Friday, November 13, 2009

LAS VEGAS | The nation’s struggling economy may have shattered the myth that the Las Vegas gambling industry is recession-proof, but the hotels and casinos are seeing signs that the city will be among the first to get healthy again.

Although hotels have been forced to reduce room rates to lure customers and visitor volume is down, a steady increase in room occupancy this year coupled with a rebound in high-end gambling is giving hope, if not celebration, that Vegas is on track for recovery.

“We’re seeing clear signs of stability and recovery, but to be certain, we’re not out of the woods, and no one is popping champagne,” said Alan Feldman, a spokesman for MGM Mirage.

The word in Vegas has been “adapt” as hotel and casino managers strive to crawl out from under the worst recession since the Great Depression. The Mirage has cut 9,000 jobs over the past two years, Harrah’s 10,000. Hotels and casinos have also been forced to re-evaluate costs, like reducing a six-month inventory of expensive wine to a 30-day supply.

The Las Vegas Convention and Visitors Authority, which tracks city statistics, reported that room rates continue to decrease - averaging $92.50 per night last year, down from $132.09 in 2007. Visitor volume fell 6 percent over the same period.

But at the Mirage, a turnaround in room occupancy has begun. In January, the hotel was down to 70 percent of room occupancy. That number has since climbed to 95 percent.

Casinos in Atlantic City and Mississippi are also feeling the effects of the economy. Atlantic City casinos, which were once a vibrant destination for East Coast gamblers, took in $335.4 million as of September, which is down nearly 6 percent from last year.

In August, there was a 16 percent drop in revenue for the Atlantic City casinos. Competition from Pennsylvania, New York and Connecticut casinos contributed to the decline, said George Joseph, owner of Las Vegas-based Worldwide Casino Consulting. The Mississippi State Tax Commission reported that casinos took in $186.6 million in September 2009 - down from $192.2 million during that time last year.

To reverse the trend, casinos are employing all sorts of strategies. At Harrah’s Entertainment Inc., the world’s largest casino company, Senior Vice President Jan Jones said the company is focusing on markets that went untapped when business boomed prior to the recession.

“Before we didn’t look, we did conventions and big businesses, but we didn’t look at small groups,” Ms. Jones said. “It’s not like it’s a new customer, it’s a customer we weren’t paying attention to before because we didn’t have to. They exist; we’re just using all of our resources in finding different ways to introduce them to our product and encourage them to come experience that.”

Baccarat, the high-end card game often featured in James Bond novels and movies, is helping casinos to rebound. Ms. Jones said play is up at Harrah’s, and Mr. Feldman said the MGM Mirage had its biggest quarter ever at the baccarat tables.

The strength of Asian and European currency, along with an increase in the number of direct flights to both continents, has attracted more international customers, Ms. Jones added. But over the past year, Harrah’s experienced a 30 percent decrease on average in convention attendance, room rates and gambling.

“People were coming but spending less - bringing coolers instead of using room service,” Ms. Jones said. “People were very thoughtful about their budgets. People adapt, and that’s what we had to do - adapt smart.”

Adapting included testing different markets through social media.

“Younger markets are tech driven,” Ms. Jones said. “Texting, e-mail and Facebook and Google, we’re testing it all.”

Mr. Joseph, of Worldwide Casino Consulting, said hand-held gambling devices and online media are part of the future for casinos as they shift from “rickety old mechanical machines.”

“If the technology is at a certain level in the country you have to cater to that,” Mr. Joseph said. “Here’s a cell phone, but it looks like a wooden shoe. How many kids would buy that today? You can’t text and you can’t get on the Internet, but you can make a call. Well, it’s functional, but how many kids are going to be comfortable and want to go near it?”

But some casino companies say they disagree.

Harrah’s has tested hand-held gambling devices but has yet to see them as big revenue producers, Ms. Jones said.

Mr. Feldman of MGM Mirage said the casino is not testing the devices, instead using a “wait-and-see attitude” about the media.

“We haven’t had anyone clamor about the notion of eating in the cafe and playing blackjack,” he said. “I’m not suggesting there isn’t some value in that, but compared to the investment in technology, I think we’d find that more of a distraction.”

In many ways, the economy in Las Vegas parallels the national and global economic meltdown of the late 1970s and early ‘80s, said David G. Schwartz, director of the University of Nevada, Las Vegas’ Center for Gaming Research, which examines gambling and gaming issues.

“In Vegas, they had built a lot of stuff for high rollers at the high end,” he said. “There were a lot of rooms being built, and we were expanding the airport. That’s all stuff we’re doing right now.”

The opening of Atlantic City in 1978 attracted East Coast high rollers who wanted to stay closer to home. Combine that with two major fires in the 1980s involving the MGM Grand and the Las Vegas Hilton and that scared away business from Vegas, Mr. Schwartz added.

“There was lots of pessimism,” he said. “But two things happened to help the city. Things got better nationally and the economy picked up. The other is that many casinos changed their approach and focused more on tourists who spent less individually. It’s the equivalent from having a small inventory of high-margin goods and services to having a bigger inventory of less margin goods and services. You make it up on the volume.”

Consumers can expect to see an increase in food, beverage and entertainment prices to cope with casino losses, as those are the revenue-driving streams, Mr. Joseph said. But Ms. Jones said Las Vegas casino customers will not see any significant changes.

“We won’t go back to how it was before,” she said. “Everyone has learned from this economy that we can’t do things exactly the way we did before. Consumers won’t spend the same way either.”

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