The nationwide economic downturn, when combined with extremely high fuel prices, more expensive airfare and the reduced wealth effect brought about by collapsing home values, job insecurities and the complete shut-down of the American housing ATM machine, has signifiantly hampered consumer discretionary spending, and the consequences have been felt doubly hard here in Las Vegas.
Taxable sales down considerably - 13 of last 15 months
Massive Construction Projects have shut down
Gaming Revenue has Cratered
Housing market worst in the Nation
Back in the days of cheap/easy credit and rising home values, the Las Vegas experience was considered "a must" for many and high occupancy rates allowed a thriving hotel industry to command very high prices for providing this "experience". Consumers, living for the here and now, didn't flinch and were more than happy to part with their cash - all in the name of having a good time.
With a contracting economy however things have changed... Millions of homes across the nation have now lost value, consumer credit has dried up, interest rates have risen, gas & travel have become more expensive, and the American consumer, who no longer has the discretionary money to gamble away in Vegas, is finally starting to peter out.
Las Vegas hotel/casinos, with battered stocks and falling revenues, are now desperately seeking ways to keep their rooms filled...
LV Review Journal: Take our rooms, please
LV hotels, eager to keep rooms filled in down economy, offer reduced-rate stays.
Desperate times call for desperate measures. And when it comes to Las Vegas casino owners, desperation is spelled D-I-S-C-O-U-N-T.
Room rates in Sin City are down by double-digit percentages for the upcoming holiday weekend. It's a sign the rocky economy and high gasoline prices are forcing Las Vegas resorts to work harder to keep hotel rooms full and casino floors bustling.
At best, room rates are holding steady compared with last year during Labor Day weekend. But in many cases hoteliers are cutting rates as much as 50 percent.
"A lot of people still want to go to Las Vegas, but they don't want to pay as much as they did before," said Chris McGinnis, editor of Expedia Travel Trendwatch, an offshoot of the online vacation-booking Web site Expedia.com.
McGinnis said Las Vegas was the top summer destination on the site, but the average room rate was down 12 percent.
The Expedia numbers jibe with local indicators that suggest reduced room rates may help keep tourist volume close to what it was last year at this time, even if the visitors aren't spending as much.
In a recent interview, Robert Ashcroft, vice president of planning for Las Vegas-based Allegiant Air, said hotels are basically absorbing customers' higher travel costs through discounts on room rates.
"In other words, the cost of higher fuel prices will, in the end, probably come out of the pockets of the Vegas casinos," Ashcroft said.
Michael Zaletel, chief executive officer of the hotel-booking Web site i4Vegas.com, said the 12 percent decline in room rates reported by Expedia may be misleading because discounting is much deeper at the individual property level.
That's because lots of people are spending the same amount of money for a room as before, but they are moving up to nicer hotels. Also, he suspects hotels may be giving gamblers big discounts and charging the difference to the casino or marketing departments, which would have the effect of keeping room rates high even if the customer isn't paying.
"We know that room rates are down significantly at properties that are saying they are not down," Zaletel said.
The discounts are dramatic at some of the most recognized hotels on the Strip.
At The Venetian, rooms that fetched $273 during Labor Day weekend 2007 are available for $228, a 17 percent discount. Rooms at the Riviera were $82 on the site last year and are available for $50 this weekend, a 39 percent decline.
"Last year at this time if you were looking for the weekend there wasn't much available and what was available was really expensive," he said. "It is creating a buyers' market."
Closing Thoughts:
This may work to keep occupancy rates up for some time but, over the longer haul - as the US economic condition deteriorates, this situation is likely to get much worse.
I still believe we're going to see significant casino layoffs before the end of this year.
Again, for those of you who don't regularly follow this blog: Since 1970, there has only been ONE OTHER time (since this recent economic downturn) where gambling revenues actually fell -- in the aftermath of the Sept. 11 terror attacks. During that timeframe (2001-2002) gaming revenue fell 1 percent.
Current gaming revenue declines are far worse than those, while casino debt levels are much higher - yet (to date) we've failed to see any significant layoff activity. Guess only time will tell...
For more information on the LV economic downturn, scroll down the right side of my blog page and look for the "Las Vegas Downturn" header.
Regards
Randy
7 comments:
Randy,
There is an interesting phenomenon during recessions where local destinations either hold steady or see a little increase. I know it's not happening yet, but I was curious about your take on whether or not Las Vegas might have a shot at being somewhat recession-proof.
I used to own a small beach front hotel in Cape Cod. And during financially challenging times, we would actually expect more visitors. Because the people in Boston would simply opt for the Cape instead of Europe, the Bahamas or Disney World.
Las Vegas gets a lot of visitors from California and Arizona. Even with high gas prices, that is a cheaper vacation than a cruise or Hawaii. In fact, it is still cheaper to drive here from LA than to fly.
As for gambling, it has been shown that on average, the poor gamble more than the wealthy. And this group of people may grow in the coming years.
Also, when times are tough, people move to areas with more opportunities than their home towns. This has influenced the growing population of Las Vegas in the past and there is reason to believe it would do so in a tough recession or even a depression. So I would expect to see the influx of people to continue regardless of the overall economy.
I know the news about Las Vegas lately has not shown any of this, but I think there is a bit of sensationalism in the reporting on Las Vegas. For one thing, they ARE still working on some of the big projects. And they are still completing the half-built homes around the valley, unlike other places. So I do see some positive signs.
Any thoughts?
FOFOA
fofoa,
Is Las Vegas Recession proof?
Not a chance! Please see the embedded chart in the following post:
Las Vegas Economic Recession is here
New Residents down 16%
Home Sales down 44%
Gaming Revenue down 16%
Airport Passengers down ~5%
As for the big construction projects:
$4.8B Echelon Place Construction Project closed/delayed
Deutsche Bank to Foreclose on $3.5 billion Cosmopolitan Resort & Casino
As for Gaming:
Economic Troubles Affect the Vegas Strip
Las Vegas: Gaming Revenue down > 16%
I have no doubt that I'm a bit more pessimistic than you, but the long Vegas economic boom was spawned by cheap credit and the American wealth-effect, both of which have dried up -- and won't return for decades (if ever)
Bottom Line: This will not be your typical recession.
Randy
Randy,
I guess resilient is more of what I meant than recession proof. I don't disagree that Las Vegas has already been hit hard and has a lot more coming. And I don't think you are more pessimistic than me on what is coming at us in the overall economy. I see really bad things coming. A major sea change. But based on the reasons why Las Vegas is even here in the first place, I think it will bounce back better than most cities.
I can see the housing projects already underway like Mountain's Edge and Inspirada taking another decade or more to complete. I can see the big projects on the strip taking an extra few years to complete (the ones already started). The ones planned may never be started or may take a decade or more. But I don't see the population growth turning negative. And I don't see the big hotel casinos closing down. Sure they may have to live with lower profits, but that's like a billionaire having to learn to live like a millionaire.
House prices have a long way to fall still. But I think that we may see less pain on that front than Florida and California in the final analysis. So I don't disagree that the pain is here and more is coming. I just think that the fundamentals that allow Las Vegas to exist in the first place will continue to work in it's favor. Does that make sense?
FOFOA
fofoa,
Certainly does. Thanks for elaborating.
Randy
fofoa:
Your line of reasoning makes perfect sense to me. I live in San Francisco, and since the 70s’, I have been to Las Vegas every three or four years. But I have not been for the last 10 years because the cost for rooms, entertainment and food has gone way up.
Las Vegas was a draw because of its culture of friendliness and “laid back” attitude. No matter how low the price, casinos seem to make a profit. But once casinos made every revenue generating activity that they managed into a profit center, this culture disappeared.
During good times high prices makes no difference but during lean times frugality is the watch word.
Reduced room rates aren't an indicator that Las Vegas is in a slump. Low room rates were the norm here for decades. Only in the past few years have rates gone high and stayed high because Las Vegas was red hot.
Everyone talks like the past few years were the norm. Not true... 1940-2000 were the norm. Las Vegas got hot and everyone went crazy wanting a piece of it. We aren't seeing a Las Vegas recession (in terms of tourism). Simply a return to normal for an elevated state.
Now... don't get me wrong. The city (county... general area) is in a recession. But this is related to the slowdown in construction. The Las Vegas area economy hasn't been solely gaming based for some time. It has been built on a house-of-cards called GROWTH.
In fact, it is probably better that the brakes get put on now, instead of arbitrarily and abruptly when we run out of land and (more importantly) water.
Let's face it: A good 1/3 of the people living here in the Las Vegas area shouldn't be here. People used to move here because they loved the "live and let live" attitude and thought the notion of working in tourism/gaming sounded fun.
As people got priced out of California (or wanted to flee rust belt states), they flocked here for a fresh start. Not understanding that things are different here. We don't have factory jobs (unless you call gaming the factory). Homes here may not cost what they do in California, but we don't have California wages either. The biggest shock to many? We don't have the social services, bike lanes, culture or other things people escaping other areas come to expect.
Funny... we didn't have state budget issues when tourism drove the economy. Those of us who moved here many years ago (1993 for me) or who are natives didn't expect big government programs nor did we want to pay for them. (Hell... we don't care if UNLV is a world class university or not).
This downturn is the best thing that can happen. The word is getting out that Las Vegas isn't a pot of gold at the end of the rainbow. And just in time... if the brakes were slammed on during a boom time because we ran out of water for new residents (technically, that happened a few year ago and we are using smoke and mirrors), think of the fallout under that scenario.
Ted Newkirk
Managing Editor
Access Vegas
Thanks Ted. Good points! I just hope we don't lose our libertarian edge as we pass through this crisis.
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