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Strip Hotels: Summer Looking Good for Strip

LAS VEGAS -- After faltering through the first half of 2003 because of the war with Iraq and fears of flying, room rates have been rebounding to record rates on the Strip, Wall Street analysts said Tuesday.

Reservation trends through the first two quarters suggest a strong summer in terms of both rates and occupancy, data released by Fulcrum Global Partners, an independent Wall Street investment research firm, show.

Enough "data points" now exist to show that "we are definitely in a room rate recovery," said Fulcrum gaming analyst Joe Greff.

The average midweek rates for rooms booked three weeks in advance increased 3 percent in the second quarter of 2003 compared with 2002, but fell 9 percent compared with pre-Sept. 11, 2001.

For the third quarter through July, however, midweek rates increased at a faster clip, up 13 percent compared with 2002 and 7 percent compared with 2001.

Weekend rates in the second quarter slid 8 percent compared with 2002, but were up 7 percent compared with 2001, Fulcrum data showed.

For July, weekend rates jumped 17 percent compared with 2002 and 2001, Fulcrum data showed.

These trends indicate that the recovery is accelerating, thanks largely to strong consumer spending and rebounding leisure travel, Greff said.

"(Room rates over) the last eight weeks have been peaking at all time record levels. And it's encouraging that they are strong not just compared with 2002, but also pre-Sept. 11, 2001, level," he said.

The recovery started in the second quarter, following the end of hostilities with Iraq, Greff said.

The first two quarters were "impacted by the war, geopolitical concerns and people wanting to stay closer to home," he said.

"Victory in the war and a stronger stock market are driving positive consumer travel trends, and Las Vegas does (particularly) well because it's value-oriented," Greff said.

Now, the third quarter is looking "very strong," and stocks are responding well because the (gaming industry's) fundamentals have improved.

The Dow Jones casino index closed Tuesday at 285, up 19 percent year to date, outperforming the Standard and Poor's 500 Index, which closed at 1,008, up 14 percent for the year to date.

For the week of July 28, the most current third quarter data available, the average three-week advance room rate on the Strip climbed to $151, up 30 percent compared with the year before and up 15 percent compared with 2001, the latest data compiled by Deutsche Bank shows.

"This is the eleventh consecutive week of room rate increases (in our data)," said Deutsche Bank analyst Marc Falcone.

Midweek rates are proving strongest, up 33 percent to $130 compared with 2002. The average weekend rate for the July 28 week was $204, up 24 percent compared with the year before.

Deutsche Bank credited a "relatively healthy" convention calendar, with more than 100,000 attendees expected in Las Vegas compared with 26,000 attendees the year before.

Mandalay Bay Resort has booked the largest convention of the week, the World Shoe Association with 35,000 attendees, while the Las Vegas Convention Center will host more than 30,000 attendees at the Cosmoprof North America.

All three brand segments of the market proved strong, with mid-level properties up 33 percent, and value and upscale properties each up 32 percent

"We are encouraged to see continued pricing strength in all three segments, as this appears to be indicative of a widespread recovery in Strip room pricing," Falcone said.

Among the major operators, Mandalay Resort Group delivered a 28 percent room rate increase, with both the Mandalay Bay Resort and Luxor benefiting from the opening of the Mandalay Convention Center.

MGM Mirage, with average rates up 33 percent, and Park Place Entertainment Corp., with rates up 61 percent, also appear to be achieving fairly robust rate improvements as well, Falcone said.

At Fulcrum, Greff said that the fall can be expected to see further recovery since "once we get past August, Las Vegas can rely on a strong convention calendar which will also help average rates out in the third quarter and even more in the fourth quarter."

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