Saturday, August 30, 2008
Las Vegas: Take our rooms please!
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."
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.