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Best of Liz Benston

Gaming Guru

Liz Benston

Economy poses test for The Strip's big night

3 December 2008

LAS VEGAS, Nevada -- Strip casinos have maintained enviably high occupancy rates during this recession by offering deep discounts and unprecedented package deals – an indication that customers are still willing to open their wallets for bargains even in turbulent times.

But a major test of tourism demand is approaching. New Year's Eve is the biggest day of the year for the Strip – a time for casinos to make up for slower business in the fourth quarter by luring spendthrift partygoers with more expensive rooms, food and entertainment.

In past years, if Strip resorts weren't already sold out weeks in advance, rooms easily rented for more than $500 on New Year's Eve.

This year, tourists have a wider selection of rooms at rates that are more than 20 percent below typical prices.

Casino executives say they expect high occupancy for New Year's at somewhat lower rates, though they will have a better indication of where demand is headed in a couple of weeks.

The economics of booking a room on the Strip — in general, that customers who book later pay higher rates — might be turned on its head this New Year's Eve. Hotels and online booking sites could offer last-minute bargains that are lower than the prices they posted earlier.

This effect won't be seen for at least a couple of weeks, when operators will cut prices on unbooked New Year's Eve rooms.

MGM Mirage spokesman Alan Feldman said he couldn't yet quantify New Year's Eve business because posted room rates are inflated to reflect anticipated demand for a relatively small number of available rooms. The resorts have set aside many rooms for players who have yet to book reservations.

"What remains to be seen is what response we'll get from these customers," Feldman said.

But, he said, resorts have been able to charge high rates during special events, which bodes well for New Year's.

"I think you're going to see a lot more last minute reservations for New Year's this year," added Harrah's Entertainment spokesman Gary Thompson. "People are waiting to see what's happening with the economy."

Like many other Strip properties, the company's hotels sold out last New Year's Eve. Some believe that the company may have underpriced its rooms because they were bought up relatively quickly.

With the national economy limping along and consumers concerned for the future, Harrah's and other companies will have to be even more careful about maximizing profit.

So far, Harrah's has booked about the same number of rooms for New Year's as it had a year ago, though rates are down by the mid-single digits. That's a small decline that indicates strong demand in spite of the economy, Thompson said.

Average room rates across the Las Vegas Valley have declined 9 percent from January through September, according to the Las Vegas Convention and Visitors Authority. Single-digit declines early in the year were followed by double-digit drops from June through September, when rates fell 21 percent.

Weekly room rate surveys conducted by J.P. Morgan stock analyst Joe Greff also show a similar downward trend that has deepened over the past couple of months, with rates on the Strip down 30 percent for the week prior to New Year's Eve.

In recent weeks, casinos have offered the equivalent of extended Black Friday sales. By deeply discounting their rooms, companies are hoping to recoup that lost revenue in their casinos from customers gambling away extra spending money.

Just as big discounts fueled an increase in Black Friday spending at retail stores this past week, this strategy may have worked for Strip casinos over the Thanksgiving holiday, which appeared to be especially busy.

One deal attracting interest from tourists is a mailed offer from the Bellagio, MGM Mirage's most luxurious property. The resort is offering free rooms to infrequent or mid-roller gamblers and a rate of $129 for non-gamblers.

Led by MGM Mirage, which owns the majority of Strip hotels, several properties began offering extensive package discounts in recent months similar to those offered by airline or bus charter operators years ago, before the proliferation of luxury resorts. Unlike past offers, which typically bundled discounts at lower-rent properties, these packages go beyond simple hotel discounts offered during slower periods and are available at many higher-end hotels.

For example, Mandalay Bay is offering rooms for about $90 midweek in addition to a $50 resort credit, a $350 fly-back-free certificate, $300 in shopping coupons and 2-for-1 offers throughout the property.

Still, insiders say consumers shouldn't expect such deep discounts on New Year's Eve, a tradition for many Vegas regulars.

New Year's Eve room rates are down an average of 15 to 25 percent, according to a recent survey of rates at 89 casinos conducted by the Las Vegas Advisor consumer newsletter. Rates at several off-Strip hotels hovered around $100, while Strip properties offered a wide range of rates, from the Four Seasons at $299 to a $689 rate at Encore, which opens Dec. 22 next to Wynn Las Vegas. Several megaresorts have rooms available in the $300 to $400 range, with a minimum stay of two or three nights.

Average New Year's Eve rates on the Strip are down 19 percent from a year ago, at $386 versus $479, according to J.P. Morgan's weekly survey, released Monday. Like Las Vegas Advisor publisher Anthony Curtis' survey, this survey measures regular rates paid by tourists rather than online or other special discounts.

Curtis is advising customers to book now rather than hold out for bigger bargains.

"These rates are already very low," he said. "I don't think you'll see rates go down much from here because there's always a premium on this day."