill its nearly 150,000 hotel rooms, faces an uphill climb, according to Fitch analysts. In a report released Wednesday, Fitch predicted the nation’s largest gaming market may experience a slower than anticipated recovery that carries into 2024.

Analysts Alex Bumazhny, Colin Mansfield, and Connor Parks forecasted that the Strip’s overall gaming revenues will be down 60% in 2020, 50% in 2021, and 20% in 2022 when compared to the more than $6.58 billion recorded in both 2018 and 2019.

Through August, Strip gaming revenues are down 45.8%, a figure which includes the declines of 99% that the market weathered due to the COVID-19 shutdowns in April and May.

“A full recovery to pre-pandemic levels is not expected until 2024,” Fitch analysts wrote. “The Las Vegas Strip will experience the slowest recovery relative to other major gaming markets and segments globally.”

Roughly two-thirds of the overall revenues produced by Las Vegas Strip resorts come from non-gaming avenues – hotel rooms, dining, entertainment, retail, and other attractions. The analysts said those areas are heavily influenced by airline capacity and conventions.

Airline volume into Las Vegas’ McCarran International Airport is down 56% through August. Meanwhile, the Strip has seen five straight months of zero convention attendees as all major trade shows have been canceled and pushed into next year.

“Recent easing of group restrictions is a positive,” Fitch analysts wrote. “But we don’t envision a material improvement in air capacity or consumer comfortability with flying until a widespread (COVID-19) health solution is present (e.g. vaccine, antiviral drugs), consistent with Fitch’s global airline group’s expectations.”

The lack of international business directly influences Strip gaming numbers because of high-end baccarat play, which is roughly 16% of the market’s total gaming revenue.

Gambling at the Bellagio/Shutterstock

“Currently, visitors from China are still restricted from entering the U.S., with no known timeline for easing, representing further challenges for operators with meaningful baccarat business,” the analysts wrote.

Recovery slow

Fitch said its four-year recovery timeline for the Strip is “slightly better than the last recession.” However, gaming revenues and revenues per available room (RevPAR) had a slow recovery and never reached pre-recession levels.

Since the recession, Las Vegas’ hotel supply has been somewhat steady, while the $4 billion Resorts World Las Vegas, which is expected to open next summer, is the Strip’s first all-new mega-resort to open since The Cosmopolitan of Las Vegas was unveiled in 2010.

Fitch’s analysts believe convention business will remain a drag throughout their “assumed recovery curve,” with some small group meeting business lost to virtual/remote gatherings and reduced travel and entertainment budgets.

Most Strip properties have reopened, but with capacity limits. Occupancy was in the 60% range in August, mainly from drive-in business. Midweek occupancy is around 30% for most operators.

“Midweek remains extremely challenging, given the lack of convention business,” Fitch analysts wrote.

On Tuesday, Wynn Resorts announced that, starting next week, Encore Las Vegas will close at noon on Mondays and reopen the following Thursdays. The five-day/four-night schedule will continue indefinitely until consumer demand for Las Vegas increases.

Wynn Las Vegas was not affected by the move.

“The convention business, which has begun experiencing first half of 2021 cancellations, hinges on participant and employers’ comfortability levels with larger-scale events,” Fitch wrote. “Positively, the 50-person cap on groups was eased on Oct. 1, with larger venues of 2,500-person capacity or more allowed 10% occupancy under certain protocols.”

Liquidity and regionals

The Las Vegas Strip during the casino shutdowns in April

Fitch noted that gaming operators have a combined $24 billion in cash and revolver availability, “which is more than sufficient to cover projected negative free cash flow for 2020 and 2021.” Debt maturities have been pushed out to 2022 and beyond.

“De-levering capacity will be stronger for regional operators and suppliers, as global operators will see a slower path to being free cash flow positive due to the prolonged weakness in destination markets,” analysts wrote.

Meanwhile, the rebound for regional casinos could lead to a full recovery a year ahead of Las Vegas. Fitch said regional gaming revenue was down 16% in August – excluding New York – despite COVID-influenced capacity restrictions on casino floors of 50% or less.

“The resilience can be ascribed to lower reliance on fly-in visitation, limited alternative entertainment options, and government stimulus supporting consumer discretionary income,” Fitch wrote.

The analysts forecasted regional gaming revenue declines, relative to 2019 levels, of 15% for the 2020 fourth quarter, a 10% decline in 2021, and a full recovery by 2023.

Howard Stutz is the executive editor of CDC Gaming Reports. He can be reached at Follow @howardstutz on Twitter.