Hotel Growth Outpaces Rise in Visitors to Las Vegas

Hotel and casino construction is still on a roll in Las Vegas, with the nation’s gambling capital adding about 10,000 rooms since last year. But the expansion has yet to pay off for many gambling operators.

The intense competition for visitors explains in part why Beverly Hill-based Hilton Hotels Corp. has warned that its fourth-quarter earnings will fall below expectations. That announcement has sent Hilton’s stock down about 9% over the last two days. On Tuesday, it fell 81 cents to close at $28.44 on the New York Stock Exchange.

Next year is not looking any better. The chief financial officer of Las Vegas-based Mirage Resorts Inc. said earlier this week that the turmoil in Asian financial markets could reduce the lucrative flow of foreign high rollers to Nevada. That would be bad news for Mirage, which depends on games like baccarat--a favorite of many wealthy Asian gamblers--to generate about 10% of its revenue.

Next year “is going to be a bit of a struggle for the market,” said gaming industry analyst John Rohs at Schroder & Co. “Absent any major drawing card . . . I don’t expect anything wonderful will happen” to boost the number of visitors.

That number has continued to grow, but the increase has been dwarfed by the number of new hotel rooms. During the first nine months of 1997, for example, the inventory of Las Vegas hotel rooms grew nearly 10% over the same period last year, to about 104,000 rooms. But the number of visitors grew only 3.2%, according to the Las Vegas Convention & Visitors Authority.

As a result, occupancy figures have dropped, forcing competitors to cut rates to fill rooms. The occupancy rate during the first nine months of this year dropped to 87.7% from 91.6% in the same period in 1996, according to the visitors authority. Room rate figures were not available.

The opening of huge new resorts--such as the 2,000-room New York New York--have proved big hits, but at the expense of existing Las Vegas properties.

“It’s no secret that 1997 was a very challenging year in Las Vegas because of the new capacity,” said Hilton spokesman Marc Grossman. The company’s three Las Vegas properties will do better than they did during last year’s fourth quarter but will still fall below Hilton’s projections, he said.

Casino operators are also struggling with intense competition in Atlantic City, the nation’s second-largest gambling market. The high level of competition--as well as concerns about a drop-off in Asian gamblers--were some of the reasons why Moody’s Investment Service recently lowered the mortgage debt rating of Trump Atlantic City Associates, which owns the Trump Taj Mahal.

Despite the growing pains, gaming companies have not shown any sign of scaling down their Vegas building plans. Steve Wynn’s Mirage resorts will open a $1.6-billion casino-hotel, the Bellagio, next year, and Hilton plans a mid-1999 opening for its 3,000-room super resort called Paris.