Business Declines, and Stakes Rise
Jerry Wilson
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Business Declines, and Stakes Rise
The Las Vegas Monorail Company is hoping that building a four-mile extension to McCarran International Airport will increase ridership, but critics wonder how the company will be able finance such a project.
LAS VEGAS, Feb. 9 — Donna Washington loves riding the Las Vegas Monorail, but not for a reason that would cheer its owners.
The monorail stops at nine casinos and the convention center.
“In my town, the trains are always jam-packed, so it’s nice to have a train car to myself here,” said Ms. Washington, 44, a Chicagoan vacationing here. “I do wonder, though, where all the people are.”
The company behind the monorail, one of the few privately owned public transit systems in the nation, needs to figure that out soon. When it made its debut in 2004, the sleek $650 million train was to be the envy of the nation: a high-tech public transit system, paid for without taxpayer money, that would be so popular it could turn a profit.
But two and a half years later, ridership numbers for the Disney-inspired system, which stops at nine hotel-casinos and the Las Vegas Convention Center, are falling amid a lackluster marketing campaign, technical problems and revenues so far below projections that Wall Street fears that a default on its bonds could occur by the end of the decade.
The Las Vegas Monorail Company’s proposed cure — a privately financed $500 million four-mile extension to McCarran International Airport by 2011 — is seen by many as a risky move. In December, the Clark County Commission granted preliminary approval for such an extension, but observers question how the company can finance it given that two major bond-analyst firms, Fitch Ratings and Moody’s Investors Service, dropped the monorail’s bond rating last year to highly speculative, or “junk,” status.
“It is inherently preposterous to make this system work,” said Jon Twitchell, a transportation consultant in San Francisco who fought construction of the original monorail on behalf of a consortium of opponents, including nonparticipating casino-resorts and homeowners along the route. “Transit has not paid for itself in this country since 1945. It is always publicly subsidized. Eventually, the public will end up paying to prop this up.”
That has not happened so far, but the latest numbers are bleak. December was the monorail’s worst month, with 18,197 riders per day, far below the 53,000 predicted by studies used to sell the bonds to investors and to persuade public officials to give up public right of way. Despite a management shakeup in mid-2005 that purged the company of its founding executives, the system’s average ridership plunged 31 percent in 2006, to 19,219 per day.
The company’s new chief executive, Curtis L. Myles III, said that drop was somewhat anticipated after fares were raised in December 2005 to $5 a ride from $3. That move increased revenues by 4 percent, to $31.4 million for the year, still far short of the $44.9 million needed to break even. The total cost of the system per year is about $61 million; the monorail receives about $16 million in advertising revenues from companies like Sprint, which is about to start providing wireless Internet access on the trains and has a 15,000-square-foot store at the convention center stop.
Mr. Myles acknowledged in an interview that the company’s cash reserves, estimated by Fitch at about $89 million, would run dry by 2010 if revenues did not improve. To break even, he said, the monorail would need to increase ridership by about 50 percent.
Critics fear that if the monorail goes bankrupt, the public will be forced to pay to run a system that exists to shuttle casino patrons, not local residents. Mr. Twitchell and others warned of such an outcome from the start, but Mr. Myles insisted the bondholders would merely sell off the assets to cover the debt and that there was a fund set aside to demolish the tracks.
All this is grim talk for a monorail that opened in July 2004 with a lavish party that included huge buffets at all stops and the governor’s taking the inaugural ride flanked by navel-baring showgirls, a Prince impersonator and the comic Rita Rudner.
The technical problems started almost immediately. The following month, passengers were frightened when a technician opened the doors on the wrong side of the elevated tracks; a month later, pieces fell off the trains twice. No one was injured, but the system was shut down for 14 weeks. It has operated largely trouble-free since that reopening.
Still, Mr. Myles said, the monorail took a public relations hit.
“Whenever you open a new business, especially something in Las Vegas that’s tourism related, you expect a bump in ridership to come from the fact that it’s new,” he said, “but they had to shut it down for three months.”
Expected ticket-selling partnerships with some resorts on the route did not materialize, Mr. Myles said, nor did a plan to make it possible for hotel guests to charge monorail fares to their rooms.
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