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The Casino Hotel Industry Tourism Essay

Paper Type: Free Essay Subject: Tourism
Wordcount: 3006 words Published: 1st Jan 2015

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The Casino hotel Industry refers to establishments primarily engaged in providing short- term lodging in hotel facilities with a casino on the premises (IBISWorld, 2012). Casino hotels provide lodging in hotel conveniences with a casino on the premises and it is seem to have phenomenal growth in the past decade. This boom in casino hotel industry provided the investor to establish a luxury and casino hotels in many region. The casino industry generates revenue from full range of services and amenities such as gaming, food and beverage, rooms, dining, retail space, entertainment, meeting facilities etc. Within the past 25 years, the commercial casino industry has experienced significant growth by operating only in Neveda and Atlantic City, New Jersey to operating 566 casinos in 22 states in 2010 (Bazelon, Neels, Seth, 2012). The prospective revenue from gaming has moved gambling from doing unlawful activity to a legitimate business and at this instant hotels are also offering casino service. Due to financial crisis in 2008 and 2009, the revenue had declined as people were intending to spend less money on gambling and not taking vacation. The increasing unemployment made consumer to spend less and be more selective while spending their money. After the crisis, in 2010 and 2011 there is a huge change and the revenue in casino hotel industry went high however, it is estimate that revenue will further grow 3.9% to $47.8 billion in 2012 (IBISWorld, 2012).

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The introduction of Casino hotel creates employment opportunity to the local communities and generates tax revenue for the government. Casino hotel industry mainly depends on the economic condition of the country and willingness to travel which energies industry revenue growth. After the economic growth, the consumer spending has been increased where their disposable income has also been raised and so as their spending. People tend to spend their income in different variety of ways such as recreational, travelling, entertainment, gambling etc. This has become very challenging for casino industry as consumers are visiting casino more often than past. The rising rate of travelling people and consumer spending drives industry revenue growth that tends to compete with increasing global competition of casino hotel industry. Due to declining demand of Casino Hotel industry in 2007, Macau and China took the world’s largest casino gambling region over the Las Vegas. There are more openings of international casino hotel that have significantly increased the competition for the US casino hotel business. Since, consumers are more selective about their spending they would rather choose better recreational activities that can either be internationally or domestically.

There are 300 land-based casinos with accompanying lodging facilities and currently it shows that Casino and gaming is overlapping the hotels and lodging industry. The trend of Casino hotel industry in luxury market is to provide the entertainment convergence i.e. is to attract more people and to provide variety of facilities as such the customers will lengthen their stay and enjoy the modern casino hotel property (Energy and Environmental Analysis Inc, 2005).

Industry Growth Analysis

Current Industry Trends

The casino and hotel can be either standalone or comprises of both hotels facility as well as casino facility. The industry strongly depends on the current economic situation, as such people desire to travel when they have huge amount of disposable income. Due to downturn of economy in 2007 and 2008 there was a declining demand of this sectors and sales dropped way down and the reason behind is they are more concern about their financing. Therefore, Casino Industry was cutting the services like gambling and other entertainment. There is decline of domestic and international travel in United States and the performance of this industry decline as casino hotels rely more on tourists visiting.

Slowly recovering economy shows that there is gradual increment of visitors as consumer spending in 2012 has been increase by 1.9% in result the consumers are visiting the casino more often. However, the competition from others such as American Indian casinos, similar casino gaming places, online gaming, and international casinos make the industry to remain sensitive. In 2012, industry profit is estimated to account for 8.2% of revenue (IBISWorld, 2012).

Economy recovery support growth

Over the next five years period it is estimated that the spending from each people projected to be increased. It is forecasted that the consumer spending will increase at an annualized rate of 2.8% (IBISWorld, 2012). This will lead to the improvement of the casino hotel industry that will in return create job opportunity and therefore the unemployment rate will decrease. The result of getting employment tends to make consumer to spend more money in travelling and gambling. As a result there will be a huge demand of hotel casino industry in future.

Market forecast of Casino hotels shows the long-term position and future growth trend.

market forecast

Retrieved from: http://www.anythingresearch.com/industry/Casino-Hotels.htm

The growth of industry can also see mostly in spring and summer rather than winter or fall. Tourists would like to travel during the better weather condition while spending their money. The industry will see high performance and increase revenue in better weather condition such as in spring and summer of each year. The performance of industry can be measured based upon the valuation and compare with other similar industry.

In domestic market, the industry seems mature in industry life cycle therefore the major other companies are expanding the business internationally. The scope however in Macau and China is in increasing trends, as a consequence the investor would want to achieve higher growth in the revenue.

Analysis of competing companies

There are various industries that compete with each other. The current rivalry competitiveness in casino hotel is relatively high in nature. These competing firms are Caesars Entertainment Corporation, MGM Resorts International, Las Vegas Sands Corporation, and Wynn Resorts Limited.

Retrieved from:

http://clients1.ibisworld.com/reports/us/industry/majorcompanies.aspx?entid=1662

Casears Entertainment Corporation

The world’s largest casino operator whose market share is 18.2%, Caesars Entertainment Corporation has grown by providing various services such as new resorts, expansion and acquisitions and currently it owns and manages the casino resorts. Caesars is able to maintain on loyalty to its customers by providing sound service and to their employee, business partners also. It shows that in 2007 it was 8.9% and due to economy recession it has dropped down to -0.2% however, it has predicted that in 2012 the revenue will be increased up to 3.9% (IBISWorld, 2012).

MGM Resorts International

MGM Resorts is another largest casino hotel operator whose market share is 12.7%. The company has significant holdings in gaming, hospitality and entertainment, and holds a growing number of development and management agreements for casino and non- casino resort projects (MGM Resorts, 2012). MGM’s in USA have improved over the past years and consumers are trying to spend their income in recreational places. Therefore, In 2011 the percentage change shows 4.6% increment in domestic market however, it has also predict that in 2012 the percentage change will be decline but still it will be in positive (IBISWorld, 2012).

Other Companies

Las Vegas Sands Corporation is one of the new kinds of travel destination with the market share of 4.3%. Las Vegas Sands offers high-ends amenities, integrating them under one roof resort.

Over the five years to 2012, global company revenue is expected to increase at an average annual rate of 30.5% per year to $11.2 billion, including forecast growth of 13.1% in 2012. US-specific revenue is also forecast to grow significantly at an annualized 16.0% to $2.1 billion over that same period (IBISWorld, 2012).

Wynn Resorts Limited

Likely, other major competitor in the industry is Wynn Resorts Limited whose market share is 2.8% and it is based on Las Vegas Corporation. It has forecast to grow 0.6% per year on average over that same period to $1.3 billion (IBISWorld, 2012). The company grew very fast in previous years beside the recession period.

Industry Establishments, Sales & Employment Trends

Year

Percent Chg. Year-to-Year

2009

2010

2011

2012

2013

09-10

10-11

11-12

12-13

Establishments

367

380

388

397

406

3.6%

1.9%

2.5%

2.2%

Sales ($Millions)

43,200

47,139

49,910

53,614

57,211

9.1%

5.9%

7.4%

6.7%

Employment

228,451

236,755

241,274

247,310

252,835

3.6%

1.9%

2.5%

2.2%

Retrieved from

http://0-web.ebscohost.com.helin.uri.edu/ehost/pdfviewer/pdfviewer?sid=9c59b541-088a-45d0-8846-d6fbd6acad29%40sessionmgr12&vid=7&hid=17

5 Forces Competitive Analysis

Competition from Rival Sellers

The competition from rival companies is extremely high and it is in increasing trend. After the merger of Harrah’s and Caesars and MGM and Mandalay in 2005, they have taken great proportion of market share in casino hotel industry (IBISWorld, 2012). MGM have direct competition with Harrah’s Entertainment however, the other two competitors like las Vegas Sands Corp and Wynn Resorts are small companies and do not have direct threat in the competition. The strength of this competitive force is strong because these two casino hotel have significant revenue with high quality of hospitality and access marketing and promotional to attract the consumer.

Competition from Potential Entrants

There is a high and steady barrier to entry in this industry. The significance of these entry barriers is that governments have minimized the legal issue related with government regulation for the entry of new competitors. And recently, half of United States have legally operating casino including Kansas and Massachusetts.

Competition from Substitute products

The threat to casino hotel industry is international online casino gambling sites, casino without hotel premises, hotels and motels, resorts and lodges etc. Due to economy recession the operator have moved to expand their business in international market where potential growth is high. There is high threat of competition from substitute products; if hotel casino fails to provide better facility then the consumer would rather choose those hotel industries that provide better hospitality. Therefore by maintaining consumer loyalty and providing sound hospitality will create less threat from substitute products.

Suppliers Bargaining Power

The threat of supplier bargaining power is very weak. For hotel casino industry their main suppliers or raw materials used are the food and beverages where these suppliers face competition within those industries by producing their own quality product. The commodity price changes may not affect the industry as such the industry would choose to get same supply from different suppliers.

Customer Bargaining Power

The customers have relatively higher bargaining power. Most of the hotel casino industries are located in west side of USA. Therefore, the customers from there have no choice of choosing other than going to these places. In addition, customers have more bargaining power because it allows customer to go in standalone casino or hotel. Poor hospitality for customer coming in can lead to sift their choice in other kind of industry.

Factors driving industry changes

There are various factors that are driving industry change.

Economic Change

The prosperous health of casino hotel industry depends upon the economic condition of the country. If the disposable income of the consumer were relatively high they would prefer spending their money in recreational areas such as vacation and gambling. Due to economic downturn, people will reduce their disposable spending which was in 2008 and 2009, there was decline of such industry by 8.7% and 8.4% respectively (IBISWorld, 2012). Better economy will create less unemployment rate with proportionate of increased income that in return consumer will be travelling more often.

Airline Travel and Tourism

Based on US, 51.7% of these industries are located in west like most in Nevada and Las Vegas. If there is poor infrastructure it can impacts the total industry, as consumer are not being able to reach to their destinations. Since casinos are still banned in many states, those provisions have historically allowed the industry to develop and expand across these areas (IBISWorld, 2012). Due to global crisis, we can see huge downturn in tourism sector and it has negatively affected the tourism industry. This is the main reason that has reduced the amount of the tourist from different country.

Legal Issues and Technology Innovation

As all state do not have permit to open the casino however, it can be seen there is a huge scope in some other region. There should be a casino legislation and regulatory change that will allow new establishment in other states. Technology Innovation is another factor that drives industry to change. The gambling should be user friendly to the entire consumer using. Usually consumers comes for vacation with their family members, therefore those entertainment should be used so each of the family members can delight efficiently.

A Strategic Group Map Comparative Market Positions of Selected Casino Hotel Industry

Caesars Entrainment Corporation

MGM Resorts International

Las Vegas

wynn

Market Share of Casino Hotel Industry in USA

Market position of Casino Hotel Industry

Caesars Entertainment Corporation seems the major casino operator in USA as well as globally and primarily this company was owned under The Harrah’s Caesars. The company uses its total rewards system to market promotions and to generate play across network of properties (Caesars Entertainment, 2012). Currently the data shows that the company holds 18.2% of total market share. In 2011, the total revenue earned by Caesars was $8372.5 and it has been predicted that it will go up to $8700.00 that is 3.9% higher than the last year. Therefore, it shows there is a huge potential increment of the revenue. Likewise, the second most company is MGM Resorts International, which is another company that operates globally and has covered 12.7% of its market share. In 2011, the total revenue earned by MGM is $5892.9 and it has expected to grow more up to $6040.8 in 2012. However, the percentage change in revenue has decreased from 4.6% to 2.5% respectively. In 2007, MGM had expanded their business in Macau therefore huge amount of revenue had been earned from there also.

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Las Vegas Sands Corporation and Wynn Resorts Limited have estimated industry market share of 4.3% and 2.8% respectively. Las Vegas Sands Corporation have earned 52.4% of total revenue from the company in Asia and in 2012, it has expected to earn revenue of $11,150. Likewise, Wynn Resorts Limited made an expansion of the company in Macau and huge revenue had been generated

Strategic moves

It is seen that foreign casino companies have made huge investment in Macau since 2002. In 2006 the returns from the casino boom surpassed the revenue of the US gambling mecca, Las Vegas however there is risk for Macau that they are too much relying in one industry (BBC News, 2012). In 2011, Macau gaming revenues reach to $33.5 billion, which means there is 42% increase over the period of 2010 (Stutz, 2012). The increment of revenue have been seen by various American regional gaming markets, therefore Caesars Entertainment Corp paid $578 million and expected to get the land for casino to operate casino hotel business in the biggest market however Caesars still not got the permission to build casino (WSJ, 2012). Due to healthy economy and improving business, the casino hotel companies should expand there business internationally as such MGM, Las Vegas Sands Corporation and Wynn Resorts Limited have already introduce their business in Macau where it is seen huge boom and have generated five times more revenue than Las Vegas Strip.

In prospective of USA, it is seen that most of the casino hotel industry are concentrated in west part as only 38 states have legal licensed to operate the casino business. However, there is huge potential of casino business all over the US. As people disposable income has increased with the healthy economy, consumers tend to spend huge money in travelling and gambling and it is time consuming to travel in those regions where the states are permitted to run casino business. Therefore, the biggest companies such as MGM, Las Vegas Sands Corporation and Wynn Resorts Limited should look for potential market and expand their business all over the US. The huge revenue that is available from international casino hotel business can be invested in US and more focusing on the research and development of the market potentiality. The invention of new technology, new gaming, sound hospitality and facilities will help to create more potential consumer in future.

http://www.bbc.co.uk/news/world-asia-pacific-16599919

http://online.wsj.com/article/SB10001424052970204789304578088320711432556.html

 

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