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May 19, 2013

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Room rates to rise from rock bottom

Higher occupancy rate gives MGM Mirage confidence to increase prices for summer

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MGM Mirage properties

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The Strip’s largest casino operator last week reported an uptick in room bookings and fewer convention cancellations. MGM Mirage executives said demand for the company’s hotel rooms is high enough to warrant an increase in room rates, which have plummeted during the downturn.

Raising rates in the coming weeks will help profit margins and could lead to a minor business rebound in 2010, they said.

Whether that strategy works will depend on the reaction of recession-battered tourists such as Judy Del Vecchio, 51, an advertising employee who paid $631 for a five-night stay with her husband in a suite at the Monte Carlo last week.

“This recession has scared people — they have a whole different way of thinking,” Del Vecchio said during a break between fountain shows in front of the Bellagio. “They’ll come if they know they’re getting a bargain.

“If they keep rooms low, people will come out here and get lost in all this and spend money they never thought they’d spend.”

Like most Las Vegas tourists, Del Vecchio is loyal visitor — to a point.

When the economy was flush, it wasn’t unusual for luxury hotels in Las Vegas to charge $500 for a room during the workweek. That was too much for Del Vecchio, who lives a short drive from the nation’s largest casinos, Foxwoods and Mohegan Sun, in Connecticut.

As room rates rose, many regulars accustomed to paying less ditched Vegas for cheaper alternatives such as cruises and all-inclusive resorts in Mexico and the Caribbean. Some have returned, lured by low rates and more marketing by hotels trying to fill the weekday void left by conventiongoers, whose business event budgets have dwindled.

The strategy has worked well for companies, including MGM Mirage, which owns most of the Strip’s major casinos.

“The weekends are consistently solid now,” MGM Mirage CEO Jim Murren said during a conference call last week to discuss first-quarter earnings. “Even when we don’t have a major event we are able to occupy rooms at a solid level.”

In January, MGM Mirage’s hotels had an occupancy rate in the high 70s — a respectable number for many major cities but poor for Las Vegas, where hotels have historically operated at higher than 90 percent occupancy. That figure has risen each month this year, reaching 95 percent in March and 97 percent in April, in line with a year ago, before business worsened.

Room rates are still depressed, according to official figures from earnings reports and tourism officials. MGM Mirage’s revenue per available room — an industry measure that accounts for rooms undergoing remodeling or otherwise out of service — was $102, or 34 percent lower in the first quarter than the year-earlier period. That number was down 30 percent in April from a year earlier.

Phil Ruffin, who bought Treasure Island from MGM Mirage in March, also will be raising room rates — though for somewhat different reasons.

Echoing recent comments by MGM Mirage, Ruffin said business picked up in April. On one weekday in late April, Treasure Island posted a 99 percent occupancy rate at an average rate of less than $130, for example.

Ruffin said he will not be lowering rates to achieve as close to 100 percent capacity as possible.

“I’m not going to give rooms away. That’s a heads-in-beds philosophy,” Ruffin said. “I don’t want the $50 customer.”

You can still make money — more money, in fact — by running at 70 to 90 percent occupancy and charging more for rooms, he said.

Getting customers inside the hotel is not a problem, Ruffin said, because the property’s Strip-facing pirate show gathers thousands of passers-by, with as many as 40 percent of those people gravitating inside.

“It’s free – and people like free,” he said.

Summer is typically slow for Las Vegas because of the searing heat — a time when convention traffic slows down and tourists snap up rooms at lower rates. Despite that, MGM Mirage is hopeful it will be able to raise rates through this period.

“Forward-looking business continues to improve, even as we look out to July and August,” MGM Mirage Chief Financial Officer Dan D’Arrigo said. “Thus far we’re able to firm up rates going forward as opposed to going the opposite way.”

But now that tourists have tasted vintage hotel prices in Las Vegas, their resistance to inflated rates has likely been strengthened.

Cassidy Miller, 27, of Bloomington, Ill., stayed with a friend at Caesars Palace for five days last week for $413, including airfare, and has already booked her next trip: a $580, five-night stay at the Bellagio, including air.

Miller, who typically visits Las Vegas once a year, isn’t stuck on the destination. “Paying $700 for the same trip would start turning me off — I can do Mexico for that amount. But these prices are ridiculous. You can’t afford not to go.”

Ginny Tarantino, 64, a concierge at a California retirement community, usually travels to Las Vegas during summer weekends for the lower rates. She jumped at the chance to stay at the Excalibur with a friend for $40 per night last week.

“Based on that rate I’d like to come back more often on weekends, or during the week if I get more time off from work,” Tarantino said.

Mark Capone, 57, a sales executive for a building materials company in New York City, said paying $1,000 for a four-night stay for two at the Mirage, plus airfare, was a better deal than Aruba, where the couple has vacationed in the past. At these prices, Capone says he and his wife would probably trade Aruba for Vegas more often, twice a year rather than once a year or once every two years.

Some visitors say they would be OK with paying an additional $10 or even $50 for a room, especially now that rates are so much lower than other major cities.

But the days of $500 rooms are over for people who know where to look, according to Judy Del Vecchio’s husband, Mark. “You’ll never see it — there’s too much competition now,” he said.

Some also are resisting high prices for meals, shows and alcoholic drinks — among the Las Vegas staples whose prices haven’t changed much in the recession.

Capone thinks Las Vegas would be better off cutting prices on the extras as well.

“I think the hotels should look at making some of the amenities less expensive, like the spa and drinks,” he said. “In the end, someone’s going to go back home and say, ‘I only went out with $1,000 and I spent $4,000.’ ”

Which is, if people like Capone continue to return to Vegas, an ideal scenario for Strip hotels.

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