Gaming Strategy
Featured Stories
Legal News Financial News Casino Opening and Remodeling News Gaming Industry Executives Search News Subscribe
Newsletter Signup
Stay informed with the
NEW Casino City Times newsletter!
Search Our Archive of Gaming Articles 

Analysts: Vegas on the Rebound

11 April 2002

by Dave Berns

The Las Vegas tourism market is recovering faster than expected from the post-Sept. 11 travel plunge although volatile room rates continue to plague Strip hotel operators, according to two reports released Thursday by Wall Street financial analysts.

The apparent turnaround in the city's fortunes comes from a "more rapid" rebound in vacation travel after the attacks and "outstanding expense control" by gaming executives, write Merrill Lynch's David Anders and Sal DiPietro.

Yet Las Vegas hotel room rates remained down by 6 percent to 9 percent in the first quarter ended March 31 when compared with the first quarter of 2001, the pair write.

That trend appears to be continuing for advance room bookings through May 4 at MGM Mirage and Mandalay Resort Group properties where weekday and weekend rates are off, writes Bear, Stearns & Co. financial analyst Jason Ader.

Park Place Entertainment properties are generating higher advance room rates during the same period, Ader notes.

The three companies control two of every three Strip hotel rooms.

"We expect room rates to continue to be volatile on a week-to-week basis, due to seasonal shifts in the calendar, but we believe the upward trends will continue throughout 2002, as operators gradually regain pricing leverage," Ader writes. " In our view, both (Mandalay Resort Group) and (MGM Mirage) stand to benefit the most from these trends."

Strip megaresorts were expected to receive a financial boost the weekend of May 4 when Oscar De La Hoya was scheduled to fight Fernando Vargas in a super welterweight title fight at Mandalay Bay. The bout was postponed for four months when De Lay Hoya suffered a wrist injury while sparring.

Earlier this week top Strip executives downplayed the significance of a 10 percent jump in the amount of money their casinos won from gamblers in February.

Some argue that a declaration of an economic recovery is premature and could prompt politicians and union bosses to seek more money from gaming companies just as the state is suffering from a projected multimillion dollar budget shortfall and union leaders are about to commence contract talks with their gaming counterparts.

Others believe the atmosphere to be especially tense following the 12,000 to 15,000 jobs lost in the local casino industry after the terror attacks. All but several thousand of the unemployed workers - victims of casino industry cost cutting - have since returned to full-time jobs, according to gaming executives.

"Everytime that somebody says we're back to normal we know we're not back to normal," said Mandalay Resort Group Senior Vice President Mike Sloan. "People coming to premature conclusions (to support) their own points of view threaten us."

According to Ader's report, advance room rates at:

-MGM Mirage properties are down 14.3 percent for the weekday period ending May 4 while weekend rates are down 4.1 percent.

-Mandalay Resort Group are off 4.9 percent for weekdays and 14.7 percent on weekends.

-Park Place properties are up 15.6 percent on weekdays and 112 percent on weekends.

Ader attributed the Park Place room rate surge to an altered marketing strategy that has seen the operator of Paris-Bally's, Caesars Palace, the Flamingo and Las Vegas Hilton set aside fewer rooms for walk-up business. Instead, the rooms are going to free-spending casino customers.

"It really pays off," he said, noting that the reduced inventory has sparked the rise in room rates. "They're just better managing the inventory of rooms."

The share prices of small to large casino operators have risen about 30 percent since the start of the year despite a nearly 3 percent decline in the value of the Standard & Poor's 500, the Merrill Lynch analysts note.

Companies that generate much of their profits from the drive-in gambling markets of the Midwest, South and Atlantic City are expected to generate "meaningful" growth in earnings per share, they conclude.

A major reason for earnings jump: As security-conscious travelers have stayed off airplanes since the September attacks many have chosen to drive to riverboat markets for brief getaways.

Major casino companies are scheduled to release their first-quarter results starting next week.

Harrah's Entertainment, Ameristar Casinos, Aztar and Penn National have holdings in some of the day-trip markets of Atlantic City, Illinois, Missouri and Mississippi.

Harrah's, which owns Harrah's Las Vegas and the Rio, and Tropicana-owner Aztar are the only two with Las Vegas holdings.

"We believe the first-quarter growth is noteworthy, as these casinos have clearly demonstrated an ability to increase earnings not only through the economic slowdown of 2001 and the aftermath of 9-11, but also during the initial stages of an economic rebound," the Merrill Lynch analysts write.

The pair say they expect that upbeat assessment to continue through the third quarter of this year.

< Gaming News