Rising COVID-19 cases due to the delta variant slowed foot traffic at the nation’s casinos in September, but analysts are expecting a solid fourth quarter, especially when it comes to Las Vegas tourism, despite Southwest Airlines’ current challenges.
An note sent out Monday by Deutsche Bank analyst Carlo Santarelli told investors that, at this point, Southwest’s cancellation of flights over the weekend won’t have any major impact on travel to Las Vegas. Southwest canceled more than 2,000 flights domestically, blaming labor shortages, air-traffic-control issues, and weather. The cancellations ranged from 10% to 30% of its daily schedule from Friday through Monday. Southwest Airlines contributes more than 55% to Strip visitation a year, Santarelli said.
“While we believe this issue is likely isolated and, presumably, relatively short lived, it is worth noting, in our view, given the importance of the carrier to Las Vegas,” Santarelli said. “Said differently and despite the relative importance of Southwest as a carrier to Las Vegas, we do not believe this situation is likely to have a material impact on the market and we believe this past weekend, a weekend in which Las Vegas hosted a heavyweight fight and a Raiders game, experienced little to no issues with arrivals, though departures were likely to be a bit more challenged.”
If the trend continued, Southwest cancellations alone, and assuming full trip cancellations as opposed to changed itineraries, would have an impact on about 4% of hotel-room-night demand, Santarelli said.
“While this is a meaningful number to some degree, as we have previously noted, we don’t expect this weekend’s issues at Southwest to become the norm, though we felt it was important to provide investors with some framework as to how to think about it, should the situation persist or worsen,” Santarelli said.
In a report from David Katz with Jefferies Securities, September foot traffic in Las Vegas, which provides insight into visitation volume that fell by about 300,000 visitors between July and August, was also down 8% from August to September. The good news, he added, was that it’s an improvement over the 24% decline from July to August.
Compared to 2019 levels, Las Vegas September foot traffic was down 22%, Katz said. Las Vegas locals volume in September was down 41% compared to 2019 levels, though marginally higher month over month with a 1% increase over August levels. Downtown Las Vegas saw volume decrease 5% from August, but it was 16% higher than 2019 levels, he said.
“We believe rising daily cases of the coronavirus experienced in Nevada during the mid-to-late summer likely impacted results, as normal seasonal trends suggest September would be better than August,” Katz said.
Bank of America analyst Shaun Kelley said Las Vegas peaked in July, but has leveled off since then by hitting “a snag due the delta variant with group cancellations and room-rate data slowing.” He added, however, that fourth quarter room rates are currently 6% above 2019 levels, which indicates higher demand.
“Vegas remains a solid way to play the U.S. leisure recovery,” Kelley said.
As for regional gaming, Kelley said spending remained resilient during the third quarter, up 12% compared to 2019 level,s with “peaks like Labor Day seeing exceptional demand.”
Overall, national casino foot traffic in September was down 6% from August, Katz said. Compared to 2019 levels, volume was 23% lower, an improvement from August, which was 26% lower than 2019, he added.
In Reno, September levels were 24% lower in September compared to August, while Laughlin fell 6% and was 24% lower from 2019. Lake Tahoe fell 49% in September from August and was 44% lower than September 2019 levels, according to the Jefferies report.
Katz said when Hurricane Ida landed in Louisiana in late August, New Orleans and Baton Rouge had already seen a significant decline in casino foot traffic going into the first week of September. New Orleans experienced a 55% decrease for September from August and was 80% lower than 2019. Comparing the first three days of October to the first three days of August, that foot traffic was down 44% in New Orleans. In Baton Rouge, levels were 27% lower, he said.
“The data suggest that Louisiana could continue to recover from Ida, as well as COVID,” Katz said.
Among other markets, Katz said Detroit was up 2% month over month, but still down 22% versus 2019 levels. In Kentucky, volume remained strong, up 10% versus 2019, though flat month over month, Katz said.
“This is an important market for Churchill Downs, as the company is looking to add 200 gaming positions at Derby City Gaming and build another (historical racing machine) facility in downtown Louisville,” Katz said.
