Aviation director Randall Walker admits that the board of Clark County has “taken a risk” by going ahead with the construction of Las Vegas-McCarran International Airport’s new $2.4 billion Terminal 3 project.
It’s an interesting turn of phrase to use in the gambling capital of the world, where risks are more commonly associated with high rollers at the craps table or the roulette wheel.
After 12 years in the hot seat at McCarran it is safe to say that Walker knows a little about the appeal of Las Vegas and the wisdom of investing in the airport.
Indeed, Walker is more than aware that he has a winning hand in McCarran, which under his leadership has grown to become the second biggest O&D gateway in the US and the 15th busiest airport in the world.
He also knows that nearly 50% of the 40 million visitors to Las Vegas each year fly into McCarran and that in 2007 the gateway operated above its official design capacity when a record breaking 47.7 million passengers passed through its facilities.
In the circumstances then, surely there is no risk involved at all and completing the development of Terminal 3 as planned, was a no-brainer?
Well, it was when plans for the new terminal were unveiled a few years ago and the global economy was booming.
However, events of the last 12 months have forced many airports to put capital development projects on hold or scrap them altogether in the face of declining passenger numbers, and McCarran had a difficult decision to make. Stick or twist?
It decided to twist and go ahead with the project on Walker’s advice because he believes that failing to open Terminal 3 in 2012 as planned could seriously restrict the future growth of McCarran and the entire city of Las Vegas.
“If you assume that the economy is going to recover and that a normal, not a hot Las Vegas environment, will return sometime in the future, then life without Terminal 3 isn’t an option,” says Walker.
“At the time the board made the decision, another 15,000 hotel rooms, minimum, were going to come on-line and McCarran would have actually become an impediment to the growth of Las Vegas if it didn’t have the capacity to meet demand.
Simply put, without more gates the hotels wouldn’t be able to fill the new rooms.
“The board had to take a risk. Our predicament was whether in today’s economic climate we wanted to take the risk of building a terminal that we didn’t need now, but would do in the future, or chance waiting for things to pick up before making a decision – knowing that if we got it wrong McCarran could possibly hinder the future growth of Las Vegas.
“It was quite a dilemma, but the board was confident that the economy would have recovered by the time the terminal was completed, so it agreed with my recommendation to go ahead with the project.”
The actual cost of Terminal 3 is $1.2 billion but the price for the entire project jumps to $2.4 billion when additional elements such as new roadways, central utilities plant and a 6,000-vehicle parking garage are taken into consideration.
So who will occupy the new 14-gate terminal? “That’s a good question,” jokes Walker, who claims that the airlines are always reluctant to sign up to any new facility.
“We don’t ever build facilities here knowing who will occupy them for, as we like to joke, the long range planning of airlines is about a month,” laughs Walker. “I don’t think we would have built any new facilities here since the 1990s if we had waited for the airlines to make a decision.
Our experience has always been that we build them and 60 days later they are full.
I don’t see why Terminal 3 will be any different.”
He is being slightly mischievous about who will occupy T3 because six of its 14 gates will be capable of handling international flights, making the facility the likely new home for carriers such as Virgin Atlantic, Philippine Airlines, Korean Air and the handful of Mexican and Canadian airlines currently serving the gateway.
International flights that require customs processing presently use four gates in Terminal 2, and Walker admits that for international passengers in particular, T3 will take customer service standards and operational efficiency to new levels.
The board’s green light for T3 really was a bold decision as Las Vegas, like most other tourist destinations, has been hard hit by the global economic downturn.
In fact, passenger traffic at McCarran has fallen each month since November 2007, although Walker stresses that the monthly rate of decline is at last beginning to show signs of slowing down.
Passenger throughput dipped by 7.7% to 44 million in 2008 and a further 11.8% decline in throughput during the first six months of 2009 means that the gateway is on target to handle 42 million passengers this year.
“We knew it was going to be a hard year and it has gone as expected.
In fact, our projection for a 12% decline in passenger traffic during the 2008/2009 fiscal year just ended was right on the money,” says Walker, who reveals that Clark County has revised its budget accordingly.
“We’ve made a lot of cuts,” notes Walker. “To be precise we’ve cut our operating budget by $30 million.
The cuts have been made right across the board and meant that all unnecessary expenditure has been cancelled.
This includes the implementation of a hiring freezeon all non-essential jobs and, as result of this policy, we have around 130 positions vacant right now.”
The airport’s economy drive also extends to closing gates, dimming lights, shutting restrooms and easing up on maintenance in Concourse A following WestJet’s relocation to Concourse B – a move made possible by US Airways’ decision to reduce services at the gateway.
Aware that every little counts, the airport has also stopped the historical practice of replacing the hand towels in its restrooms when 80% of the rolls had been used.
The move – it now only replaces the rolls after they have run out – has saved paper and staff hours.
“We are basically doing all the things necessary to accommodate a reduction in passenger revenues,” adds Walker.
The decision to slash its operating budget follows last year’s move to reduce its ongoing capital development programme by around $400 million, either through deferring projects or
eliminating them altogether.
It still aims to go ahead with a planned revamp of Terminal 2 and will complete the construction of a few smaller projects that are underway, but otherwise everything else is on indefinite hold.
Walker considers that McCarran actually hasn’t faired too badly in terms of declining revenues, its income falling 5.5% in the fiscal year compared to the 12% drop in passenger throughput.
He puts “the better than expected performance” down to a rise in non-aeronautical revenues – with the notable exception of gaming revenue earned from slot machines located across the terminals.
A $2 a day rise in parking fees certainly helped – Walker argues that the$14 daily charge for garage parking is still cheap – as did increasing the airport’s share of income earned from valet services, taxi operations and news and gift outlets in the terminal.
But he believes that the decision to open new shops and F&B outlets in “previously underserved hot areas” of the terminal proved the catalyst for a rise in passenger spend at McCarran
over the last year.
“We knew that we were under-concessioned and decided to do something about it because we knew people wanted to spend money but were walking past outlets because they were just too full,” he explains.
“The problem was particularly bad at Concourse C where Southwest handles around a third of all McCarran’s passengers.
Each gate there handles around 800,000 passengers per year as opposed to the airport average of around 400,000.
The throughput and the fact that the area was built back in the 1980s for a typical legacy carrier meant that it just didn’t have enough retail or food and beverage outlets.
“We rectified this, adding new facilities in every nook and cranny that we could find and the result has been an increase in takings despite Southwest’s traffic being down 10%.”
Aeronautical revenues in comparison dropped sharply during the last fiscal year due to a decline in airline revenue (landing fees, gate rental etc) as a result of fewer aircraft movements.
This June proved typical of the year so far, the 491 daily departures out of McCarran compared with 547 during the same month a year ago, although only three fewer routes were served from the airport.
Is there any light at the end of the tunnel? “I am confident that when the US economy picks up we will see a return to the normal levels of activity that we associate with Las Vegas,” says Walker.
“Having said that, I don’t believe we will see the extreme growth rates we had in the previous decade before the recession.
“I think we will see the normal occupancy rate for hotel rooms in downtown Vegas return over time, even with more rooms available, but we are being very cautious in our projections. Passenger traffic was 12% down this fiscal year and we are predicting a flat 2009/10 fiscal year and only 2.5% to 3% growth over the next two financial years.
That amounts to an average of 1% growth per year for the next three years, which is very conservative compared to the double-digit growth we used to enjoy in Las Vegas.”
McCarran has also been boosted by the news that British Airways will launch daily service between London Heathrow and Las Vegas in October. It follows the July launch of twice-daily services to Monterrey by Mexican carrier vivaAerobus.
The popularity of Las Vegas as a tourist destination ensures that 85% of its throughput is O&D traffic and just 15% transit – a mix that ensures its status as the second busiest O&D gateway in the US, trailing only Los Angeles International Airport.
The opening of T3 will give the airport the gate capacity to handle up to 53.6mppa, but that is effectively it for McCarran, which can grow no more due to the residential housing and commercial developments that surround its airfield.
A planned new reliever airport proposed for Las Vegas in the Ivanpah Valley six miles from the California state line will, however, prolong McCarran’s life and ensure that it remains the main gateway to Nevada’s gambling mecca. It will cost an estimated $7 billion to build and initially be equipped to handle up to 12 million passengers per annum.
An Act of Congress has already allowed Clark County to purchase 6,000 acres of land from the Federal Government for the new airport and Walker and his colleagues now need to get permission from US environmental agencies for the project to go ahead.
It promises to be a long and expensive process, but Walker is hoping that if all goes to plan his board will have another big decision to make in about four years time.
“I can tell you that if we had to make the decision now, we would opt not to go ahead with the new airport,” admits Walker.
“However, things may be very different in four years time, so we have wisely decided to put off making any definite decisions until late 2013.”
According to Walker, this common sense approach to developing the airport means that the earliest the new airport could open is 2020.
He also reveals that the new support gateway for McCarran is most likely to become the new home for long-haul international flights into Las Vegas.
We may be experiencing the worst global recession for nearly 100 years, but the plans and ambitions of Clark County’s Department of Aviation once again proves that life is never dull in
this old Nevada town.
Viva Las Vegas!
Airport World 2009 - Issue 4