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As Las Vegas launches comeback, an old debate resumes: Can room rates go too low?

Updated June 5, 2020 - 9:33 pm

Las Vegas is returning to its value destination roots during the coronavirus pandemic, with hotels offering free parking, waived resort fees and discounted room rates to bring tourists back to Nevada.

Despite excitement and pent-up demand for Las Vegas’ reopening weekend, room rates have been set far lower than for other major events in the city.

A Review-Journal hotel search conducted on March 11, before casino shutdowns, found that room rates at Caesars Palace on Thursday, April 23 — the first day of what was supposed to be a Las Vegas-hosted NFL draft — were $449 per night. A stay starting reopening day, in comparison, started at $140.

“Right now, I think every one of these properties has got to be thinking about keeping their room rates as low as they can,” said Alan Feldman, distinguished fellow at the UNLV International Gaming Institute. “It’ll be done in hopes of getting, frankly, as many people [in the doors] as possible.”

This isn’t the first time Las Vegas hotel-casinos have used steep discounts and promotions to help fill rooms during an economic downturn. And it has restarted debate on whether doing so is good or bad for the Las Vegas brand.

While room discounts could give some visitors a nudge to venture outside after months of warnings to stay home, other experts say these deals might backfire.

“A race to the bottom situation will be the worst situation for any market, unfortunately,” said Thibault Catala, founder and managing director of hospitality revenue management solutions company Catala Consulting.

He said he doesn’t expect lowered prices to increase overall demand during the pandemic.

Discounting risks

Some hotel-casino operators, like MGM Resorts International and The Cosmopolitan of Las Vegas, will offer free parking when they reopen Thursday. Sahara Las Vegas is temporarily waiving its resort fee. Wynn Resorts offered rewards members daily credit if they booked a stay by Oct. 30, with an additional 10 percent off for stays in June and July.

The list goes on.

Las Vegas casinos are far from the only travel destinations offering deals at this time; Catala said hotels across the hospitality industry could be fighting to be the cheapest option to attract customers.

But cheaper rates doesn’t necessarily equate to an increase in demand, he said.

Catala said there are two types of people interested in traveling during the pandemic: those looking to get out of their homes and start exploring again and those who travel but still have a lot of anxiety. Neither group are motivated by discounts, he said.

“Dropping the rates will not increase the demand for the hotels,” he said. “Cutting rate to stimulate demand has shown us historically that it will just become a race to the bottom.”

Lessons from the last recession

A flurry of Las Vegas deals has been seen before, when the Great Recession spurred widespread competitive discounts inside Las Vegas’ hotels and casinos.

Certain properties, especially downtown resorts, were forced to drop rates because Strip properties were dropping rates, said Amanda Belarmino, assistant professor at UNLV’s college of hospitality.

“(We asked ourselves), how low can we go and still make a profit?” said Balarmino, who worked at the Plaza as the Director of Reservations and Revenue Management from 2008 to 2009.

She said “a lot of operators” learned from mistakes made during that time. One lesson: Dropping rates too low drags everybody down.

“If it’s too inexpensive, it won’t bring people back,” she said. “It’ll change the perception of the brand. People will think something is wrong with it. … One of the best things (properties) can do is maintain rate integrity.”

Some also believe reducing prices during the Great Recession attracted the wrong sort of customer, including guests who packed their own food and beverages instead of spending money at restaurants or bars.

But Feldman doesn’t think casinos today should worry about attracting the wrong sort of customer in 2020.

“At this moment in time, any customer is the right kind of customer,” he said. “You’re looking to make any revenue you can make.”

He said the approach of dropping room prices during the Great Recession was largely successful. Room occupancy rates in Las Vegas managed to stay above 80 percent during the crisis, according to data from the Las Vegas Convention and Visitors Authority.

Belarmino added that certain discounts — such as free parking — make sense at a time when Las Vegas casinos are heavily dependent on local and drive-in customers.

Room rate recovery

While some casino operators already are testing the waters with reduced rates, others have said they plan to keep rates steady.

During an April 28 earnings call, Boyd Gaming Corp. President and CEO Keith Smith said he expects to see enough demand upon reopening to continue the company’s laid-back promotional strategy.

“We, as a company, don’t plan on going out there and instituting a marketing war simply to get people in the building,” he said. “People are looking for an escape, and once again I think when we reopen we will be part of that escape.”

Rick Arpin, managing partner of audit, tax and advisory services firm KPMG and a former MGM Resorts International executive, said there is “always some risk” when adjusting rates, but he doesn’t see a threat in the near-term because Las Vegas resorts’ capacity will be restrained, with only a select number of properties reopening at first.

Arpin said operators are initially reopening properties they can expect to fill and won’t have to “worry about filling at the expense of another.” If it plays out right, it’ll be less likely that certain properties get compressed, or feel the pressure to drop their rates to stay competitive, he said.

Belarmino also believes a “race to the bottom” scenario in Las Vegas is unlikely.

“What we’ll see more of is what we’re seeing now — being cautious, opening in portions,” she said.

Feldman believes Las Vegas resorts might have to wait until 2022 before they can charge room rates as high as those from January and February, before the pandemic hit Las Vegas.

“Maybe we’ll get lucky and we’ll get back a little sooner, toward the end of 2021, but that is incredibly optimistic,” he said. “To get those rates up is to have every element of those integrated resorts operating at full capacity. … I don’t see that happening for a long time.”

Contact Bailey Schulz at bschulz@reviewjournal.com or 702-383-0233. Follow @bailey_schulz on Twitter.

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