Recovery under way: Businesses beginning to bounce back from hard times

David Strow

Friday, Oct. 12, 2001 | 4:27 a.m.

Like a prizefighter caught by a surprise haymaker, the Las Vegas economy hit the canvas in the days following the Sept. 11 terrorist attacks.

Business along the Strip -- the heart of the area's economy -- was immediately cut in half. Thousands of layoffs quickly followed, and the Strip's woes echoed through every sector of the local economy. Keith Schwer, a University of Nevada, Las Vegas economist, estimates that each layoff on the Strip means a layoff elsewhere in Las Vegas -- and that unemployment has reached 7 percent in the Las Vegas Valley.

Is this the greatest crisis the modern Las Vegas economy has ever faced?

"If it's not the greatest, I don't know what is," said Hal Rothman, UNLV history professor and tourism expert. "This is global. This is the only thing that hits at the base of our industry, travel."

The Strip is recovering --and at a quicker rate than many expected in the dark days of mid-September. But while it is back on its feet, it is still wobbly.

Most people are guessing full recovery may be on the way by spring. But no one is certain.

"We're going to end up staying on this roller coaster into the early part of next year," said Alan Feldman, spokesman for MGM MIRAGE, which operates five Strip resorts. "Hopefully, as spring comes around, we'll be seeing more normal levels of business in terms of people, (hotel room) rates and activity. Having said that, it's extraordinarily speculative to say whether any of that will happen."

Strip takes a hit

September and October are usually two of Las Vegas' best months for tourism, as mild weather sets in and conventions head to town.

But business plunged after the Sept. 11 attacks and the unprecedented three-day shutdown of the nation's air traffic system. Occupancy should have been around 94 percent on a typical September weekend; on the weekend of Sept. 15, it was 67 percent. Many properties were only half full.

With revenues from gambling, shopping, hotel rooms, entertainment and dining all nosediving, hotel-casinos began scrambling to cut costs. At most properties that meant fewer hours for many workers. At some, it also meant layoffs -- at least 13,000 on the Strip alone.

"During the good times, we have the benefit of being a labor-intensive industry," said Feldman, whose company laid off about 6,000. "Unfortunately, in hard times, we have the disadvantage of being a labor-intensive industry. When you consider costs, you have no choice but to include labor as you look for ways to reduce the impact of this."

There are indicators that give cause for hope. One is weekend occupancy. Week after week, occupancy numbers have been rising throughout Las Vegas. Last weekend, occupancy hit 97 percent, which is considered normal for October.

And air travel, which had been severely curtailed since Sept. 11, has come back more strongly in Las Vegas than elsewhere. Before the attacks, 65,249 airline seats came into McCarran International Airport each day. That number now stands at 58,303 per day -- about 90 percent of previous capacity because of flight cuts.

But other indicators aren't as encouraging. One is midweek business. Midweek visitor counts are rising, but haven't bounced back as strongly. During the week of Oct. 1, midweek occupancy was 72 percent, 18 percentage points below the norm.

And while hotel rooms are full on weekends, rates remain well below normal. In a recent survey, New York brokerage firm Bear Stearns found that weekend room rates in November are running 20 percent below last year. On weekdays, the rates are down 32 percent.

"The casinos may start feeling more full on the weekends, but that's not the key to profits," said Jason Ader, an industry analyst with Bear Stearns. "It is a combination of volume and price that drives profits. (Cutting rates) is not always the best formula for success."

What it adds up to is more bargain-hunters than usual -- and far fewer jobs for those who work in the restaurants, casinos, stores, bars and hotel rooms. And many who have jobs aren't getting the hours they're used to since the business isn't there to supply them with 40-hour workweeks.

The only way Las Vegas will return to its pre-Sept. 11 levels is through increased demand -- and that will happen only when American and international visitors feel comfortable flying again.

"People are starting, slowly, to feel more confident," Ader said. "Business travel remains soft ... that's economy-driven. The leisure market has to feel comfortable things are safe. That's just going to take time to heal."

Fighting fear

Across the country travel agents say that day hasn't come yet.

From Phoenix to Chicago, New York to Jacksonville, Fla., travel agents interviewed by the Sun say the same thing: Travel isn't on many people's minds these days.

"Vegas was popular, especially this time of year," said Wayne Coven, manager of Empress Travel in New York. "Now, honestly, for leisure purposes, people aren't willing to travel. With the bombing, (travel bookings) seem to be dead, whether it's Vegas or any other city."

Irene Saigh, office manager for Travel Agents of Phoenix/Paradise Valley, has a theory about why bookings to Las Vegas are slow:

"I guess people figure Las Vegas is a bright and shining star in America. With the possibility of another terrorist attack, people are fearful of going to that area."

Still, those fears aren't stopping some from coming to Las Vegas, including Saigh.

"I plan on coming there this weekend with four of my girlfriends," she said. "I have this whole theory that I'm just not going to fear anything. But we won't be taking a plane."

Many share her attitude. This may be a different world, they say, but life goes on.

"I'm not going to let somebody else decide what I'm going to do," said Jesse Ireys of San Diego, visiting Las Vegas on a spur-of-the-moment trip. "It's almost like you want to do something, to prove you're not afraid."

Paula Gray of Warrem Point, Northern Ireland, spent this summer in Manhattan, and planned a West Coast trip before returning home this month. She was 20 blocks away when the jetliners slammed into the World Trade Center.

Second thoughts about this trip cropped up, she said. But she ended up heading West anyway.

"Everyone else is doing it (traveling)," Gray said. "I wanted to see the West Coast, and I wasn't going to let anyone stop me. You have to forget what's going on."

Sam Marsh of Birmingham, England, had friends urging him not to make his trip. He didn't listen.

"Basically, I feel it's safer to fly now because of all the security checks," he said.

Others say there's little point in worrying.

"If they get me, they'll get me, but they're going to have to get me on a plane ... they're not going to fly me into a building," said Jim Sport of Luverne, Ala. "If they wanted to hit a target like that, they'd probably hit a football stadium instead (of Las Vegas)."

Rothman also believes Las Vegas is not a likely terrorist target.

"We're a lot more important to Americans and the Western world than we are to the Taliban," Rothman said. "So much of this is about their desire to make symbolic actions that hurt us. I don't see how attacking Las Vegas humiliates the United States. But perception (of possible terrorism) is far more important than reality."

A crisis of government

As long as Las Vegas casinos suffer, Nevada governments are going to suffer as well.

"This is a one-horse state, and there's one town supporting the state," Rothman said. "(With a protracted downturn), the state's budget gets creamed."

Of the state's $1.8 billion in annual revenue, 37 percent comes from gaming taxes. Another 38 percent comes from sales taxes -- and an estimated one-quarter of that comes from tourism.

It's a situation that potentially affects not only government services, but jobs as well.

In Southern Nevada, nearly 70,000 people work for various government entities. Three of the area's top 10 employers are government entities: Clark County School District, Clark County and the state of Nevada.

All have hiring freezes. But none is considering job cuts -- at least not at the moment.

With new students flooding into local schools, the last thing considered would be job cuts, according to Deputy Superintendent Augie Orci. The school district is Las Vegas' largest employer with more than 25,000 employees.

"We don't want to not put a teacher in a classroom," Orci said. "If a teacher leaves a fourth grade class, you can't take those 30 kids and just disperse them (in other classes). (Job cuts) are an ultimate last resort, and we're not even talking about that. There would be numerous other services that would be cut before we get to a reduction in force.

"But we've already cut over $70 million in programs. There's not very many programs left."

At the state level, Gov. Kenny Guinn's administration is taking a wait-and-see attitude. By tightening a hiring freeze and stopping one-time capital expenditures, Nevada can endure several months of lowered tax revenue, state Budget Director Perry Comeaux said. Also helping is last fiscal year's budget surplus.

But the state won't know exactly how much tax revenues have decreased until next month, he said.

"We're just assuming we've been hurt, and we've taken preliminary steps," Comeaux said. "The governor does not want to affect any of our ongoing programs unless things really go in the tank, and we don't see any indications that will happen. If we wind up getting into a long, deep recession, all bets are off, and we'll be looking at having to do things that would affect our programs. But we don't see any signs of that at this point."

Another industry feeling the pinch is retail.

The retail sector is the fourth-largest employer in the county, with nearly 125,000 employees. And it's in for a bumpy ride on and off the Strip, according to George Connor, senior vice president of retail properties for real estate brokerage Colliers International in Las Vegas.

Since the slowdown is hitting during a traditionally busy season, "if a tenant was teetering on the edge, this may be enough to force him out of business," Connor said. "But I don't expect a whole rash of stores to go out of business."

Retail is a big business on the Strip, but value-conscious crowds won't be spending as much money in Strip stores, Connor said.

"I think you'll see more sales and discounting, which would play well to customers coming from that (the value-conscious) market," Connor said. "My feedback from most tenants is that they're trying to hold the course, see how things will turn around. By the beginning of next year, I think we'll be looking at a pretty normal market."

Period of difficulty

Off-Strip outlets could be in for a longer period of difficulty, Connor said.

"Every day, you read about layoffs, and job security becomes an issue," Connor said. "Due to that, I think we'll see somewhat of a retrenchment."

Retailers that sell "big ticket" items, such as cars, furnishings and electronics, will probably be hit harder since those purchases are usually delayed during uncertain times, Connor said.

Another big ticket item: homes. Richard Lee, a real estate consultant for First American Title Co. of Nevada, expects the home-building industry will see a downturn.

But it won't be as severe as many expect, he said. That's because residential real estate has three factors working in its favor: a shortage of land, a lack of vacant houses and very low interest rates.

Slowdown in housing

"Housing sales are more a function of interest rates than anything else -- unless you're dealing with a total economic disaster," Lee said. "I think we're going to see a slowdown in housing, definitely. Cancellations are certainly up. But it's still a pretty healthy market."

There will be little activity in commercial real estate, Lee said, unless buyers can find "phenomenal deals."

"There are a lot of opportunists looking for real deals ... everybody thinks there should be deals, and there probably are, but not as many as people assume," Lee said. "The market is not as weak as everyone assumes."

Las Vegas is slowing down from a decadelong real estate boom. Lee thinks the days of rapid growth are just around the corner.

"It's going to be pretty scary for the next few months, but there's a very positive feeling that by the second quarter (of 2002) we may be rocking and rolling stronger than anybody anticipated," he said. "I think we're in for another strong, strong growth cycle."

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