Room rates on LV Strip creeping up

David Strow

Tuesday, Aug. 28, 2001 | 10:59 a.m.

Since the spring, hotel room rates on the Las Vegas Strip have been sliding. But that decline may be coming to a temporary end.

A survey released Monday by Salomon Smith Barney gaming analyst Michael Reitbrock showed the average Strip room is going for $142 per night during midweek on the week of Sept. 17. This is up 7.2 percent from last year, and it is the second weekly increase after five straight weekly declines in the survey.

Weekend room rates also rallied. The average for weekend rate, Salomon Smith Barney reported, was $273, up 2.5 percent. In the previous week, the average was down 22.6 percent.

Though there wasn't a single event behind those results, Reitbrock believes the numbers are evidence of a pick-up in convention business.

"Looking ahead, we believe convention traffic will stabilize and continue to trend upwards, giving the hotels a more solid foundation from which they can price their (free-and-independent traveler) and tour and travel rates," Reitbrock wrote.

This conclusion is in line with comments made by Mandalay Resort Group President Glenn Schaeffer last week.

"Convention business still looks pretty solid," Schaeffer said. "If wee see more of what we've begun to see ... we would expect to see (room rate) improvement on the Strip in the fall."

Still, Reitbrock isn't convinced the worst is over.

"We remain cautious toward the Las Vegas market based on limited visibility due to the slowing economy," Reitbrock said. "That said, (federal) tax breaks and easing gas prices should help results going forward."

In room rate studies, analysts call Strip hotels and get room rate quotes three weeks in advance. They are used as a leading indicator of demand on the Strip -- though they aren't prompting concern among analysts, as most major casino operators have already warned analysts to scale back their expectations for the third quarter.

This summer, the surveys have shown a market in decline. Weekend room rates declined every month from April through August in a similar survey by Bear Stearns, and midweek rates were off three of those five months, including a 16 percent fall in August.

This didn't result in an equally severe decline in profitability because of cost-control measures, particularly in marketing, comps and energy costs, said Marc Falcone, gaming analyst with Bear Stearns.

"There's a lot of fat that can be cut out of the casino business, and it's taken this kind of environment for operators to really hone in on those," Falcone said. "That's why we're seeing ... only minor reductions in (cash flow)."

A variety of culprits are blamed for this protracted slide, including a slow period in the convention business, comparisons to an unusually strong quarter last year, a slowing economy, the rise of Indian gaming in California, high utility costs and high gasoline prices. The impact has not been as severe on higher-end properties -- Falcone noted, for example, that the Venetian's rates have been up on average from 15 percent to 20 percent for the year.

"The better quality, newer properties are the ones gaining market share off older properties," Falcone said. "Their target demographic is less price sensitive, and the combination of restaurants, entertainment and other amenities these properties offer can be very appealing."

Though the Bear Stearns survey has yet to show a turnaround in room rates, a ramp-up in convention business and lower gasoline costs should help boost room rate comparisons in late September, and continue propping up rates into November, Falcone said.

But another factor will be a slowdown in business seen late last year. Stacked up to these slow months in 2000, Las Vegas's room rates in 2001 will look better.

"The comparisons will make the numbers look a little better, but I still think the environment in Las Vegas is a little challenging for operators," Falcone said. "If we saw some improving trends when we get visitation and air service numbers ... and rates firm up, then (gaming investors) might be a little more optimistic."