Trends

Room Rate War On The Vegas Strip

Cheap vacation alternatives force resorts to cut prices

Las Vegas Review A new pox afflicts the gaming industry: a room-rate price war.

"At the midtier and low-end levels, we believe hotels, particularly in Las Vegas, are in a price war," Bear, Stearns & Co. analyst Jason Ader said.

Hotel operators here are lowering room rates to attract additional visitors to local casinos and to counter competition from other areas, he said.

Lower-cost vacation alternatives, especially cruise vacations and destination packages, are becoming increasingly attractive for leisure travelers and are driving price discounting in Las Vegas, Ader said.

Competition is particularly stiff from the Caribbean where airlines have cut fares by 20 percent and more, and hotels are discounting room rates by as much as 35 percent though mostly not at the top luxury resorts.

The Caribbean was even harder hit than Las Vegas by the Sept. 11 terrorist attacks and the depression in the leisure travel industry.

The World Tourism and Travel Council has estimated more than 364,000 jobs have been lost in Caribbean vacation destinations since the Sept. 11, 2001, attacks.

The absence of new gaming destination resorts in Las Vegas, coupled with the need to book added hotel rooms coming on line, is exacerbating the problem, Bear, Stearns & Co. analyst Michael Tew said.

More than 3,000 rooms are being added to the Strip inventory in the next two years with new towers at The Venetian (1,013 suites opening in mid-2003), Mandalay Bay (1,125 suites opening in late-2003) and Bellagio (925 rooms opening in 2004).

Operators have added rooms they are trying to fill, but without added attractions, price is their only way of competing.

High-end operators are placing a premium on attracting added visitors who have to come greater distances and who aren't willing to spend as much money as traditional luxury destination visitors.

For example, data collected by Bear, Stearns for the Chinese New Year's weekend showed average weekday rates down on the Strip by more than 10 percent to $135 a night and weekend rates down more than 20 percent to $195 per night, compared with last year.

Compared with 2001, weekday rates were down almost 15 percent and weekend rates were down more than 30 percent.

Similarly, the average midweek room rate on the Strip for the week beginning Feb. 17 and ending Feb. 23 was cut to $138, down 3 percent compared with the year before, according to the latest data from Wall Street-based Fulcrum Global Partners, an independent Wall Street investment research firm.

However, the average weekend room rate increased to $191, up 13 percent for the same period compared with the year before.

Nevertheless, the improvement came on weak comparisons because of the downturn following Sept. 11, 2001, and analysts and operators said rates had been cut below expectations.

"Demand on the Las Vegas Strip appears to continue to be somewhat weak with visibility still very cloudy. We had expected results of this survey to be stronger given a significantly busier convention schedule versus the comparable period, as well as easy comparisons," Fulcrum gaming analyst Joe Greff said.

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