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Some Las Vegas casino operators and analysts are hopeful that the economic downturn will bottom out by the end of the year and rebound again by the time several major hotels and condo towers are expected to open by late 2009.
Bond rating agency Moody's Investors Service has another outlook, which it released Wednesday in its most negative report yet on the Las Vegas Strip.
Moody's analysts say this downturn will have a more negative effect on earnings than the period following the Sept. 11 terrorist attacks and will dampen earnings for the next 12 to 18 months.
While that seems hard for many to believe (witness many fewer layoffs and the simple fact that travelers are still free to travel) Moody's offers an able argument, already hinted at by analysts and economists.
"Las Vegas largely sidestepped trouble by using price discounts to lure skittish travelers," the report said. "Now, with consumers' anxieties centered on their economic well-being, that strategy is unlikely to be as effective. Las Vegas operators are preparing for an extended period of weak demand will have to turn to other levers, such as reduced capital spending or less aggressive financial policies, to hold up through the next year or more."
Las Vegas weathered the consumer-led recession in 1990 and 1991, benefiting from the fact that regional casino markets weren't fully developed. After Sept. 11, consumer spending held up, boosted by rising home equity and the availability of credit. Las Vegas is more vulnerable today because of increased competition, higher interest rates for casino operators and more dependence on nongaming amenities, the report said. Nongaming amenities are viewed as more discretionary than gambling budgets (read: once a gambler, always a gambler) and are also more influenced by a decline in convention business.
Even before the downturn became official, casinos were cutting costs behind the scenes, including laying off workers and reducing workers' hours.
But the major resorts haven't gone so far as to trim spending on new attractions a key strategy on the Strip, where new amenities drive additional demand.
Nor have they scaled back on share repurchase plans, as MGM Mirage and Wynn have spent millions of dollars in recent months to buy back shares they believe are undervalued.
Longer-term, Las Vegas will rebound, Moody's says. The question is when.
"In a nation where vacations are considered a virtual birthright, it seems inevitable that Las Vegas will remain high on the list of tourism hot spots," the report concludes.
Perhaps this downturn will illustrate to the corporate casino owners that the price gouging that they have been pursing for the last few years only works when there is an abundance of free cash. The casino owners are their own worst enemy for jacking up food and beverage prices to pad their bottom line. I guess the MBA bean counters did not study the cause and effect of overpriced products. The Vegas of old was able to cope with a downturn as it was still financially feasible for tourists to come and enjoy. Good luck in trying to promote $200+ room prices, $50.00 lunch prices and $7.00 bottled beer prices, when gas prices are hovering over $4.00 gal. Of course the answer they will have is to lay-off maids and other lower paid workers rather then become more competitive to bring in revenue. The fats cats at the top of the food chain will also not suffer, who ever heard of a CEO/CFO taking a bonus cut to help the bottom line and save other jobs.
The local casinos for the most part have had to become quite competitive to survive. Promo dollars, comps, points, and room rates are generating some of the best deals in a long time. And the high end corporate properties on the Strip? I think it remains to be seen how far their powers will let them go to attract business. If they disregard rate integrity completely, it may cheapen their properties in their minds. But when the competition gets fierce and the velocity of money slows, who knows...
There once was a charming little casino on the Strip with a huge, jolly clown face beaming down at passersby. Merry-go-round horses beckonned to one's imagination from a mirrored side entryway. Inside there were $3 blackjack tables, slots that dropped real coins into your hand, and delicious hot dogs at the deli. Simple pleasures in a desert oasis... But now the clown is gone, usurped by a metropolitan transpant; its gleaming steel and glass towers seem to crowd elbow-to-elbow in their own shadows, gasping for blue sky . I crane my neck to stare at the rising skyline, and long for my simple, jolly friend.
hope these Casinos take a bath like what they do to the players.
What happened to the OLD LAS VEGAS? You know the ones who catered to the customers with Free Rooms and Comp Meals. Who needs these 4 and 5 Star Casinos ripping us off with $400.00 room rates and their Signature Restaurants with equally expensive meals.
At a time of economic downturn which we are about to face soon the OLD LAS VEGAS would have prevailed. The New Las Vegas will not weather this economic storm and turn into dust into the desert.
No one will pay these HIGH Hotel & Restaurant Prices after paying the HIGHEST GAS PRICES and AIRLINE PRICES in our history.
Bring back the OLD LAS VEGAS!