K-shaped economy taking toll on Las Vegas, top tourism official warns

Who is coming to Las Vegas is changing, in large part to a K-shaped economy where higher income households are disproportionately thriving while lower income households are barely above water.

The shift is not a new revelation for the tourism-dependent city, but it is one fiscal analysts are actively considering as they prepare to forecast revenue for the State of Nevada.

Las Vegas Convention & Visitors Authority CEO Steve Hill on Wednesday told the Economic Forum, the appointed panel that sets the revenue forecast used as the base of the state budget, that the region is seeing the effect of a K-shaped economy.

“The upper end of our market is going well,” he said. “The lower end is where we are seeing those declines.”

Hill pointed to national data showing that wealth continues to concentrate at the top. The top 10% of wealthiest households are seeing disproportionate increases in their wealth while the bottom 50% are seeing very little.

“They are continuing to live paycheck to paycheck,” said Hill.

Credit card liabilities among the bottom 50% are also rising.

“That is starting to become a problem,” said Hill. “Delinquency rates are starting to rise in all areas of credit, and that is affecting folks’ ability to choose what is a very discretionary place to visit in Las Vegas.”

Visitation levels to Las Vegas are down about 7.5% overall but down even further among certain demographics, including Canadians, visitors aged 21 to 29, and first-time visitors. That translates to 4 million fewer visitors annually.

But the amount visitors are spending when they do come to Las Vegas has risen significantly since 2019.

The LVCVA surveys potential visitors about their financial priorities. Hill highlighted the most recent survey, from this summer, where 19% of respondents said spending or saving for a vacation was more important to them this year than the prior year.

The authority hasn’t been conducting the surveys long enough to draw too many conclusions, he cautioned, but in “the few years” of responses they do have the percentage is “gradually deteriorating as the necessities of life take priority.”

Half of respondents in that survey indicated that “trying to make ends meet” is more important to them this year than last year.

Nationwide, consumer sentiment is also at an all-time, 80-year low — 49.5%. It is not expected to rise given mass uncertainty at the macro economic level, said Hill.

Many households are tightening their wallets as they try to absorb higher costs of an increasingly less affordable marketplace.

Those thinking of travel must also contend with higher airfare costs, driven by the rising cost of jet fuel. According to Hill, Las Vegas has seen sharper airfare increases than other places, with domestic fares to Reid International Airport rising over 20% since March compared to 12% nationally.

Value airlines have increased fares by the biggest percentage.

Hill referenced the abrupt closure in May of Spirit Airlines, which had been the second biggest carrier into Reid. Half of Spirit seats have been backfilled by other carriers and airlines are meeting demands, he said.

But he added that there is no expectation that airfares will lower, even if jet fuel costs go down.

The multiple warning indicators notwithstanding, Brian Gordon, a principal at Applied Analysis who serves on the Economic Forum, said his takeaway from Hill’s presentation was that, from a revenue perspective, tourism is “holding up” amid shifts in visitation and spending — “it seems like it’s relatively stable and in fact growing in some areas.”

Hill concurred.

The Economic Forum is scheduled to meet again on Oct. 15 and will hear additional presentations. The forum will meet again on Nov. 16 to pass an official revenue forecast, which the governor and Legislature will use as the base for the state’s biennial budget.