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Falling Nationwide Room Rates Hinder Las Vegas Recovery

Room rate recovery in Las Vegas is getting pinned between competition from falling rates nationwide and the lackluster economy.

Both long-term and recent room rates on the Strip have been constrained by competition from other cities such as San Francisco where rates are down as much as 23 percent, analysts said.

For the second-quarter-to-date, the average midweek rate for rooms on the Strip booked at least three weeks in advance dropped 2 percent compared with last year, according to data collected by Fulcrum Global Partners, an independent Wall Street investment research firm.

The average weekend rate fell 11 percent in the quarter-to-date and have declined in nine of the past 11 surveyed periods.

"Such sequential results continue to be somewhat erratic, making it difficult to handicap overall demand on the Strip," said Fulcrum gaming analyst Joe Greff.

For the week of June 9, the average three-week advance room rate was $136, up 3 percent compared with 2002 and down 12 percent compared with 2001, according to data compiled by Deutsche Bank.

That compared with San Francisco where rates were down 23 percent in the first quarter of 2003 vs. 2001, Boston (down 18 percent) and New York (down 17 percent), according to recent Smith Travel Research data.

"Falling rates are crimping the ability of hotels here to hike rates. It's a constraint," said Keith Schwer, director of the University of Nevada, Las Vegas' Center for Business and Economic Research.

"If they don't lower the price, the bed goes empty. And that hits on the fact it's not just the room rate, but the entire package," he said.

Airlines, restaurateurs, tour operators and retail outlets also have been offering discounts to attract business.

"It's basic economics. People have choices. Las Vegas or San Francisco. So the question is price and taste in good measure," Schwer said.

Brian Gordon, spokesman for Applied Analysis, a Las Vegas-based financial consulting company, said: "When there are deals outside Las Vegas, other destinations will tend to lure people away unless they're looking for a gambling component."

He cited a six-night package to Hawaii including airfare and rent-a-car for $699.

"People will go where they can find value, and that just makes it tougher to get visitors to look at Las Vegas," Gordon said.

At Fulcrum, Greff said generally room rates here have not fallen as drastically as in other cities partially because hotels in Las Vegas historically have been more affordable.

Also for the week of June 9, the average Strip midweek room rate was $101, down 12 percent from 2002 and down 28 percent from 2001 in the Fulcrum data.

The convention calendar for the week is fairly solid with 83,600 expected attendees, according to the Las Vegas Convention and Visitor Authority, compared with 65,000 the year before.

Also, the largest event of the week, the Western Gift Expo with an expected 35,000 attendees, begins June 12 and extends through the weekend, likely boosting weekend rates, analysts said.

The average Strip weekend room rate was $198 for the week of June 9, up 12 percent from 2002 and up 7 percent from 2001.

Not all Strip properties are in the same boat, said Deutsche Bank analyst Marc Falcone.

Upscale properties enjoyed a 22 percent increase in rates for the week of June 9, he said, while mid-level properties had an average rate decline of 6 percent and value property rates fell 3 percent.

Strip room rates (week of June 9)

Mid-week Weekend

2003 Percent change 2003 Percent change

Park Place Entertainment $109 -10 $189 +19

Mandalay Resort Group 110 -3 200 +3

MGM Mirage 95 -21 251 +48

Harrah's Entertainment 65 -33 173 -31

The Venetian 229 -8 269 +29

Aladdin 79 -11 149 -17

Stardust 55 +10 115 +53

Tropicana 39 -22 89 -32

Average 101 -12 198 +12

SOURCE: Fulcrum Global Partners

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