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October 23, 2014

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Discounts abound on Strip; January rates firming up

In the slow days leading up to Christmas and New Year's Day, bargain-hunters snapped up room rates on the Las Vegas Strip that in some cases were cheaper than those available a year ago -- just three months after the 2001 terrorist attacks that sent tourists packing and prices into a freefall.

Still, rates for January appear to be healthy -- a sign that a fuller economic recovery may be on the way in time for a key gambling weekend, industry watchers say.

In recent months casinos have posted occupancy rates and gaming revenues that are fairly even with two years ago -- a more effective comparison than the months around Sept. 11, 2001.

Room rates have recovered more slowly. While weekend rates have in many cases increased during the period, some weekday rates remain down, according to room rate surveys and analysts' forecasts.

A better test of the Strip's recovery will come in January, when the region emerges from its usual winter doldrums and a spike around New Year's Eve in time to rake in profits around Super Bowl weekend Jan. 25 -- one of the biggest gambling weekends of the year, experts say.

December rates at some of the Strip's most expensive properties fell from just one year ago, according to an electronic survey of room rates averaged from several sources by the Las Vegas Advisor consumer newsletter including hotel websites and Internet discounters.

Bellagio posted a rate of $125 compared to $159 the same period last year, according to the survey. The Venetian advertised $139 compared to $159. At Caesars Palace, rates were $85 as opposed to $99.

At the Aladdin and Bally's Las Vegas, rates were $49 compared to $59 a year earlier. And at The Rio, rates fell to $35 from $59 to $69 last year.

The Stardust posted $29 instead of $49 last year, while the Stratosphere posted $18 compared to $30.

Mandalay Resort Group's Mandalay Bay, Luxor and Excalibur casinos were about the same, according to the survey. MGM MIRAGE's MGM Grand, New York-New York, Treasure Island and Mirage properties also were about level, as were Park Place Entertainment Corp.'s Paris Las Vegas and Las Vegas Hilton.

Major Strip properties generally offer room rates for different groups of customers through several venues and therefore decline to reveal specific prices.

"It shows how Las Vegas was really popped in the nose harder than anyone wants to admit," Las Vegas Advisor Publisher Anthony Curtis said of the results. "It's really important that they get people in the rooms."

It's difficult to judge performance based on the month of December, which contains some of the slowest days of the year for the Strip, analysts say.

"I think everyone's getting a little upset with room rate specials in December, which are low by seasonal standards, but it's a slow seasonal time," according to one Wall Street analyst who wished to remain anonymous. "It's not a moneymaking month for the casinos anyway, so I'm not overly concerned about it."

Analysts are looking ahead to January, which could hold more meaningful signs of recovery.

One analyst is already bullish on rates.

For the week ending Jan. 25, average weekday rates on the Strip increased 57 percent, to $203, compared to the same period in 2001, according to a room rate survey forecast released Monday by Bear, Stearns & Co. Average weekend rates rose 12 percent, to $240, compared to 2001.

Overall, rates compared to 2002 jumped from 80 to more than 100 percent because of easy comparisons to last year's post-Sept. 11 declines.

"In our view, this week's results were very positive and follow three rather successful post-New Year's weeks on the Strip," Bear Stearns analyst Jason Ader wrote in a research note to investors.

The return of convention center business after the seasonal lull, bolstered by the expected January debut of the Mandalay Bay Convention Center, will help boost Strip rates, he said.

The return of the National Association of Home Builders next month after a nine-year absence -- an event expected to draw 75,000 people to multiple properties -- also will help build Las Vegas' reputation as a premier convention destination, he added.

"Overall, we believe that during (the first quarter), while economic issues and international conflict loom, convention business will play an even more important role for Strip properties."

Las Vegas resorts turned to a tried-and-true formula for drawing tourists to the Strip during slow times, experts say.

"When you look at October gaming revenues and compare them to 2000, you clearly get the impression that Las Vegas is amazingly resilient," Deutsche Bank gaming analyst Andrew Zarnett said. "That being said, they've been able to keep gaming revenues consistent by discounting some on the room rates."

The full recovery of room rates will likely coincide with the recovery of the national economy, he said.

Dennis Forst, an analyst with McDonald Investments, agrees.

"For all of 2003, my assumption is that the economy is going to get better," he said. "We've had two soft years in a row -- one a mediocre year even before 9-11 -- so '03 should offer some pretty reasonable growth."

That, coupled with a lack of new casino resorts and the upcoming convention season, could help rates, he said.

For the week ending Jan. 11, Strip rates were helped by the International Consumer Electronics Show, expected to draw 110,000 people in line with previous levels, according to another Bear Stearns survey.

Average weekday rates for that week fell 11 percent, to $151, compared to 2002 and rose 43 percent compared to 2001. Average weekend rates increased 59 percent from 2002 and 17 percent from 2001, Bear Stearns said.

For the week ending Jan. 18, average weekday rates increased 8 percent, to $113, from 2002 and rose 6 percent from 2001. Weekend rates for Martin Luther King Day weekend jumped 11 percent, to $186, from 2002.

Until then, casinos may be somewhat more challenged this evening and tomorrow, experts say. New Year's Day falls on Wednesday, which may prompt some tourists to forgo extending their holiday to the weekend.

One analyst believes room rates have weakened somewhat in the days leading up to New Year's Day -- a holiday of critical importance for major Strip operators.

In a research note issued Monday, Deutsche Bank casino equities analyst Marc Falcone said some room prices are as much as 30 percent below earlier room rate surveys.

"In our view, it is not completely surprising that room rates have softened in recent days, as casino operators look to clear out excess inventory," Falcone wrote. "Nonetheless, discounted rates, such as a ... price of $269 for New Year's Eve at Mandalay Bay, may indicate that operators will be relying upon drive-in retail and (non-group) customers to fill rooms at the last minute."

Strip rates will likely feel some residual discounting effect until about mid-February, Curtis said.

"The numbers are indicating that casinos don't want to take any chances now. They're saying, 'Let's keep the welcome mat open now,' which is great for the consumer."

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