Las Vegas Bets Heavily on Better Economic Times

Downturn, schmownturn. Vegas is back, baby.

The nagging travel slump that has most of the nation’s tourism industry facing a recovery crapshoot has positioned Las Vegas as a high-stakes winner -- with packed hotels, rebounding room rates and profits for the city’s leading casino giants.

Vegas has emerged as a strong bet in an uncertain economic climate largely because more leisure travelers and convention goers are driving to Sin City rather than flying to places such as San Francisco and New York since the Sept. 11 attacks.

Gaming and tourism statistics show that Vegas has almost fully recovered from the travel slowdown that paralyzed the country immediately after the terrorist attacks, and analysts note that the industry’s high-rolling companies are spending with bullish confidence, seemingly oblivious to the worst bear market in decades.

“Everywhere you look in Vegas says there’s huge bets being placed on the future,” said Keith Schwer, director of the Center for Economics and Business Research at the University of Nevada. “There’s growth, crowds, construction ... and the latest earnings suggest not everyone is giving away rooms at significant price reductions anymore. There are considerable profits being made.”

Indeed, much of the gains reported by casino companies last week were attributed to higher hotel revenue; the Las Vegas Convention and Visitors Authority said weekend rates have returned to pre-Sept. 11 levels and the city is running at a consistent 93% hotel occupancy rate. Overall, average daily room rates were about $76 through August -- down about 5% from a year ago.

As a result, Park Place Entertainment Corp., the largest casino company and operator of Caesars Palace, Paris Las Vegas and other Vegas marquee names, said net income for the third quarter was $40 million, or 13 cents a share, compared with a loss of $101 million, or 34 cents, a year earlier.

MGM Mirage, the No. 2 casino company, reported a $69.6-million third-quarter profit after a $14.4-million loss a year earlier. And Harrah’s Entertainment Inc., the No. 3 company, said its profit rose 63%. All three companies also raked in more revenue during the quarter.

“Gaming revenues like this indicate rising consumer confidence and an improvement in discretionary spending,” said David Givens, an associate economist with Economy.com. “It’s believed to be an early indicator of economic growth.”

Givens pointed to the construction boom underway in Las Vegas, including a new tower at MGM Mirage’s Bellagio hotel that will add 925 rooms to the resort and increase its capacity by nearly 25%, as well as a $225-million expansion of the Mandalay Resort Group’s Mandalay Bay hotel and casino that will add 1,125 rooms.

And Steve Wynn, the casino mogul who led the city’s transformation of the last two decades with the creation of theme-oriented resorts such as the Mirage, Treasure Island and Bellagio, is preparing for a comeback after selling his Mirage Resorts Corp. to MGM Grand Inc. two years ago. Last week, he took his company, Wynn Resorts Ltd., public and raised at least $400 million to finance plans to build a $2.4-billion, 2,700-room casino and resort called Le Reve on the Strip. Groundbreaking is scheduled for this month, with opening set for April 2005.

“When you come here you do not think ‘slowdown,’ ” said Erika Brandvik, a spokeswoman for the Las Vegas Convention and Visitors Authority. “When you see everything that’s going on here you do not think ‘downturn.’ ”

Still, shares of the top Vegas casino operators fell after earnings were reported last week. Analysts speculated that was because forecasts were either lower than expected or the companies didn’t provide enough guidance for the future.

Jason Ader, a gambling analyst with Bear Stearns Cos., said he anticipates another two or even three “tough quarters” for the high-end gaming industry as consumers resume their search for travel deals in what continues to be an unsettled economy.

“Competition for the tourist dollar is going to remain high,” Ader said. “Vegas is recovering better than most destinations, but they can’t claim they’re completely out of the woods yet.”

City tourism officials say a full recovery isn’t far away, due in large part to an increase in convention business that has already exceeded 2000 levels for the year. Nearly 4 million convention goers had traveled to Las Vegas through August, bringing in about $4.4 million for the city during their stays. That compares with 3.8 million for all of 2000, when convention spending totaled $4.2 million.

And while the number of visitors arriving by air was down 6.2% through August, drive-in traffic increased 11% for the same period -- a jump that is attributed mostly to Californians, who account for a third of the city’s annual visitors of 35 million.

“We still have some work to do, but we are sitting a lot prettier than most places and we got here a lot faster than we expected to,” said Brandvik, noting that overall visitor spending was up 2% through August.

Also helping Las Vegas, according to travel experts, is the wide offering of special events -- from concerts to sports -- and the fact that the city is not typically regarded as a family destination.

Michael Reichartz, vice president of sales at Travelscape.com, a local subsidiary of Expedia Inc., said Las Vegas remains the Web site’s No. 1 destination for online bookings. Even as room rates continue to creep back up, demand hasn’t slowed, he said. Bookings for the holidays are already up over last year, when visitor numbers pushed hotel occupancy levels to 97% throughout the city.

“Vegas has a lot going for it right now,” Reichartz said. “First, it’s a destination that attracts more risk-takers to begin with. It’s also not a total family vacation spot like Orlando, which relies heavily on people traveling with their children. And finally, it’s still a great deal.”

Brandvik notes that Las Vegas has a history of performing better than the economy as a whole when times are tough.

“I guess it pays to offer people an escape from reality at a time when they probably need it the most,” she said.