Vegas bets too big on resorts

LOS ANGELES (Reuters) - Las Vegas is unlikely to fill the thousands of luxury hotel rooms being built on the Strip given that its airport and roads are already bursting at the seams, Deutsche Bank analyst Bill Lerner said on Tuesday.

The problem will be "too much supply," he said at the Reuters Travel and Leisure Summit in Los Angeles.

Work is underway to add about 42,000 new rooms to the gambling corridor -- about one-third more than today.

To justify those rooms, nearly all of which are aimed at wealthy customers, revenue at resorts along the gambling corridor will need to rise by 75 percent between now and 2012, he said at the Reuters Travel and Leisure Summit in Los Angeles.

That will be "difficult to impossible" given constraints on transportation infrastructure, including McCarran Airport and the area's roads and highways, Lerner said.

Kevin Bagger, research director at the Las Vegas Convention and Visitors Authority said in a telephone interview that the agency's goal is to increase annual visitation by 10 percent by the end of the decade in order to keep Vegas hotel rooms about 85 percent occupied.

Lerner said McCarran Airport will likely be able to handle normal visitation growth for a couple of years, but plans for a new, more distant airport are still in the works and it would not come on line before 2017 at the earliest.

Meanwhile several new resorts, including Wynn Resort's Encore, MGM Mirage's CityCenter and Boyd Gaming's Echelon Place, are already under construction and more have been announced.

"The alarming part of this is that these are all well-funded projects," Lerner said.

All the same, he expects a few of the projected properties will never be built.

Referring to plans for a second Strip condominium tower from Donald Trump's organization, Lerner said, "I'd be surprised if they ever punched a hole in the ground."

He called Elad Group's plans for an $8 billion Vegas hotel-casino modeled on its New York Plaza hotel "a question mark."

The resorts that do get built will have trouble meeting targeted returns on investment, Lerner said.

"You are going to see some spectacular failures," he said.

As a result, the analyst said consumers will likely have access to some high-end casino resorts at prices well below what operators had intended.

Nearer-term, Lerner expects gambling revenue on the Las Vegas Strip to be largely flat this year, after dropping less than 1 percent in the fourth quarter of 2007.

He said lower-end properties are likely feeling the brunt of the U.S. consumer spending slowdown, but added, "I don't think anyone is immune."

(For summit blog: summitnotebook.reuters.com/)

(Editing by Leslie Gevirtz)