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Rod Smith

Strip Room Rates Increasing at Steady Pace

7 June 2004

Room rates at Strip hotel-casinos maintained their steady climb in the second quarter of 2004, accelerating as Las Vegas heads into the hot summer months.

Gaming analysts say shrewd marketing campaigns combined with a strong economic recovery are boosting business in Las Vegas more than any other business or leisure visitor destination.

"A lot of the demand may be attributable to the creative marketing campaigns that began 12 to 18 months ago and are just gaining momentum. That's part of it," said Brian Gordon, spokesman for Applied Analysis, a Las Vegas-based financial consulting firm.

In addition, demand has been fed by the accelerating economic recovery, with all key national indicators on the upswing, including job creation and consumer confidence, he said.

"Media coverage of the Las Vegas Convention and Visitors Authority's advertising campaign, prime time television series and development activity are all driving interest in Las Vegas (in particular). People are coming here in droves and it's reflected in the room rates," Gordon said.

Data from Fulcrum Global Partners, an independent Wall Street investment research firm, showed the average rate for a room on the Strip in the second quarter booked three weeks in advance increased $208, up 44 percent compared with the year before.

Weekend rates increased to $286, up 54 percent and midweek rates increased to $176, up 31 percent, the data showed.

In the first quarter, the average rate increased 25 percent. Weekend rates were up 29 percent and midweek rates were up 17 percent.

For the year-to-date, the average room rate has increased 33 percent, with weekend rates up 40 percent and midweek rates up 23 percent.

Deutsche Bank analyst Marc Falcone said the record demand for rooms in Las Vegas is driven by surging convention business, which will continue to drive midweek business, and the "hip" factor, which will keep driving weekend business.

Despite the record growth, which analysts agreed was outpacing growth in the hospitality industry anywhere else, the last week of June is shaping up to be weak, with the average room rate booked in advance falling to $162, down 7 percent from a year earlier.

Of the major operators, however, only Caesars Entertainment was down heading into the summer period, which is traditionally slower overall.

For the quarter as a whole, however, and for the first half of the year, rates at all major operators are up strongly, led by MGM Mirage, where the average room rate has climbed to $227, up 62 percent over a year earlier.

Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm, said the major reason for a soft week at the end of June is the absence of the International Trucking Show on the calendar this year and very tough comparisons from the year ago period, when pent-up demand was driving demand in the wake of major hostilities in Iraq.

The show, which attracts more than 30,000 attendees, is being held in Anaheim, Calif., this year.

"Despite the cool-off in rates in the last two weeks, the forward calendar continues to look strong," he said.