Katrina washes away profits at casinos, airlines - Friday 12th of August 2005

Hurricane Katrina will cost U.S. casinos millions of dollars as gambling operations were shut in the path of the storm, while U.S. airlines, many of them cash-strapped, will face increased costs from soaring oil prices, analysts said on Monday.

The Mississippi Gaming Commission shut down 17 casinos in the Gulf Coast and River County areas in the state early Sunday, and neighboring New Orleans also ordered its casinos to close later that day.

Many of the regions casinos are floating barges with mooring systems designed to withstand winds of 155 mph and a tidal surge of 15 feet, according to the city of Biloxi, Mississippi. Katrinas 135 mph winds had decreased to 75 mph by late afternoon.

Harrahs Entertainment (HET.N: Quote, Profile, Research) , the worlds largest casino operator, has the highest exposure, with nine casinos facing the wrath of the storm.

Deutsche Bank analyst Marc Falcone said he expects Harrahs to lose $1.8 million to $2.5 million in revenue for each day its casinos remain closed, which is likely into Tuesday and "potentially beyond."

UBS Investment analyst Robin Farley estimated that a 3-day closure and potential drop in revenue over the coming month could trim Harrahs earnings per share by as much as 5 cents.

Falcone also expects MGM Mirage (MGM.N: Quote, Profile, Research) , which has two casinos in Mississippi, to lose $700,000 to $1.1 million in revenue each day the casinos remain closed.

Farley put the storms potential impact on MGM at about 1 cent per share.

Falcone expects Pinnacle Entertainment (PNK.N: Quote, Profile, Research) to lose as much as $700,000 per day of revenue, Boyd Gaming (BYD.N: Quote, Profile, Research) to lose up to $450,000 and Isle of Capri Casinos (ISLE.O: Quote, Profile, Research) to lose up to $350,000 a day.

Shares of Harrahs rose 25 cents to close at $72.75, MGM gained 52 cents to close at $43.30, while Boyd lost 20 cents to close at $47.59, and Pinnacle fell 76 cents to end at $22.07.

Standard & Poors said Pinnacle relies on the region for 40 percent of its earnings before interest, taxes, depreciation and amortization, while racetrack operator Penn National Gaming Inc.(PENN.O: Quote, Profile, Research) has an exposure of about 10 percent to 15 percent. The debt rating agency put Argosy Gaming Co.s (AGY.N: Quote, Profile, Research) and Isle of Capris exposure at 5 percent to 10 percent, and said Harrahs, Boyd and MGM Mirage rely on the region for less than 5 percent of earnings.

The state of Mississippi is losing half a million dollars in tax revenue each day, due to casinos that are shut down in the Gulf coast, Larry Gregory, executive director of the states gaming commission, said.

The state is losing another $140,000 each day because of closed casinos in River County, he added.

OIL GOES UP, AIRLINES DOWN

The hurricane is also bad news for U.S. airlines, which have been struggling with high oil prices amid steep competition.

"Its not so much the storms impact on operations. Its the storms impact on oil prices that will really hurt the airlines," Standard & Poors analyst Jim Corridore said.

Oil and gasoline prices in the United States vaulted to record highs above $70 a barrel due to the storms impact on operations in the Gulf of Mexico.

"With the trouble in the Gulf oil refineries, the airline industry will see pretty high losses in the third quarter," Corridore said, adding its "already time" for Delta Air Lines Inc. (DAL.N: Quote, Profile, Research) to file for bankruptcy.

The carrier has been struggling to avoid filing for Chapter 11 protection over the past few months.

Several airlines have canceled flights due to the hurricane, including Delta, AirTran Airways (AAI.N: Quote, Profile, Research) , United Airlines (UALAQ.OB: Quote, Profile, Research) , and Northwest Airlines (NWAC.O: Quote, Profile, Research) .

Shares of AirTran rose 1 cent to close at $10.50, Delta dropped 3 cents to $1.27, Northwest slipped 8 cents to $5.19, and bankrupt United Airlines lost 2 cents to close at $1.39.

Analysts said it was too early to gauge the extent of the storms impact on hotels in the area. "If hotel properties are damaged or destroyed, we would expect companies to recover most or all of their investment through property insurance, though this can be a lengthy process and may not include full reimbursement," Deutsche Banks Falcone said.

He also noted that the hurricane could result in strong demand for hotel rooms from residents unable to return to homes impacted by the storms.

All three major U.S. hotel companies -- Starwood Hotels & Resorts Worldwide (HOT.N: Quote, Profile, Research) , Marriott International (MAR.N: Quote, Profile, Research) and Hilton Hotels (HLT.N: Quote, Profile, Research) -- have properties in Mississippi and New Orleans.

Marriott said on its Web site that 18 of its hotels had been closed due to the storm as of Monday evening.

Hilton said about 40 of its hotels in Alabama, Florida, Louisiana and Mississippi were either not taking reservations or had been evacuated.

(Additional reporting by Kyle Peterson in Chicago and Deena Beasley in Los Angeles)

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