I looked at the awful Q3 results for Orlando last week, and this week it’s time to look at the other market everyone’s talking about: Las Vegas.
Las Vegas is similar to Orlando in that it saw a big run-up in capacity from ultra low cost carriers (ULCCs), among others, and that led to weakness in fares. But in Q3 2023, the DOT DB1B domestic data shows a very different result than what we saw in Orlando.
% Change in Domestic Passengers Q3 2023 vs Q3 2022
While passenger numbers were way up in Orlando in Q3 on all types of airlines, ULCCs fled Las Vegas in Q3. On the other hand, Southwest actually grew Las Vegas more than Orlando while the legacies were up too… but not as much as they were in Orlando.
Overall, passenger numbers were up 9 percent in Orlando, but in Las Vegas they were flat. So, what did that do to fares in relation to Orlando? You can probably guess the answer.
% Change in Average Fare Q3 2023 vs Q3 2022
The ULCCs still saw fares drop, but with so much less capacity, the drop paled in comparison to the jaw-dropping plunge in Orlando. With total capacity shrinking — primarily from the ULCCs — the legacy airlines were able to moderate their fare drops. And then there’s Southwest which absolutely hit it out of the park with a big fare increase despite the capacity growth.
So yes, with less capacity, the industry did better in Las Vegas than Orlando across the board. This is the blueprint for getting out of this mess. They need to find other places to put their airplanes where demand is higher compared to the capacity in the market. I’ll have more on that with a closer look at Spirit this week, but I’m not ready to let the Vegas vs Orlando comparison go just yet.
Something bothered me about these numbers. Why was it that the airlines realized they had too much capacity in Vegas but they somehow couldn’t see it in Orlando?
I started looking at scheduled seats by month. Fare data is only given quarterly, but scheduled seats can be broken down in a much more granular way. Las Vegas and Orlando have similar overall seat numbers, so it makes a comparison relatively easy. Take a look at this chart that shows by month the difference in seats between Las Vegas and Orlando.
Those spikes where Las Vegas has far more capacity than Orlando? That is largely in September, the worst month for travel in Florida. I’m not so sure it’s a great month for Las Vegas either, but it is better there than in Florida. So, Q3 data is tough since it’s really two seasons that we can’t break apart. you have peak summer until mid-August and then travel demand drops until it falls off a cliff after Labor Day.
Notice in fall of 2022 that Las Vegas hit a peak in seats vs Orlando. By 2023, it had moderated. And that is a key to looking at this data.
Let’s look at this another way. Here you’ll see seats by month as a percent of the same month in 2019.
What this shows us is that as travel started to rebound out of the pandemic, Florida was open and surged ahead faster than Vegas. Orlando fully recovered within a year while Las Vegas remained low until after the summer when airlines had nowhere else to put airplanes. By summer of 2022 through the end of the year, it was Las Vegas that saw capacity pour in, reaching a higher percent of 2019 than Orlando all the way up until summer of 2023.
Starting in summer 2023 (which means Q3), Las Vegas has moderated growth while Orlando zoomed ahead. So what we have here is an easier year-over-year comparison for Las Vegas than for Orlando just based on the timing of when capacity has been added.
The ULCCs must have seen the weakness in Las Vegas earlier since they had pushed capacity up so high. They didn’t learn that Orlando was also a problem until it was too late. Now, the game is afoot, and the ULCCs are all trying to rebalance their networks. More to come on this shortly.
16 comments on “When Hot Markets Go Cold: Vegas Edition”
I’m enjoying this series so far. I work in logistics, and this pattern of forecasting/adjusting capacity to match demand is familiar when it comes to moving widgets (think “bullwhip effect”), but obviously without the inventory component.
I’d be curious to know how quickly (or how close to flight departure dates) airlines add/remove capacity, especially the ULCCs who have fewer aircraft types and less of an opportunity to significantly up-/down- gauge plane size. Are the airline planners mostly looking 3-6 months out, and thus chasing their tails at times when it comes to forecasting/understanding demand?
Pax who book more than a month or two out are used to occasionally seeing equipment changes (and, much more often but perhaps less relevant, minor changes to departure/arrival times), but these types of capacity shifts in Orlando & Vegas are obviously more about adding/cancelling frequencies and routes.
Kilroy – ULCCs move things very quickly. Frontier can easily move things around within a couple months, which is actually a lot further out than it used to be during the pandemic. And spirit doesn’t even have April final yet.
Historically Las Vegas had low yields, but that all changed when the city went up market to join the ranks of NY, Miami & other cities with luxury hotel brands & the retailers to match. Let’s not forget that Nevada was closed at the height of covid while Florida wasn’t. You can find videos on YouTube with a desserted LV Strip. I saw one with a realtor named Angela O’Hare & it was earie to say the least.
Shouldn’t you look at 3Q21 data as well though?
While Orlando’s average fares might have dropped a lot from 3Q22 to 3Q23, could it be they are coming off of a very strong 3Q21 average fare in that market that is now correcting itself with the added capacity?
Eric – Keep reading. That’s the point of the last chart.
Makes sense to me that Vegas demand wouldn’t tank as much in September as Orlando. Orlando is presumably more dominated by families who aren’t traveling in the first month of school. Vegas isn’t a heavily family-focused destination (I assume? I’ve been to Vegas once in my life, and that was one time too many, so I’m no expert!).
In the mid 1990’s Las Vegas was entering the “family friendly” phase & that was when I first went to visit. At first it was MGM Grand with it’s misguided attempt at a theme park. Soon after came Wet N’ Wild water park & a few other attractions, but the whole thing was an unmitigated mess.
In the end it’s become a few mega corporations owning the strip, but it looks like the big players have been stripping down the quality of their offerings & raising prices as well as certain properties being sold to new operators. Most notably Mirage is becoming part of the Hard Rock empire & others are likely to be sold in the coming years.
It’s not just that kids go back to school (which they do, actually, depending on the state and school district as early as the second week of August. Early September is actually pretty late for a school start date, but, for instance, NYState historically starts around/after Labor Day).
It’s also that Florida tends to gets hammered by hurricanes by then. So it’s a pretty high-risk time to go to Florida.
If you ever go to Florida in September, you’ll find it eerily empty. Hotels are cheap, etc.
I have, thankfully, never been connected to a school, either K-12 or college/university for myself or kids as a student or myself as educator, that started before Labour Day! (In MA, OH, WI, PA, and BC.) Last week in August tends to be a big vacation time in these places: summer camps often done the week before school starts, although Orlando (or Vegas) in August sounds like my idea of hell.
Either way, September is definitely a time when everyone’s kids are in school, and that alone seems likely to have a bigger effect on Orlando than Vegas.
To quote former Continental ceo Gordon Bethune:
>”We’re a stupid industry led by stupid people”
(This comment was better suited for MCO but eh what the heck I wanted to post it)
That quote can apply to just about any industry as the C-sweets are well known for making stupid decisions & they always make it worse for the consumer.
ULCCs would be smart to put capacity into PDX where leisure is a drastically underserved market. 90%+ load factors and high margins just begging for a ULCC to setup shop.
While you didn’t include a breakdown of the big 3’s performance for LAS as you did for MCO, it is clear that WN, not the big 3, is competing very effectively and perhaps the most effectively with the ULCCs. And WN is also, by virtue of its size in the largest leisure markets – including both LAS and MCO – putting the pressure on the ULCCs.
It would be helpful to see the sizes of each carrier in each of the markets but the big 3 are closer in size in LAS than they are in MCO but I believe that DL is still the largest in both. UA is considerably smaller in MCO.
The implications of your MCO and LAS analyses are that UA’s statement that it intends to continue grow its basic economy fares in order to help fill its increased domestic capacity seems like a risky strategy and one that might not be that successful given that WN matches ULCC fares but doesn’t have the restrictions.
These two markets will be well worth watching to see if there is recovery and, if so, who benefits the most.
I always scan every comment section to see Tim Dunn mention Delta completely unprovoked.
Vagas was a place that you visited on multiple occasions based on comps, cheap rooms and food, and great entertainment .
From what I understand, the repeat rate has dropped to dismal portions where hotels, shows, and entertainment have become a miserable money pinching experience in the name of margin. You can milk the tourist just so many times before you alienate them.
As folks wise up, the ULCC will suffer. Vegas will get a bump from the Super Bowl, but how many fail to return a second time when there are so many other worth while options.
I’d be curious to see Allegiant separate like Southwest in comparison, given its positive results.
The game is afoot, eh? Why am I picturing Maury Gallagher saying this in the commanders seat of a Klingon Bird of Prey? (geeky reference there)