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It’s no secret that travel is down. Nearly every market in the world is struggling right alongside the rest.
But one market’s hardships have captured the attention of the industry as a whole—Las Vegas.
Performance numbers hover around what was seen about three to four years prior. And, relatively speaking, that’s not so bad. Occupancy in 2008 closed at an average of 86 percent and total visitor volume was at 37.5 million, something almost unheard of in other destinations.
But the drop has been felt nevertheless.
“I think when people see Vegas taking such a big hit, they say ‘wow.’ They see that it’s very serious. But for the most part, Vegas is, we say a lot of times, recession-resistant. But it’s not so much that. We’re resilient, but we don’t resist the recession,” said Jeff Voyles, a veteran of MGM Mirage and current faculty in residence at the UNLV William F. Harrah College of Hotel Administration.
So, with a massive workforce, huge expenses and even bigger debt, Vegas needs every visitor it used to have.
“It takes 40 million people a year to keep this going,” Voyles said.
Travel Shift
Mark Woodworth, president of PKF Hospitality Research, said his firm has never tracked Las Vegas because it hasn’t been able to figure out the city econometrically in order to forecast performance.
Instead, he said, Vegas tends to have its own natural occupancy.
But now both domestic and international visitors, once seen by the tens of millions, have started to disappear thanks to the economic contraction spreading throughout the world, he said. The loss of that position as a global destination is mainly what Woodworth said is contributing to “the extreme downturn Las Vegas is feeling today.”
Overall in 2008, The Strip lost 4.4 percent of its visitor volume from 2007, with occupancy down 4.4 percent and average daily rate down 9.8 percent. Room inventory, however, grew by 5.7 percent, according to the Las Vegas Convention and Visitors Authority.
Lalia Rach, the divisional dean of the NYU Preston Robert Tisch Center for Hospitality, Tourism and Sports Management, said the loss is one directly related to diminishing consumer confidence. And even Las Vegas, which was once seen as an affordable getaway—and one visitors took regardless of the economy—has managed to take a backseat with everything else.
“We are seeing such uncertainty in terms of the economy that even individuals whose jobs are safe and mortgages are paid have hesitancy in spending money. Vegas epitomizes leisure travel shifting from want to need,” Rach said.
And that shift has rocked Sin City, where Voyles said the former revenue split of 70 percent gaming and 30 percent retail has flipped to the exact opposite.
“That’s really why Vegas took such a big hit during this recession,” he said. In previous downturns, one thing remained constant: People still gambled. But, today, the gambling that continues isn’t enough to make up for the massive decline in money spent at high-end stores, shows and restaurants.
The Rebound
Voyles said to expect a surge from Vegas in coming months—a reinvention that will show potential visitors that all of the things Vegas has to offer can come at an affordable price.
Something seen time and time again—from Vegas adapting itself from a family destination to a budget locale, from being associated with the mob to being a legitimate industry—Voyles said, is Vegas’ ability to reinvent itself.
“The reason we can say that confidently is we’ve done it many times. It’s OK, we’re used to that,” he said.
Voyles said the new campaign coming out of the city will be one of “affordable luxury.” The idea is to get people back to The Strip and spending money without hotels and resorts necessarily going as far as offering $2 buffets again.
Chuck Bowling, EVP of Mandalay Bay Resort & Casino, is a board member on the LVCVA and sits on the executive council of the U.S. Travel Association. He said the big message Vegas wants to convey is motivating people to stop thinking of “vacation” as a bad word.
“This is clearly an unprecedented time for our industry, for our community and for the traveling public. … We just need to get people to take a break from their normal day,” he said. And, for now, Bowling said he is thankful for whatever budget visitors may bring with them to spend.
Being Careful
The key to success in Sin City is getting people there. Once inside the hotels, the world of excess that surrounds them is likely to draw at least some dollars out of their pockets.
While dropping rates will attract people to take advantage of deals, Rach warned that slashing prices, especially in Las Vegas, must be done very carefully. She used the example of a sale at Saks Fifth Avenue, where prices on luxury items were cut by 70 percent in Q4 2008.
And whether it’s a Gucci handbag or a night at a Vegas resort, undercutting the price of goods that come with a certain status may hurt more in the long run.
“They have told their customers clearly, ‘Why pay full price?’ That will be an issue, no doubt. It’s undermining the very essence of luxury,” she said.
Voyles also voiced concern over how the city’s luxury landscape is treated.
For example, he said, if a guest at Encore at Wynn Las Vegas is paying a discounted rate of $109 a night and the person in the room next to him is a heavy gambler being comped for a $400 rate, the gambler, and more prized customer, is losing out and staying next to someone who would never be there without the price cut.
And attracting that new customer—filling a room and bringing in some revenue—could alter the landscape of what it means to stay at a luxury property, not to mention that the guest may cut across the street to eat at McDonald’s rather than spending money in the resort itself, Voyles said.
So, understanding consumer behavior and offering guests what they want all while attracting the right demographic will be imperative.
Otherwise, Voyles said companies simply need to tread water until the economy shifts back toward the better, but those who weren’t prepared for the downturn—those who overcharged, took advantage of a stronger economy and now have too many employees and labor charges—may not stay afloat.
“When the tide goes out, you can see who is wearing swim trunks and who wasn’t. … A lot of people weren’t wearing swim trunks,” he said.
Jennifer Kovacs is a writer for Hotel Motel Management, a sister publication of Travel Agent.