Airlines, Hotels Clash Over Vegas Airport

US Airways, which now calls its Las Vegas operation a "secondary hub," leads the downsizing. Last week, it virtually ended a late-night connecting bank that predecessor America West opened in 1986 and halted service to a dozen cities. Daily Las Vegas departures, as high as 141 in September 2007, dropped to 81. By January, the total will be 74.

Nighttime Las Vegas flying accounted for the lowest revenue per available seat mile in US Airways' system, President Scott Kirby said on a July earnings call. Because of its 24-hour culture, Las Vegas had provided a rare opportunity to use airplanes at night, rather than parking them. "It's all utilization flying," Kirby said. With fuel costs high, "it just didn't make sense anymore."

Southwest also continues to cut, with another 14 departures coming out of the January schedule. Las Vegas is the No. 1 Southwest city, with 240 daily departures.

"Airlines are fed up with Las Vegas," says aviation consultant Bob Mann, because many of the vacation travel packages to the city funnel most of the proceeds to the hotels.

"It amazes me how people fight for the last $10 on an airfare and then spend $400 on a hotel," Mann says. "This is an attempt to get out of those situations. The airlines are saying 'we don't want to play anymore -- we will supply fewer seats and leave it to the hoteliers to fix.'"

Those hoteliers are headed in the opposite direction, growing rather than shrinking.

By the end of 2011, Las Vegas will open 32,095 hotel rooms, bringing the total to 165,042, says the Convention and Visitors Authority. Topping the list is a $9.2 billion project by MGM Mirage(MGM Quote), with four hotels and retail space, which is scheduled to open in late 2009.

In the second quarter, MGM Mirage's operating income declined 29% and revenue slipped 2%. "While MGM has the largest share of the Strip and may have the most leverage to a consumer recovery, we believe the downturn in Las Vegas fundamentals may be extended through at least 2009," wrote MacQuarie Securities analyst Joel Simkins in a recent report.

"We think investors should stay on the sidelines, particularly as airline capacity reductions, slower business travel, and Strip supply growth will likely weigh on shares," Simkins said.

Airlines and hotels clashed at a July meeting of the Clark County commissioners, who considered plans by McCarran International Airport to build a $1.8 billion, 14-gate terminal, financed by airline revenue and passenger fees.

In a letter to airport director Randall Walker, Linda Macey, head of the airport airlines committee and properties manager for Southwest, asked for a delay in the project, even though preliminary work has begun.

"The current state of the industry is at an all-time low, and there is much uncertainty as to what the future holds," Macey wrote. "Projects that cannot be justified based on substantiated current needs should be canceled and/or deferred."

But it is clear that in Las Vegas, hotel operators have the upper hand, because the terminal project is moving ahead. "County officials scoffed at the airlines' pessimism," according to a story in the Las Vegas Sun. "[They] were adamant that nothing be done to jeopardize Las Vegas' ability to fill 30,000 more hotel rooms scheduled to open in the next three years."