Hotel occupancy, rates may stabilize Las Vegas economy in 2011
-- By AJ Mazzolini, The University of Montana
After being rocked by the recent economic downturn, the Las Vegas hotel and lodging industry may have turned the corner toward recovery.
Fourth quarter 2010 numbers indicated that hotel occupancy and hotel room rates -- which have been steadily declining since 2007 -- are seeing some small improvement. Or at least the decline is beginning to level off. An improvement in the tourist economy would be the first sign of light for this quintessential Boom Town county that has been reeling from high unemployment and staggering foreclosure rates.
The dim light of dawn?
City-wide lodging occupancy percentages increased in two of the last five months of 2010 over the 2009 figures, the first signs of rebound since the economic recession hit Las Vegas and Clark County in 2008. The slight bump wasn’t enough to bring the year-to-date numbers above where they were in 2009 -- down to 80.4 percent from 81.5 -- but it’s a start said Stephen Miller, chair of the economics department at UNLV.
A nearly $6 billion business in 2007, hotel bookings brought in 30 percent less revenue in 2010. Overall room rates have dipped a full 10 percent in Las Vegas since a peak at 90.4 percent in 2007 according to the Las Vegas Convention and Visitors Authority. The slide saw near-equal drops in occupancy in 2008 and 2009 before 2010 brought slightly less bleak numbers.
The drop in visitors comes while the number of total rooms in the city keeps increasing, up more than 12 percent in the last three years. Thousands of rooms became available with expansions to the Sands and Wynn hotels as well as the completion of construction of the Cosmopolitan of Las Vegas hotel that opened in December 2010 adding 2,995 rooms to an already flooded market. With new rooms continuing to appear and fewer tourists to fill them, hotels and motels slashed room rates in establishments ranging from Strip-located mega-hotels to smaller motels.
The result was a price war where hotels kept cutting prices in an effort to woo the fewer visitors until the average room price dropped from $132 per night in 2007 to just under $95 last year. But that is a short-term fix to a very serious economic problem, said Kathryn LaTour, an associate professor of hospitality and marketing at the University of Las Vegas’ William F. Harrah College of Hotel Administration.
The low prices can help the establishments cover their costs in the short run, said LaTour, but can't sustain businesses for long.
“They don’t seem to have a very long-term strategy,” LaTour said of the Las Vegas hotels. “But it’s at an important turning point. We just can't keep giving (rooms) away and hoping for people to continue valuing their experience here.”
Fewer, but better
By filling fewer rooms at a lower price, the Las Vegas hotel industry is obviously bringing in less revenue, she said. That leads to fewer hours for staff members and fewer quality services for visitors. And that is a two-prong problem for the hotels moving forward. There is less money going home with Las Vegas natives to survive on and likely a less enjoyable vacation for tourists.
“We’ve got to get out of the mind that it’s all about occupancy,” LaTour said. “We want these people to have a good experience but to do that they're going to have to pay. (Hotels) have created this monster with all these extra hotel rooms and they're going to have to learn to deal with being in this space with all this inventory.”
To reach 2010’s average room price, the rate did increase about $2 from the year before, a start to the trend LaTour hopes to see, see said.
Most experts look at the hotel numbers from 2010 — especially its later half — and believe they point to a more stable 2011. Although nothing points to a return to the boom days of the 1990s and early 2000s, more improvement is expected in the hotel and tourism industry. And that’s important because of how closely the industry is linked with the city and county’s overall economy, said Gina Zozaya, a research analyst with the LVCA.
“One of the things we track and look at is consumer habits and how they're spending money,” Zozaya said. “People are starting to take some longer trips and spend more money. They’re more relaxed now than they were even a year ago.”
Spirits are high for a town and county that have seen unemployment rates and bankruptcies triple since early 2008 and 2007 respectively. Still, things aren’t back to normal, Miller said.
He played down the positive outlooks coming from both the LVCA and HVS Consulting and Valuation slightly and took a more realistic stance on Clark County’s economic future, saying he expects only “modest improvement.”
Still, for this Boom Town county, any improvement could help stabilize an economy that has struggled through nearly three years of free-fall.
This report was produced as part of a course taught by Lee Banville, contributor to the Patchwork Nation project, at The University of Montana this spring. As part of the class, The Media and American Politics, students reported on 15 different counties in Iowa, New Hampshire, South Carolina and Nevada -- the states that will vote first in the presidential nomination fight in 2012.