Las Vegas Sun

March 28, 2024

Casinos finding it hard to return to pre-2001 boom

Two years after the Sept. 11 terrorist attacks, Southern Nevada casinos are still struggling to match the returns they had achieved before the attacks and a lagging economy stalled Las Vegas' powerful tourism engine.

Gambling revenue, occupancy rates and other key financial indicators of casino health are still down from the period before the attacks. But a series of recent earnings reports from Las Vegas Strip operators, as well as stronger consumer confidence and retail spending data, suggest a recovery is under way, observers say.

"Most volumes from major Strip operators have been very solid in recent weeks," said John Mulkey, a bond analyst with Bear, Stearns & Co.

During the second quarter, companies such as Mandalay Resort Group and the Venetian resort indicated improvements in the their "independent traveler" tourism business -- a positive sign for the Strip as a whole, he said.

Independent tourist business -- as opposed to group vacation or convention business -- is among the industry's most fickle customer segments.

High-end domestic and international travel still hasn't fully recovered from the period before the attacks, though the decline can be blamed somewhat on the sluggish economy, MGM MIRAGE spokesman Alan Feldman said.

The nation's economic picture appears to be brightening, however, he said.

The latest evidence appears this week as the company's hotels are sold out ahead of one of the city's biggest events of the year: this Saturday's fight between famed boxers Oscar De La Hoya and Shane Mosley.

"This should be an extremely strong week for the city," he said.

Gambling revenue still hasn't recovered to its pre-Sept. 11 highs, according to data released this week by the Gaming Control Board.

For the 12 months ended July 2003, gambling revenue at Strip resorts totaled about $4.8 billion, a 2.2 percent drop from the same period in 2001.

For the same period, gambling revenue fell 0.6 percent for all Nevada casinos, to about $9.6 billion, for the fiscal year ended July 2003.

In the late 1990s and into 2000, much of the state's gaming win was driven by the addition of several major resorts on the Strip, said Frank Streshley, senior research analyst for the Gaming Control Board.

"We don't have that now, though there have been smaller casino openings," he said. Economic woes also factor into the declines, he said.

Also, early signs of growth this year "took a few steps backward" in April and May with the effect of the Iraq war, which stalled vacation plans, he said.

Some indicators on the Strip are positive, others say.

Occupancy rates are still down about 8 to 10 percent from 2000 levels but are up about 10 percent from 2001 and are probably up from 10 to 15 percent so far this year compared to last, Deutsche Bank Securities analyst Marc Falcone said.

While revenue and room rates are down at many major resorts, cash flow and other performance indicators have held steady as properties moved to cut costs and increase efficiency.

With fewer new projects on the horizon, companies are investing more of their cash into existing resorts as well as repurchasing shares and in some cases issuing cash dividends to shareholders.

While no major Strip resorts have opened since Sept. 11, competition across Clark County continues to grow -- with growth in hotel and motel rooms as well as several new projects under way.

Clark County has about 128,397 hotel and motel rooms as of the June opening of a new room tower at the Venetian resort. That compares to 126,610 rooms at the end of 2001. The Strip alone had roughly 95,922 hotel rooms as of June 30 of this year compared to 93,111 rooms at the end of June 2001.

Soon to debut is the 825-room Westin Casuarina hotel, while Mandalay Bay will open a hotel tower with 1,122 rooms by November. The Bellagio is expected to unveil its 925-room tower by December 2004 and Wynn Las Vegas, Steve Wynn's latest megaresort, is anticipated in mid-2005 with about 2,700 rooms.

At Mandalay Resort Group, business has improved "quarter by quarter" since the attacks, the company's marketing head John Marz said.

Several indicators -- including better room rates and occupancy rates, higher Internet sales and more advanced bookings -- show a "good upward trend," Marz said.

"People seem to be spending more in our restaurants and in our retail (stores)," he added.

Las Vegas has recovered fairly well save for its domestic high-roller business, which is more a reflection of the faltering U.S. economy, Jefferies & Co. equities analyst Lawrence Klatzkin said.

Major Strip resorts have improved overall, though explanations differ because each company caters to a somewhat different niche, he said.

At Mandalay Resort Group, for example, rates have improved across the resort's massive room inventory after it opened its Mandalay Bay Convention Center in January, said Klatzkin, who raised his rating on the company this week to "buy" from "hold."

While their financial statements in some cases may look better this year compared to last, many major Strip resorts will return to similar activities Thursday to memorialize the attacks.

Some properties will flash patriotic symbols and phrases on their message boards, while others will hold more individualized ceremonies, including a memorial service at the Tropicana and a 12-gun salute and fountain show at the Bellagio. At Park Place Entertainment Corp. resorts, messages such as "United We Stand" and "One Nation Under God" will alternate with the properties' typical commercial messages.

"We also believe that part of the way we should be dealing with this is to ... get on with our lives," Park Place spokesman Robert Stewart said.

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