LV casinos look at layoffs

David Strow

Monday, Sept. 17, 2001 | 11:45 a.m.

Resorts along the Las Vegas Strip are considering layoffs and some are already cutting workers' hours as business slows down in response to Tuesday's terrorist attacks.

This expected downturn is already causing one company to make a big change in its plans. This morning, Park Place Entertainment Corp. announced it is delaying a $475 million expansion at Caesars Palace.

"Certainly the hotels are talking to us about layoffs," said D. Taylor, staff director of the Culinary Union, which represents 50,000 workers in Las Vegas. "I take it very seriously."

Taylor declined to identify which properties are considering cutbacks, but said "it's more than isolated (properties)."

"They're all hoping (the downturn) is short term, but they're unsure right now," Taylor said. "I think we will have a better idea in a week or two. I think things are very much up in the air right now."

One property acknowledged possible layoffs Friday.

"There are layoffs under consideration," said Najam Khan, general manager of the New Frontier. But Khan said the number of layoffs and the timing are still being determined.

The Strip's three major casino operators said layoffs were not imminent. Park Place, however, said it will be reducing its work force nevertheless.

"We are reducing our operating costs, and we are looking at the reduction of overall headcount through attrition," said Debbie Munch, spokeswoman for Park Place. "Each property is at liberty to adjust (its workforce) to business needs on a daily basis. (But) we are not involved in large-scale layoffs at our properties."

Park Place is already retreating from its Las Vegas expansion plans as a result of last week's tragedy. It is postponing construction of a 29-story, 900-room, $475 million hotel tower at Caesars.

"Given the anticipated impact of last week's tragic events in New York and Washington on the entire travel and resort industry, coupled with demand already softened by a slowing economy, we believe postponing construction of the Caesars tower is the prudent thing to do," Park Place Chief Executive Tom Gallagher said in a statement this morning. "Delaying the Caesars tower projust will conserve capital and preserve greater financial flexibility."

Park Place will continue building the Colosseum, a $75 million, 4,000-seat entertainment venue. The company did not say when it would resume building the Caesars tower -- its fifth -- but said construction isn't expected to begin until after the Colosseum opens in March 2003.

Mulling needs

Other casino operators are still mulling their work force needs.

"We'll do everything we possibly can to prevent layoffs," MGM MIRAGE spokesman Alan Feldman said. "We're fortunate to be a strong company, but the situation is well-known and is quite serious."

Feldman said the company plans to discuss the possibility of reducing worker hours temporarily with the Culinary Union. Currently, many non-tipped workers are guaranteed 40-hour workweeks by their union contracts.

"We need to discuss with the union whether or not there may be some temporary relief from that (requirement), so we can provide as much work to as many people as we can," Feldman said.

"We're just going day by day," said John Marz, vice president of marketing at Mandalay Resort Group. When asked if the company was considering layoffs, he said, "not that I know of."

Other properties aren't saying either way. Officials at the Riviera, for example, said Friday that they are evaluating their position, but no decisions had been made.

"We're doing what we can to assess how this will impact our staffing levels, and are taking the appropriate steps based on the level of occupancy," Venetian spokesman Kurt Ouchida said. "We're being vigilant to the extent we need to properly adjust the staffing levels so we accommodate our guests and patrons adequately."

But Ouchida declined to comment on whether layoffs would prove necessary.

The Las Vegas casino industry had already been facing a slowdown when Tuesday's horrific events unfolded. Several gaming companies, including Park Place, Mandalay, Harrah's Entertainment Inc. and Station Casinos Inc. reported second quarters that were below expectations. And gaming win on the Strip in July fell 3.7 percent to $382.4 million -- marking the third monthly decline in the first seven months of 2001.

Then, for three days, air traffic in and out of Las Vegas came to a screeching halt. That cut Las Vegas off from the source of one-half of all its visitor traffic.

Though airlines were flying once again this weekend, a combination of tough airport security, a backlog of stranded travelers and a general feeling of fear and shock pervading the country caused a spate of cancellations at Strip hotel-casinos. And that forced Strip properties to begin reducing their work force this weekend, at least temporarily.

"There may be some workers not called in for work this weekend," Feldman said Friday. "We simply don't have the capacity, so we don't need the same number of housekeepers, casino personnel, restaurant personnel."

"We've told them (employees) if they want to take time off, this would be a good time to take it," Marz said. "We have some employees ... who have wanted to do that."

The Aladdin took similar measures this weekend, asking employees who wanted time off to take it, Aladdin spokesman Fred Lewis said.

This week, all full-time workers at the Aladdin have had their work week reduced to four days, Lewis said.

"We will assess each week at a time, so we may increase or decrease (worker hours)," Lewis said.

Airports have reopened and airlines are flying again, but few expect travelers will be nearly as eager to take flights any time soon, especially for leisure. And that's caused many observers to become quite bearish on the outlook for Las Vegas over the next several months.

In a note issued this morning, CIBC World Markets gaming analyst William Schmitt wrote that the downturn in air traffic "is likely to severely impact operating results for Strip operators over an extended period."

"Las Vegas, already facing a difficult environment, is likely to be severely impacted with the demise of domestic air travel as we know it," Schmitt wrote. "We are not prepared, at this time, to quantify the severity or the length of this slowdown, however we would expect that air travel will be negatively impacted through (the second quarter of 2002)."

Hardest hit

Jason Ader, gaming analyst for Bear Stearns, wrote Friday that "it is becoming increasingly clear that travel and tourism will be one of the hardest hit sectors of our economy and one of the areas where consumer confidence will take the longest to return."

"We believe Las Vegas could incur some short-term visitation set backs as well as the potential for convention/conference cancellations," Ader wrote. Las Vegas could face challenging business conditions for the next six months, he said, "or until consumers regain some degree of confidence in flying."

Andrew Zarnett, gaming analyst with Deutsche Banc Alex. Brown, shares this pessimistic view.

"There was a lot of hope that conditions in Las Vegas would get better," Zarnett said. "Given this tragedy, and the decline we expect in fly-in traffic over the next couple of months, that will have pressure on an overall basis on (room) rates, as hotels try to bring in more volume."

That will result in lower cash flow from Las Vegas resorts, Zarnett said.

But the true challenge is trying to figure out how severe the impact will be on travel -- and how long Americans will want to stay away from air travel.

About the only precedent analysts have for answering that question is the Persian Gulf War, which erupted in January 1991, and created fears among Americans of terrorist retaliation. During that month, visitation to Las Vegas fell 4.1 percent, following five straight months of double-digit percentage gains. Gaming revenues dropped 3.4 percent after six months of huge growth.

Visitation rose in February 1991 by 1.4 percent, and rose another 1.4 percent in March 1991, the month the war ended. Gaming revenues rose just 0.3 percent in February 1991, and rose 4.9 percent in March. Gaming revenue growth continued every month until September. Air passenger growth slowed during the Persian Gulf War, but never stopped.

Problem is, it isn't an effective analogy.

Conventional conflict

"The Gulf War was more or less conventional military conflict fought in a distant country and the threats of terrorism that affected travel behavior were vague and precautionary," Ader wrote. "The terrorist strikes against New York and Washington were on U.S. soil, involved thousands of civilians, and were perpetrated using the airplanes of U.S. flag carriers as weapons of mass destruction. The psychological impact on these events on attitudes toward travel are bound to be more pronounced and the resultant curtailment of travel more severe."

And so Las Vegas resorts face completely uncharted territory, and one great unanswered question -- when will the visitors return? The answer to this question, a Nevada official said, will ultimately give the answer to how severe layoffs will be.

"If there's continued lack of business at some level, there is certainly the potential some layoffs will follow," said Jim Shabi, an economist with the Nevada Department of Employment, Training and Rehabilitation. "Our early take is people (in the gaming industry) don't know what the impact is going to be.

"This is new territory, totally new territory. We don't know any better than anyone else where this will lead. I think you'd expect to see some impact, but the extent is far too early to tell."

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