Economy looks for shot in arm

The way Wall Street is eyeing the recovery of Las Vegas and gaming on the Strip in 2021 can be monitored on the lower right corner of their TV screens while watching cable news channels.

No, it’s not the stock market, which continues to set records despite a national economy that continues to struggle amid elevated unemployment and lockdowns.

It’s the screenshot of the number of doses of coronavirus vaccine that have been given to Americans.

The vaccine has been developed at warp speed by historic standards but the number of shots in arms has been a slow trickle in comparison with two million given through the end of 2020 when 20 million were projected. The number has surpassed four million this week and is moving at a faster clip.

States have been struggling, however, with resources and the ability to carry out the task, and it’s going to take a World War II-like mobilization by the federal government to move the needle figuratively and literally. That’s even more important as a new strain of the coronavirus that’s more infectious has hit several states, including neighboring California.

More vaccines are expected to come online during the next couple of months. That will make more people, especially those older who have been reluctant to travel, to get on a plane and fly across the country to Las Vegas.

“I would just say that the scale and timing of a recovery will likely be a function of successful vaccine implementation,” said Barry Jonas, director of equity research/gaming with Truist Securities. “We’re headed into a second wave now of COVID and the impact to revenue numbers is just as people don’t want to get sick with the vaccine on the horizon. I think the fourth quarter of 2020 and first quarter of 2021 will show weakness in destination markets like the Las Vegas Strip.”

Jonas said Strip operators are saying the vaccine will drive material leisure business with sizable pent-up demand. There’s an expectation that the recovery should begin in the second half of 2021 with MGM Resorts International and Caesars Entertainment reporting solid bookings already. The convention business will continue to lag because when they do start up, they will be a mix of in person and virtual.

“The leisure customer will come back hard,” Jonas said. “The pent-up demand is meaningful. What has not returned is the 65-plus player that has the most disposable time and income and enjoys playing slots, and they will be first to get the vaccine.

“Most of the companies we speak to think the second half of 2021 is when you’ll start seeing that pent-up demand start making its way back to the Strip. I expect 2021 to finish out strong barring any changes to the road map to getting vaccinated.”

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Chad Beynon, managing director of gaming and lodging equities with MacQuarie Capital, said analysts knew it would be a tough winter for Las Vegas given the lack of conventions, weekday business, big events and entertainment. The Mirage has shut down its hotel and casino operations midweek through February starting Monday.

While internet searches for tourists looking to visit Las Vegas in February, March and April was encouraging, it will be tough until more progress is made with the vaccinations, Beynon said. He said it should pick up more by May and June.

“Operators are bracing to lose as little money as possible for the next couple of months,” Beynon said. “There are some plans for people to attend smaller conventions and smaller events, but we’re still thinking back of the year before anything improves. We need more vaccinations out there. We need the herd immunity because that’s when some of the headliners will come back online because they need to make money as well. Jennifer Lopez doesn’t want to play to a half-empty arena.”

As for the opening this summer of Resorts World Las Vegas, Beynon said that with the addition of 3,500 hotel rooms to a base of 150,000 rooms in the market, visitation needs to be up 2% to absorb that added supply or about one million people over previous non-COVID-19-year comparisons. It will drive new customers to Las Vegas, especially from California, as other resort openings have done, but it’s still happening as a pandemic comes to an end.

“I think it will have a little bit of a negative effect on occupancies for the rest of the market, Beynon said. “There will be a small gaming market shift.”

Jonas said the additional supply from Resorts World and the reopening of Virgin Hotels Las Vegas (the former Hard Rock in the spring) could create some challenges for other hotels.

Encore and Palazzo did not open at a great time in the aftermath of the Great Recession and took a while to generate a return, Jonas said. Resorts World has a large database out of New York and Malaysia and other markets, but it’s unclear on whether it will grow the market or take share.

“As we have a recovery and more folks coming back slowly, we will have to see this new business that has to justify billions of dollars of spend,” Jonas said. “The addition of that new supply is something to watch, and I’m sure existing operators would have loved to not see that come online now.”

Beynon said what’s going to be more exciting in 2021 is the opening of Allegiant Stadium to fans and the use of the expanded and renovated Las Vegas Convention Center by the end of the year.

“When those things are fully operational for football and other programming you will see a spike,” he said.

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