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Las Vegas Room Rates Rise

LAS VEGAS -- Rates for Las Vegas hotel rooms are warming up in June as Americans substitute trips to U.S. destinations for travel overseas. Las Vegas is also getting a boost from possible pent-up demand following the war with Iraq.

Average room rates, the clearest barometer of demand for Las Vegas as a destination, increased to $146 for the week of June 23, up 16 percent from the same week in 2002 and 2001, in the latest Deutsche Bank survey.

This was the sixth consecutive increase in weekly rates room booked at least three weeks in advance, said Deutsche Bank analyst Marc Falcone.

"All signs are pointing to improving fundamentals in the Las Vegas market as we move closer to summer," he said.

And not only are three-week advance rates picking up, "but when we circle back to capture shorter booking windows, we have seen continuous increases for the past six weeks," Falcone said.

Despite continuing weaknesses in regional markets, the strong room rate performance in Las Vegas should prove reassuring to Wall Street, Falcone said.

"When room rates improve, share prices improve. There is a similar correlation in the negative direction," he said, which could make a repetition of past summer room rate wars particularly damaging.

"The biggest factor for investors has been a strong core belief that room rates (boost earnings and indicate likely increases) in share prices for Las Vegas (gaming) companies," Falcone said.

Shares most sensitive to increasing room rates include MGM Mirage, Mandalay Resort Group, Station Casinos and Park Place Entertainment Corp.

"Harrah's (Entertainment) also benefits, but it's not as sensitive because it's cash flow is not as dependent on room rates (and the performance of the hotel side of the gaming business)," Falcone said.

The average weekend rate in the Deutsche Bank survey was $219, up 42 percent from 2002, and the average midweek rate was $116, up 2 percent from the year before.

In a similar survey by Fulcrum Global Partners, an independent Wall Street investment research firm, the average midweek room rate increased to $223, up 44 percent from the year before, and the average midweek rate increased to $155, up 32 percent from 2002.

"We believe some of the rate improvement stems from travelers substituting overseas vacations for trips to domestic locations like Las Vegas due to lingering travel fears and economic uncertainty," said Fulcrum gaming analyst Joe Greff.

"The Strip could also be experiencing pent-up demand from the war in Iraq," he said.

Greff said midweek rates were up 47 percent and weekend rates up 34 percent compared with 2001 levels prior to Sept. 11, which is a more accurate gauge of "normal" Strip demand.

This was the second consecutive week that midweek rates outperformed 2002 and 2001 levels and the third consecutive week that weekend rates outperformed both, he said.

"While this is encouraging, it is still too early to determine if this is the beginning of a turnaround in overall demand trends on the Strip," Greff said.

Week-to-week room rates in the second quarter have been "erratic to say the least, and it will take a few more weeks of strong results to convince us that business trends have returned to 'normal.' "

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