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Does the Las Vegas Monorail make or lose money?
You have likely heard rumblings of the Las Vegas Monorail expanding 1.4 miles from MGM Grand to Mandalay Bay. The idea is that the expansion could help ferry thousands of Raider fans to their new palace while connecting Mandalay’s convention space to the rest of the strip.
The Las Vegas Monorail originated as a link between MGM Grand and Bally’s in 1995 and employed 2 trains previously used at Disney World in Florida. The line further expanded to its current state in 2002 and operates as a non-profit organization. In Vegas, the Monorail has had a tumultuous history riddled with disappointing ridership figures, several early shutdowns due to maintenance issues and a 2010 bankruptcy.
The Monorail currently extends from MGM Grand north to SLS and Westgate Hotel and Casino. While the Vegas Monorail offers a direct line of transportation up and down the strip, riders often are turned off by the long walks through the resort properties to poorly marked stops. Additionally, the Monorail doesn’t connect to the two most important destinations from the Strip – The Airport and Fremont Street.
With expansion to Mandalay Bay under consideration, I was curious to dig into the current financial state of the Monorail and the ridership/revenue trends. Luckily, that is information that the Monorail reports annually.
I was surprised to learn that ridership has actually trended upwards between the years of 2012-2015. This was largely due to the economic recovery in Las Vegas, increased convention activity and the re-opening of Sahara as SLS. You will notice a sharp decline in ridership in 2016 however which the Monorail company attributes to the rise of ride sharing services (Uber/Lyft).
Below are the Monorail’s annual revenue numbers. As you can see, the graph closely mirrors the ridership figures from above. It’s interesting to note that in 2016, 98.4% of revenue came from fares. The remaining $358,121 or 1.6% came from advertising in station and inside the cars themselves.
Operating income (profitability) is stated in the table below….. a lot of negative numbers but the trend has been somewhat positive over the years.
Operating Income Note – It’s important to point out that operating income figures in the “non cash” expense of depreciation ($19 million in 2016). Essentially, the Monorail company depreciates their hard assets over their “useful life” for reporting purposes. Since depreciation isn’t a cash expense that they are actually paying yearly, the Monorail company adds this depreciation expense back into their profitability on their statement of cash flows. Adding that expense back allows them to show a modest $2.4 million in cash generated from operating activities (Profit) in 2016.
While depreciation isn’t a cash expense (meaning they aren’t paying now), it’s an extremely important expense to take into account as at the end of that equipment’s useful life (think trams, tracks, stations, etc), they will need to be replaced. All of a sudden that annual depreciation amount will need to be paid to replace equipment in one BIG lump sum. That’s why I am relying on Operating Income (that figures in that depreciation expense) to gauge the Monorail’s financial health.
The question remains – Would the Las Vegas Monorail expansion to Mandalay pay for itself or would it leave creditors holding the bag? The Monorail company ridership projections are rosey and based on brisk Raider and convention traffic. What happens in another recession though? What happens if a 2008 like scenario occurs that causes convention and visitor traffic plummet? Could debt payments be made?
Even with expansion, the same headwinds exist for the Monorail. Its oftentimes not seen as the most convenient option for Vegas travelers and Uber / Lyft aren’t going anywhere. In my opinion, until the Monorail connects to Downtown and/or the airport it’s a not living up to its full potential.
While Expansion to Mandalay Bay would be a positive development giving Vegas travelers more transportation options and easing congestion on the Strip I’d be hard pressed to say I would lend the project a dollar. I certainly hope someone else does.