Venetian posts its first profit, gains high revenues from business travelers

David Strow

Thursday, April 13, 2000 | 11:05 a.m.

Sheldon Adelson's $1.5 billion Venetian hotel-casino has become profitable for the first time in its 11-month history, recording net income of $16.6 million for the quarter ending March 31.

The profit reported today came despite a $29 million interest payment the Venetian made during the quarter. In the three months ending Dec. 31, 1999, the Venetian lost $7.4 million.

"Once the building was completed, we got very positive word of mouth from people who stay here," said Bill Weidner, president and chief operating officer of the resort on the Las Vegas Strip. "Our business plan was very heavily weighted toward developing the meeting and trade show business.

"We were very strong for the quarter (in convention business), although between trade shows, we saw strong independent travel demand. Booked convention business and word of mouth really helped generate occupancy, average rates and high-end business."

The Venetian's average daily room rate was $181 for the first quarter, while occupancy averaged 94 percent.

"They're clearly the market leader," said Andrew Zarnett, gaming analyst with Deutsche Banc Alex. Brown. "Nobody, nobody (on the Strip) comes close to a $180 room rate.

"Two-thirds of their business is group (business customers). Business customers are willing to pay more than casino customers for room rates. By focusing on the group business, especially for midweek occupancy, they can drive a much higher room rate."

In a development important to the Venetian's bondholders, cash flow also soared in the quarter, rising 80 percent from the fourth quarter of 1999 to $55.2 million. Las Vegas Sands Inc., parent company of the Venetian, reported cash flow of $59.5 million, up 76 percent from the fourth quarter.

The strengthened financial results appear to have restored investor confidence in the property's future. This morning, the Venetian's bonds were trading between 98 1/2 and 99 1/2, nearly at par. At the beginning of the year, the bonds traded in the low 80s.

"Management has focused to implement their plans, rolled up their shirt sleeves and the results are spectacular," Zarnett said.

The Venetian generated revenues of $170.3 million, a 43 percent rise from the fourth quarter. About $74 million of those revenues, 44 percent, came from non-casino operations such as room, food and beverage sales.

"If you add up our non-casino sources of profitability, we generated 57.7 percent of our departmental income from sources other than the casino," Weidner said. "If we add the slot income to that, 76.2 percent came from sources other than table games. There's a tendency to look at high rollers, but that high-roller play was less than 24 percent of our total departmental income."

The Grand Canal Shoppes, the Venetian's upscale shopping mall, generated cash flow of $6.5 million, up from $3.2 million in the last three months of 1999.

Still, the Venetian has benefited from growing high-end play.

"They've been incredibly opportunistic at taking advantage of mergers in the industry to go after the high-end players and give them an alternative," Zarnett said. "The goal from here is to turn that trial into a regular customer. That would even out the seasonality of their business ... the first and second quarters are much better for convention business than the summer months."

Within the casino, revenues totaled $96.1 million, up 69 percent from the fourth quarter of 1999. Table game drop was $295 million, up 65 percent, while slot handle rose 30 percent to $476 million.

Although he sees profitability as a key achievement, Weidner said there's room for further improvement in the coming quarters.

"We don't see a lot of rate resistance," Weidner said. "We can get higher room rates by booking more intelligently, more efficiently."

A key element in the Venetian's success, Weidner said, are the hotel-casino's employees. They helped open the property even as major construction continued, and endured picket lines thrown up by the Culinary Union at the non-union property.

"The employees came in at an incredibly difficult time, but kept their spirit, and have done a wonderful job serving our guests," Weidner said. "We have historically high (room) rates for this city, and (employees) deserve a lot of the credit.

"Our guest (approval) ratings are in the 90 (percent)-plus range. That means our employees are doing a good job."