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The Strip: Weekend Room Rates Remain Soft

A full recovery for the gaming industry from the war with Iraq and the sluggish economy is still a long way off, Wall Street analysts said Monday.

"We don't expect any kind of a real upswing until at least the end of the summer," said Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm.

Weekend rates for rooms reserved three weeks in advance or more fell to $202 for the week of June 2 in the most recent Fulcrum survey, down 10 percent from the year before.

Midweek rates increased to $113 for the same period, up 18 percent from the year before.

"The Strip has been slow to show any kind of recovery in the postwar period. Only hotels with convention business are showing any strength," Greff said.

Mandalay Bay is the clearest example of this trend with an average midweek rate of $490, up 312 percent from the year before, and an average weekend rate of $259, down 35 percent from the year before in the Fulcrum survey.

All of its midweek convention business is incremental compared with last year when its new Mandalay Convention Center had not yet opened, Greff said.

Overall on the Strip, June 2 was the second consecutive week in recent surveys in which the average midweek room rate outperformed last year's level while the weekend rate declined in the Fulcrum data.

Solid midweek rates for the week were driven by a busier convention and special-events schedule than the comparable period the year before, Greff said.

The Las Vegas Convention and Visitors Authority has estimated that 109,500 conventioneers will come to Las Vegas during the June 2 midweek period (at events for more than 1,000 people) compared with 93,300 in 2002.

Authority spokesman Rob Powers said the Las Vegas Convention Center expansion, the Sands Expo and Convention Center expansion and the opening of the Mandalay Convention Center together "greatly enhance Las Vegas' ability to attract new business."

"The genesis of convention business here was to help fill rooms in midweek periods. That has not changed," he said.

However, the strong demand it is now creating makes business more predictable farther out, which is becoming more important as booking windows remain short.

"We believe that midweek rates could also be benefiting from pent-up demand from the war, severe acute respiratory syndrome and a very difficult winter in many regions of the country," Greff said.

In addition, a continued skepticism toward overseas travel may be driving some demand to Las Vegas, he said.

Greff was guarded about the remainder of the second quarter for the gaming industry.

For the second quarter-to-date, weekend results are down 13 percent and have declined in nine of the 10 weeks to date.

"That said, booking windows remain unusually short and as a result weekend rates have generally improved closer to the date of stay, particularly for Mandalay Resort Group, Greff said.

For the second quarter to date, midweek rates are down 2 percent, Fulcrum data show.

Of the 10 weeks thus far in the second quarter, midweek rates have been down in five periods and up in five periods, with no discernible trend, he said.

Deutsche Bank analyst Marc Falcone said until there is a strong uptick in room rates, earnings likely will remain sluggish at Las Vegas gaming companies.

Looking ahead, comparisons will be relatively easier because June 2002 room rates were off 3 percent compared with pre-Sept. 11, 2001, rates, Deutsche Bank data show.

However, as the convention seasons tails off throughout the quarter and higher-rated convention business is replaced with lower-rated tourist business, June's average room rate is typically lower than that of April or May, Falcone said.

Nevertheless, Deutsche Bank remains conservative in its expectations for the summer season, due to the lingering softness in the economy, Falcone said.

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