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Rod Smith

Las Vegas Back in New Year's Spotlight

12 December 2003

LAS VEGAS -- Las Vegas is rebounding as a hot New Year's holiday destination following two years of tepid growth, surveys of room rates booked three weeks or more in advance show.

As of Wednesday, Bally's, Bellagio, Caesars Palace, Circus Circus, the Hard Rock Hotel and the Las Vegas Hilton already were sold out, and Wall Street analysts expect most major Strip properties to be fully booked by the middle of next week. The new Venezia tower at The Venetian also was fully booked this week for the New Year's holiday.

That's not to say there aren't rooms available for New Year's Eve, though.

High rollers and guests booking multiple nights can still land rooms at Caesars, for example, at a rate of $2,500 for two nights in a deluxe room with added amenities including show tickets.

So far, though, the surging demand is driving room rates to repeat the double-digit growth of late 2003, Wall Street data for New Year's Eve suggests.

"New Year's Eve is shaping up well so far with higher numbers of sell-outs and higher room prices than at this point last year. Whether or not high-end play materializes over the New Year's period remains the biggest question," Deutsche Bank analyst Marc Falcone said.

For the week ending Jan. 3, average room rates on the Strip increased to $287, up 142 percent compared with the year before and up 206 percent compared with 2001.

Room rates advanced to $341 during the midweek holiday period, up 188 percent from the year before, and to $152 for the following weekend, up 28 percent from the year before.

However, comparisons are difficult because the holiday fell on a Wednesday last year and will fall on Thursday this year, Falcone warned. Because the holiday is on Thursday, more tourists are expected to take a long weekend.

Strong bookings for the holiday were the primary driver for the New Year's Eve numbers, said Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm.

But he added Strip room rates are also benefiting from easy comparisons with last year when demand and rates were weak because New Year's Eve fell on a Tuesday, hostilities in the Middle East were becoming likely and the economy was stalled, he said.

Greff also said although visitors persist in booking rooms at the last minute in order to shave the rates they pay, operators have become more adept at managing the shorter booking windows and are engaging in less last-minute panic-discounting.

"Rates were generally strong across the board for each of the companies and individual operators we surveyed. The only surprise was a very low midweek rate at The Venetian ($269, down 10 percent)," Greff said.

Falcone said rates are surging for all classes of hotel-casinos, with value properties seeing the steepest jumps.

Despite the strong finish to the year, 2003 demonstrated that Las Vegas is vulnerable to national and world events and also resilient in recovering from them.

Fears of flying and the chances of hostilities in the Middle East created a volatile room rate environment in January and February, followed by the U.S. invasion of Iraq which torpedoed Las Vegas room rates for the next 3 1/2 months.

The remainder of the year brought more stable rates and accelerating growth as convention bookings and business travel both recovered to pre-war levels.

"It's a double-edged sword. Whenever significant events affect the (national) economy, Las Vegas sees a stronger impact than other parts of the country due to its greater dependence on tourism," said Brian Gordon, spokesman for Applied Analysis, a Las Vegas-based financial consulting company.

"On the other hand, following these types of events, Las Vegas and its tourism industry have been resilient when compared with other economies across the country," he said.

Overall, the average midweek room rate in 2003 increased to $108, up 13 percent, and weekend rates increased to $186, up 4 percent for the year as a whole, compared with 2002, Fulcrum data showed.

Rates increased most rapidly in the third quarter, with midweek rates up 26 percent and weekend rates up 11 percent, compared with the same period a year earlier.

For the fourth quarter, the average daily room rate on the Strip increased 13 percent. By operator, the average rate at MGM Mirage properties increased to $129, up 12 percent from the fourth quarter 2002; the average rate at Park Place Entertainment Corp. increased to $131, up 8 percent; and the average rate at Mandalay Resort Group increased to $111, up 7 percent.

The biggest exception to the quarter's growth was Christmas week when rates were soft for the overall Strip market as expected.

"There is no significant convention activity this week due to Christmas and the only major act in town is Jerry Seinfeld at the Colosseum (on Dec. 26 and Dec. 27)," Greff said.