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Rod Smith

Las Vegas Room Rates Unchanged

9 September 2005

LAS VEGAS – Visitor demand for Las Vegas as a destination seemed to fade at the end of the third quarter as room rates remained unchanged from the year before.

The main factor in the relative deceleration in price increases was tough comparisons with 2004, which had record rate increases, said Brian Gordon, a principal in Applied Analysis, a Las Vegas-based financial consulting firm.

"We're looking at phenomenal (comparisons). To have sustained those rates would have been impossible. That was the main driving force," he said.

"If you look at the year as a whole, we're still seeing reasonable year-to-year growth rates," Gordon said.

Deutsche Bank analyst Marc Falcone said for the year-to-date, room rates overall have increased between 10 percent and 15 percent.

"We see the 6 percent more as directional for where the market is headed," he said.

"Overall, it was a pretty good quarter given the concerns that existed at the beginning of the summer. Overall, the summer turned out to be stronger than Wall Street investors had been anticipating," Falcone said.

For the week ending Oct. 1, a Deutsche Bank survey showed the average three-week advance room rate for the Strip remained unchanged from 2004 at $206, compared with an increase of more than 22 percent in the same week a year earlier.

Weekend rates, traditionally the strong point for Strip operators, dropped 8 percent to $244, while midweek rates increased 5 percent to $190, thanks to three major conventions.

Upscale properties had a 5 percent increase in rates, compared with midlevel and value brand rates, which were each down 4 percent.

For the third quarter as a whole, rates for rooms booked three weeks in advance increased only 6 percent, the most tepid increase since recovery began from the Sept. 11 terror attacks.

The Deutsche Bank survey showed weekday rates up 8 percent for the quarter and weekend rates up 2 percent, compared with the quarter ending Sept. 30.

Gordon said the midweek versus weekend demand patterns were consistent with recent trends that include strong convention business but weaker demand for leisure travel.

Most of the weakness in leisure travel, he said, can be explained by the overall national economy, persistent unemployment and relatively soft consumer confidence.

"All three factors are contributing to the deceleration in demand for Las Vegas (as a destination)," Gordon said.

He said surging gasoline prices have not yet had any measurable effect on the hospitality business here although he said the situation bears watching.

Falcone was still upbeat about demand for the rest of the year.

"Heading into the fourth quarter, we anticipate that room rate trends should continue given a pick up in free and independent travel, although continued rising oil prices could begin to have an effect on drive-in and airline traffic," he said.

However, he said a strong convention outlook, which extends into 2006, should bolster consumer demand as a hedge against any downturn for the Las Vegas gaming industry.

"Plus, Las Vegas will be the beneficiary of displaced convention business (from New Orleans), which will help stimulate demand," Falcone said.

However, another Wall Street analyst who asked not to be named said it is likely surging gasoline prices are already beginning to take their toll on room rates and demand for Las Vegas vacations.

He said operators are starting to report some increase in midweek trade because of Hurricane Katrina fallout.

"One property we talked with said they'd had more than 100 calls asking about booking meetings that had been scheduled for New Orleans, but they also said they had slack demand and cancellations from drive-in customers over the next month or so," the analyst said.