Friday, March 19, 2004 | 8:58 a.m.
When the bombs fell on Baghdad one year ago, the gaming industry feared that collateral damage could reach the Las Vegas Strip.
They were right.
With images of vacant hotel rooms from the aftermath of the Sept. 11 terrorist attacks fresh in executives' minds, the industry prepared for the worst as America prepared to go to war to remove Saddam Hussein from power in Iraq.
"During the period before the war, our customers' minds were elsewhere," said Jim Murren, president and chief financial officer of MGM MIRAGE. "Now, one year later, we're benefitting from an economy on the upswing and our customers are feeling better about themselves and their place in the world. It's hard to isolate the impact of the war and the changes since it began from all of the other factors that affect us."
Statistics compiled by the Las Vegas Convention and Visitors Authority affirm that the war turned out to be a blip on the radar screen and that by nearly every indicator, Las Vegas has come back with a vengeance.
An analysis by the LVCVA's research staff shows that in the months leading up to the war, Las Vegas was riding a wave of optimism. In March, uncertainty had kicked in and the numbers dropped dramatically that month and in April. But by May, the rebound had begun.
In January and February 2003, four key indicators -- visitor volume, occupancy levels, average daily room rate and total passengers enplaned and deplaned at McCarran International Airport -- were higher than they were in their respective months in 2002. Even highly volatile gaming revenue in those two months in 2003 were ahead of 2002's numbers.
Then, war moved from possibility to probability to reality. Potential Las Vegas visitors who saw airports shut down and people stranded in hotels during 9-11 turned to CNN for guidance. And they stayed there.
"People were glued to their TVs," said Gary Thompson, a spokesman for Harrah's Entertainment Inc., owner of Harrah's and The Rio hotel-casinos in Las Vegas. "We saw a drop-off in virtually all of our properties."
As the war progressed, Harrah's eventually was identified as one of the gaming companies best suited to deal with the inevitable downturn because the company had properties within an easy drive of its customer base.
But as it turned out, hostilities in Iraq were declared over in May, giving Harrah's and other companies a springboard for record results in their third and fourth quarters.
"I was actually a little surprised at how quickly the turnaround occurred," Thompson said. "We knew that we (Las Vegas) tend to rebound faster than anyplace else in the country. The performance at Harrah's and some of the other operators has been quite robust and that bodes well for the future. If you take a look at where we were nine months ago, it really is quite amazing."
Harrah's wasn't the only benefactor among the gaming companies.
In their most recently quarterly earnings reports, MGM MIRAGE reported earnings of $55.4 million, up from $42.5 million, and Mandalay Resort Group reported earnings of $22.8 million, up from $4.2 million from the previous year. Although Harrah's Entertainment Inc. and Caesars Entertainment Inc. reported year-over-year downturns, their short-term outlook was bright, attributing their down performances to unrelated litigation settlements and other write-offs.
Las Vegas Sands Inc., owners of The Venetian hotel-casino, said its new tower and a convention industry that was barely affected by the war kept the company profitable.
"In the last two quarters of 2003, our numbers were extremely strong," Ron Reese, a spokesman for The Venetian, said. "And, we're already off to a great start in 2004."
Reese said year over year, the occupancy rate inched up from 97.6 percent to 97.9 percent and the average daily room rate has climbed from an average $191 per room to $202 per room. Cash flow has increased by 37 percent over the previous year, he said.
Robert Stewart, a spokesman for Caesars Entertainment Inc., owner of five Las Vegas resorts, said a gradual improvement in results in the company's third and fourth quarters of 2003 set the stage for first quarter that has been strong enough to warrant the company issuing new earnings guidance to investors.
"(The rebound from the war) continued to confirm our belief that the Las Vegas market of the future will be more diverse in gaming vs. nongaming and that a robust room product will play an important role in our future success," Stewart said. "I think our experience validated our strategy that star-class performers in the (Colosseum at Caesars) Palace for long-term engagements will generate interest."
The LVCVA's own recap shows an impressive year as well. Visitor volume was 35.5 million for 2003, only 1.3 percent higher than in 2002, but still the second highest total on record.
The average daily room rate for the year was $82.48, 7.5 percent higher than in 2002. Clark County gaming revenue was $7.8 billion for the year, a 2.6 percent increase over the previous year.
In fact, only two indicators were in negative territory. One was a 4.2 percent downturn in the number of charter and international passengers, from 3.2 million people to 3.1 million. The other was a 0.5 percent decrease in the number of vehicles that used major highways in Southern Nevada.
McCarran reported international traffic to the airport actually is up now compared with one year ago, but the reason for that is that there are more nonstop flights between Las Vegas and Mexico and Canada. The city lost an important nonstop link with Asia when Singapore Airlines abandoned a route between Hong Kong and Las Vegas in the midst of the Iraq war.
The war wasn't the only factor in Singapore Airlines' pull-out, or in the downturn in traffic on Japan Airlines between Tokyo and Las Vegas. Visitor volume took a double hit with the war occurring at the same time as the travel-crippling SARS outbreak.
Las Vegas received some positive news on the Asian front this week with the introduction of one-stop, single-plane jet service four times a week on Philippine Airlines between Manila and Las Vegas, by way of Vancouver, British Columbia. In addition, McCarran officials said Japan Airlines would increase its nonstop service between Tokyo and Las Vegas from three to four flights a week beginning next month.
Executives said the Sept. 11 experience taught resort operators how to adjust to catastrophic downturns and that may have helped them deal with the war in Iraq.
"We learned a lot about our business after 9-11," MGM MIRAGE's Murren said. "We've become much more adept at handling volume fluctuations that are beyond our control."
"I think it showed us how we have to react to outside geopolitical events," Caesars' Stewart added. "After Sept. 11, we had a war in Afghanistan, the softening of the national economy, the buildup to war in Iraq, we had the war and now this summer, we may have issues with energy prices. Like (Gilda Radner character) Roseanne Rosannadanna would say, 'It's always something.' "