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Rod Smith
 

Study: Hotel Room Rates to Climb

23 October 2003

LAS VEGAS -- Hotel room rates likely will climb in 2004, a national travel trade association study predicts, signaling a recovery in business travel and giving the gaming industry a much-needed shot in the arm.

Gaming analysts, however, remain only cautiously optimistic, saying the industry's performance likely will remain lukewarm through the remainder of 2003.

Goldman Sachs analyst Steve Kent said Las Vegas trends strengthened during the summer, but not convincingly enough to suggest that the industry is close to fully recovered.

Other analysts agreed.

"There's been no solid proof that business travel has come back in any meaningful way in the fourth quarter," Deutsche Bank analyst Andrew Zarnett said. "Operators have been optimistic in their guidance for 2004, but we haven't seen the results in the numbers so far."

In the short term, weak demand will keep downward pressure on the profit margins for gaming companies and other hotel operators, Zarnett said.

"We're beginning to see some positive trends for 2004 and low supply growth suggests we may see recovery starting in 2004, but it will build (gradually) over the course of the year," he said.

Joe Greff, gaming analyst at Fulcrum Global Partners, an independent Wall Street investment research firm, said, based on a strong convention and entertainment lineup, "we still see Las Vegas as a market with good demand momentum in the next six months."

However, average rates were flat for rooms booked three weeks in advance or more in mid-November, reflecting a light convention calendar, the latest survey from Deutsche Bank showed.

Still, for the coming year the National Business Travel Association's new analysis, the 2004 Business Travel Overview and Cost Forecast, projects increasing demand and room rate increases of 3 percent.

It also projects business airfare increases of 5 percent and corporate car rental rate increases of 2 percent, both because of increasing demand.

In 2003, business travel was curbed by the war in Iraq, severe acute respiratory syndrome, terrorist threats and economic concerns. Now, however, companies are starting to increase their meeting and convention budgets for 2004, the business travel study showed.

"As we move into 2004, we're predicting the beginning of a recovery in business travel. Yet corporations will still be focused on the bottom line, and the cost-consciousness of the past two years will remain," association President Carol Devine said.

Las Vegas Convention and Visitors Authority spokesman Rob Powers was more bullish than analysts, emphasizing the upward trend.

"The outlook for Las Vegas is very solid," he said. "Our convention business has been very good. Given the lingering malaise in the national economy, as thing's improve, we'd expect business travel to improve even more."

However, luxury properties continued to suffer from tighter corporate travel budgets, as more corporate travelers frequented more mid-priced brands.

In 2004, hotel profitability will remain vulnerable to cautious business spending, price-sensitivity and security threats, the study concluded.

The National Business Travel Association, established in 1968, represents more than 2,400 corporate travel managers and travel service providers.