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Rod Smith

Room Rates Stall, Convention Slate Expected to Reverse Trend

31 August 2004

Following a year and a half of hefty price increases, rates for rooms on the Strip booked three weeks in advance stayed relatively flat this summer.

Analysts said operators had pushed rates too far and too fast, cutting into occupancy rates and forcing companies to retrench in the soon-to-end third quarter.

The good news is that business is expected to rebound again this fall because of a heavy convention schedule.

Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm, said aggressive pricing since April 2003 had cut the volume of calls into hotel reservation centers, which in turn led to the softer pricing.

The average room rate on the Strip between June and September increased to $153, up 1 percent from $154 a year earlier, the latest Fulcrum survey showed.

The average midweek rate was flat at $128 and the average weekend rate was $219, up 2 percent from $215 a year earlier.

Greff said difficult comparisons with last year, when the war in Iraq seemed to be wrapping up, and the traditional slowdown during the summer months compounded the pricing challenges for operators.

Marc Falcone, gaming analyst for Deutsche Bank, whose latest survey is being released today with similar findings, said consumer demand and convention business were particularly soft in July and August.

"There is compelling logic in the argument operators pushed too hard," he said. "Now, we'll have to see if room rates rebound in the fall."

Brian Gordon, spokesman for Applied Analysis, a Las Vegas-based financial consulting firm, said although it was well-known rates were leveling off, the final results were more modest than anticipated.

"We expected at least high single-digit increases," he said. "The big concern now is how well the national economy is performing. Employment is starting to dip (again) and job creation is well off expectations."

Demand for leisure vacations and convention business in Las Vegas are both tied to the national economy's performance, he said.

All indications are that convention business will rebound in the third quarter, based on bookings, which should allow operators to return to double digit room rate increases, Gordon said.

However, if the economy doesn't return to its predicted growth path, room rate increases could remain on hold later in the year, he said

In addition, Gordon said there may be pent-up demand for vacations in Las Vegas that is being held back by the anticipated April 28 opening of Wynn Las Vegas.

"We typically see a surge with the opening of any megaresort and this could be the quiet before the storm," he said.

Gordon said the only black hole for Las Vegas is the loss of Comdex in the fall, an event that has traditionally outperformed all other conventions here.

However, he said it appears other bookings have easily compensated for the loss.

Harrah's Entertainment properties experienced the steepest declines in third-quarter room rates with an average rate of $133, down 7 percent from $143 a year earlier.

Average rates at Caesars Entertainment, which is being sold to Harrah's, increased to $157, up 1 percent from $155 a year earlier.

The average rate at MGM Mirage properties was $165, up 2 percent from $161 a year earlier, while the average rate was $151 at Mandalay Resort Group properties, which is being sold to MGM, down 7 percent from a $163 a year earlier.

Among the major independent operators, rates at The Venetian fell to $226, down 11 percent from $254 in the 2003 third quarter.

And rates at the Las Vegas Hilton, which Caesars Entertainment recently sold to Colony Capital, jumped to $117, up 29 percent from $91 a year earlier.