A group of top executives in the travel and tourism field gathered at the Four Seasons Hotel recently to discuss challenges and issues affecting their industry in Nevada. This second annual roundtable is a part of Nevada Business Journal’s monthly Industry Outlook series.
The event was moderated by Bruce Bommarito, executive director of the Nevada Commission on Tourism. The group engaged in a spirited discussion of subjects such as marketing in a slow national economy, the impact of Indian gaming, international marketing strategies and the state’s new adventure travel campaign. Following is a condensed version of their comments.
Bill Hoffman: At Lake Tahoe right now, I would guess we are 3 percent to 4 percent off last year, which may be better than other destinations, but it is tough going out there. We thank our lucky stars that we’ve got this drive market in the San Francisco Bay area, because without it we would be hurting. We’ve focused all our marketing dollars for the last year and a half on that drive market. Of course, marketing is more of a crap shoot than we would like to believe. We really are not sure that we are going to see much of a turnaround until world politics get settled and the economy improves. We are hunkered down. We are ready to last this thing out and don’t necessarily think it is going to be a quick turnaround.
Brian Gordon: One company tracks over 250 market indicators on a monthly basis, from construction permits to gaming stock valuations, visitor volumes and the like. We are also interested to see how this whole scenario is going to play out in Iraq and where things are going to go here shortly. If we look back to Desert Storm in the early ’90s, there was a dropoff in economic activity in Southern Nevada anywhere from 4 percent to 7 percent, depending on who you ask, so I think international political events will play a big part in the economy here.
Bill Paulos: We own, operate and lease casinos and do consulting for people who would like to get into the gaming business. We operate and lease the Rampart Casino at the Resort at Summerlin and just opened the Cannery Casino in North Las Vegas. Business is up at the Rampart Casino 100 percent over the same time last year, but it was very hard to get there and cost a tremendous amount of marketing dollars. We believe the worst thing that is happening in the economy today is uncertainty. The local marketplace is definitely a sunshine economy – when everything is going right and there is good news, everybody goes out and has a good time. But now, I think “hunkered down” is a good term. You really see that if you talk to the people you do business with on a daily basis. For example, your dry cleaner will probably say that his business is down, because people are worried and they’re saying, “That’s an extra couple of bucks I don’t want to spend this month.” We think it is going to be an extended turnaround, but we do think that once some of the uncertainty is taken away, things will come back to normal.
George Rapson: I’m the general manager at the Casablanca Resort and Casino and also the president of the Mesquite Resort Association. Mesquite is different than Vegas in the sense that we have a lot of drive-in traffic. That has increased due to the uncertainty of air travel, so we have probably benefited at the expense of everyone else. We’ve actually seen some pretty good numbers in the last year. But, uncertainty is a huge issue for us as well. Several stores in Mesquite are really struggling right now due to the general economy. I think we need to get the war settled and get the economy back on its feet and we’ll all do better.
Manuel Cortez: While our research indicates that Las Vegas has fared better than other destinations in terms of recovery from Sept. 11 and the economic slump, we are still not out of the woods. Recent research shows that while we are slightly ahead of last year’s visitor volume, we are woefully down compared to 2000, which was the last banner year we’ve had. So, while occupancy levels are in the high 80s and low 90s [percentile], the spending habits of the people have changed to quite a large extent. The other challenge, of course, is the proliferation of the Indian gaming in our neighboring states of California and Arizona. We don’t feel visitors are going to stay away in droves because of Indian gaming, but the number of visitors is going to be adversely impacted. As an example, the average gambler who visited Las Vegas five years ago came maybe seven times a year. The number of annual visits today is now slightly less than five. With the opening of additional Indian casinos it could go down to three, so we are losing four visits a year. If you multiply that by 36 million visitors – you do the math. So our challenge is to find new markets and enhance our markets so we can continue just to maintain the status quo. Our drive-in market is up by 12 percent over last year and 16 percent over the year before, so I think we are in pretty good shape in that regard.
Patti Shock: I am pretty plugged into the meeting planners and what convention planners are thinking. I participate in an online list server that has about 2,500 meeting planners and about 1,500 suppliers on it. I posed a question earlier this week and said, “Why don’t you book in Vegas? What are your problems with Vegas?” There are some real problems with how they feel they are being treated by Las Vegas. I’ll give you one example – a corporate meeting planner said that there is absolutely no flexibility. If they want to bring 30 people in, the hotel gives them the same 60-page contract they give someone who is bringing in a big tradeshow. They don’t have time to sit and review a 60-page contract for a 30-person corporate meeting. Those kinds of barriers are keeping people from booking in Las Vegas. I got lots of comments like that.
Paul Dystra: GES Exposition Services is a service contractor to the tradeshow and convention business. Our headquarters and flagship operations are here in Las Vegas and we also have a good-sized operation up in Reno. Last year was actually a very good year for us, especially compared to 2001. However, I think pretty soon the uncertainty of war is going to be a certainty, and it is going to impact travel. Ultimately that affects whether or not exhibitors come, and exhibitors are the ones who pay our bills, for the most part. At the same time, a worsening economy will start to force those decisionmakers to say, “We are going to cut marketing and traveling expenses first.” We are a little concerned about that. Business is very stable at this point – it is starting to get back, but it is never going to get all the way back until we get some things behind us. We are staying close to our clients. We understand now that some of their boards are meeting to talk about what happens if there is a crisis in the Middle East. Some people canceled shows last time and others went on with them. I am hearing that people who did cancel feel they shouldn’t have, even though their shows might have been quite a bit smaller. We are hoping we can work with everybody who is involved to try to make their shows as successful as possible, no matter what happens.
Jeff Beckelman: We are booking business for our new, expanded convention center in Reno. We are finding that we are booking association-based businesses looking for value, but they are booking from 2008 to 2012. Corporations seem to be reluctant to sign contracts. They are waiting until the last minute to decide whether they really have to have this meeting or not, so it is a very challenging market to sell conventions in right now. However, some conventions are booking. We just hosted the Safari Club International and they had the largest attendance in the history of the organization, so that was a positive sign. For the six months ended December 2002, we are down 3.5 points in taxable room revenue. Our occupied rooms are flat at 70 percent, so obviously the average rate dropped. We think we are going to have a better second half of the year, and we also think we are going to have a fairly strong summer. Obviously, what happens with the situation in the Middle East will have an impact on that, but right now it looks pretty positive for us. I just got the results of the 2002 visitor profile: 70 percent of our visitation came from car, up 19 points versus 1999. In our drive market, 59 percent of those people came from California. We have a very aggressive regional marketing campaign right now to try and work with our airline community to help them boost travel to the short-haul fly-in market, and the initial returns are very positive. Thirteen percent of the visitation comes to our area for the convention market, and there is a real thirst to increase those numbers. We are going to be continuing our efforts to add to the image of our destination, pushing the adventure travel campaign that the state has led the way on. We are repositioning ourselves as Reno-Tahoe combined – America’s convention place. Early indications show that that is going to be acceptable in the marketplace. Our biggest problem right now is going through the growing pains of understanding where our position is in the convention and tradeshow marketplace with our new building. In selling conventions and tradeshows, we are finding there is a lot of regionalization going on. Associations and corporations are wanting to stay closer to home. That is just going to force us to target our efforts to the Northern California, Washington and Oregon areas. I think the next six months for us will be flat, but we won’t see any more downturn versus what we did last year.
Bruce Bommarito: I do have some good news. Most of Nevada’s rural areas have had very good years and continue to soar. Unfortunately, the magnitude of that good news relative to the news in the big cities is not very strong. But, I think that is driven heavily by people wanting to drive instead of fly. Our RV program has really been very successful, and so has our adventure campaign. According to our research, adventure travel is about a 98-million person market, which is actually upscale from the demographic of the typical visitor who comes to Las Vegas. Although our ads are very stark and extreme, we are finding that the adventure traveler, even the one who thinks he is extreme or eccentric, is kind of a soft adventurer who stays at the Bellagio, gets a massage and then goes and hikes through Red Rock Canyon.
Greg Lee: My family owns two properties, one in Mesquite and one in Las Vegas, that cater to local business. In the last year and a half, we’ve done better each year, but I know we are working much harder. I thought we would have had results that are a little bit better at the bottom line than they are. So, I really have nothing to complain about there, but it is concerning. You wonder how long you can sustain the kind of marketing and investment when you get returns that are smaller than expected. Probably my biggest concern is Indian gaming. I think we are going to see it coming more quickly and at higher levels than I would have imagined five years ago.
Shock: The Cherokee nation is outfitting a very high-tech classroom on the UNLV campus that we are going to use so their students in Oklahoma can take classes with our students without having to leave the reservation.
Beckelman: Gaming is going to continue to shrink in Reno because of the proliferation of gaming in other places. What we are trying to do is position ourselves as a place where people can come and do more than just gamble. Our strategy now is “gaming-plus.” We are trying to impress upon potential customers that you can get Nevada-style gaming plus all these other things, and you can’t get that combination anywhere else. We’ve worked really hard this last year at RSCVA to divest ourselves of as much debt service as we can, so, starting in this next fiscal year, unless we have a catastrophic drop in taxes, we’re going to be boosting our marketing budget somewhere between $2 million to $4 million.
Cortez: Years ago, out of every gaming dollar that was spent, casinos were able to keep about 85 cents. Now they are lucky if they get to keep 52 percent of that gaming dollar. The revenue now is about half gaming, and the rest of it comes from food and beverage and all the other amenities they have to offer. The diversity of the destination really is what creates the desire to come to Las Vegas. Reno, to its credit, has figured that out and is going in that direction. There are two issues being discussed in California in negotiations between the state and a consortium of Indian tribes: One is an increase on the cap on the number of slot machines statewide. Second is the ability to do sports betting. If California gets sports betting in its casinos, it is going to really impact us.
Beckelman: In a study we recently did, Californians visiting Reno who had also visited Indian casinos averaged 2.4 trips to Reno in the preceding 12 months. The previous year, those same people were averaging 6.1 trips to Reno, so it dropped from 6.1 to 2.4.
Shock: What about the threat of Internet gaming? That is a whole other competitor out there that we haven’t talked about.
Bommarito: Internet gaming is real. If we don’t get into it, we are going to be left in the dark. One advantage we have in Nevada that a lot of places don’t is our system of regulations. We’re known for clean gaming, and I think that may be an advantage over Indian gaming and also over Internet gaming, which is completely unregulated. We should sell the Nevada Gaming Commission as part of what we have.
Shock: Even if Nevada businesses are involved in Internet gaming, it still doesn’t fill hotel rooms, it doesn’t fill restaurants or taxi cabs – the money just goes to a corporation.
Rapson: You don’t get a complete destination on the Internet. You scratch the itch and that is about it, but you don’t have a vacation.
Beckelman: I think you’re right. Part of the solution as we head into the future is to be a multi-purpose destination and present ourselves that way. That is the point of difference between what these other competitors offer, more than just a gaming experience.
Paulos: There is so much opposition on the federal level to Internet gaming, I don’t know if it will ever happen. But, actually, if our companies could get into it, it is another form of advertising for them and I think they would do phenomenally. If you’ve got a Mandalay Bay or MGM Internet casino for sports wagering, that would be great. It’s like when Atlantic City opened, when Mississippi opened, everybody thought it was going to hurt business, it didn’t at all. What it did was create new customers.
Cortez: As a result of Atlantic City, Las Vegas had to adapt to create more of a revenue stream. So, as Indian gaming came on board and as the riverboats came on board, the investors in Las Vegas decided to expand their bases, so they added shopping and restaurants in order to continue to adapt. The key to the whole thing in my view is research. You have to do the research to know what your customers want, what the markets want and how to get it to them. We’ve been able to do that so far. If we continue to do that, we will stay ahead of the Indians, but it is going to be a challenge.
Shock: Speaking of the Internet, another thing I’ve heard from meeting planners is the hotels offering lower room rates online than the group rates promised to meeting planners. The meeting planners negotiate this rate, and then their attendees can go online and find cheaper rooms. That bleeds off their room block, so they don’t get the perks they negotiated by meeting the room block. They also look foolish because the attendees say, “You must be a lousy negotiator, because I went on the Internet and found a better room rate.” That is not just Las Vegas, that is all over, but I think the problem is bigger in Las Vegas because Las Vegas contracts out so many room blocks to tour wholesalers who may sell them online for half of what they are getting through the hotel. This is creating a real big buzz at meetings and conventions. I don’t know what you can do about this.
Paulos: Some of the hotel people on the Strip have said what a backfire this was. It is really coming back to haunt them, and they are scrambling to try and get out of contracts.
Rapson: Let’s face it – every hotel has weak spots, and you are going to lower the rates to get people in, but you don’t know that six months ahead of time. It is a challenge. To overcome the problem, we offer things like golf packages where the room rate is included in a package with three days of golf. This kind of “buries” the rate so it can’t be extracted from the total price. It has been extremely successful.
Cortez: The hotels compound the situation, unfortunately. They compete with each other through room rates.
Rapson: Well, the way we deal with it is real simple. If a meeting planner is booking a convention and they call and say, “Hey, I just found your rooms for $39, not $69, this week, we will give them the $39 and apologize.
Bommarito: Let’s talk a little bit about international travel and tourism. We’ve been working to try to restore the Japanese market, which was one of the ones that didn’t bounce back after Sept. 11 and is still very tentative. We are also working hard on China as a new market. We’ve had some real success with that and had a lot of support, particularly from the big properties in Las Vegas.
Cortez: International travel was about 15 percent of our business up to 2000, but now we are probably around 8 percent. That is driven by the fact that most international visitors came from either Canada or Japan. The Canadian economy has been in the dumper longer than ours has, but some of them are still coming. Of course, the Japanese are driven by safety, and if there is any black cloud in the future they won’t travel. We are still getting the JAL flights here, but not like before.
Bommarito: We formed a committee of the four largest receptive states for Japanese visitors: Hawaii, California, New York and Nevada. We’ve met three times now and will meet again in April. We kind of suspect right now that the Japanese government is not encouraging people to come because of the threat of war. The answer from the Japanese on how to market there has been that the U.S. government should be publicly marketing in Japan and we need to spend more money there.
Lee: I don’t think you can discount the macroeconomic climate. Japan has probably had the worst economy in the last 10 years and is showing no signs of changing. For Asia, especially Southeast Asia, it is really one of their worst times as well. So, while you still have people at the very top who have huge fortunes, as a whole, their economies are suffering. Also, we are starting to see more casinos in those countries, so people can choose to gamble closer to home.
Cortez: Interestingly enough, when we market our international destinations, we don’t market gaming. We market the other activities that are available, even though we’ve found that the Germans for example, are tremendous gamers, as are the Brits. But, you can’t market the gaming aspect of it. You’ve got to market the sunshine and the restaurants and all the excitement.