Uptick in MGM Mirage bookings offers hope for Strip turnaround

By Liz Benston

Monday, June 7, 2010 | 2 a.m.

MGM Mirage executives are optimistic that CityCenter, an $8.5 billion resort complex that has increased hotel room volume at a time of depressed demand, will soon turn a profit.

That would be a tall order if the company were simply relying on budget-conscious tourists returning to Las Vegas more frequently and spending more while they’re here. Plenty of anecdotal evidence indicates that won’t happen in the near future.

That’s why MGM executives are counting on conventioneers. They say they have booked many more groups and room blocks for conventioneers in recent months.

Just how much these groups spend while they’re here has yet to be seen, but in any case, convention business is crucial to the future of CityCenter and Las Vegas as a whole.

Conventioneers aren’t minor actors in this boom-bust cycle. They helped fuel Las Vegas’ high-end building spree by paying higher room rates and spending more than tourists. By propping up room rates, conventions had a disproportionate effect on overall business in Las Vegas. Cheaper hotels could charge more when their higher-end, convention-hotel counterparts were booked at steep rates.

But when convention business plummeted, the bottom fell out of room rates. With fewer conventioneers to fill rooms, hotels are scrambling to fill those gaps with tourists — at the tourists’ preferred lower rates. For example, a half-year after its opening, CityCenter’s Aria is still offering a “grand opening” discount rate on its website and last week launched a “72-hour sale” offering rooms for as little as $103 a night during the week.

With poor convention attendance responsible for a great deal of financial pain up and down the Strip, MGM Mirage’s projections offer a much-needed beacon of hope for investors and stakeholders.

During MGM’s first-quarter conference call last month, executives said the company has booked 865,000 room nights for conventioneers next year — a company record. That compares with 700,000 room nights for conventioneers this year and excludes figures for CityCenter, which opened in December.

Even better news is that these groups are booking rooms at higher rates than are currently offered. Groups meeting next year are paying 2007 rates. MGM is charging 2004 rates now, CEO Jim Murren said.

Banking on how much convention money will come in next year is a little risky, though. Bookings sometimes get canceled, and lately conventioneers have been spending less and cutting their trips short.

The first quarter, which includes the massive Consumer Electronics Show, has been the best time of year for convention business for several decades.

However, the first quarter has been hard hit in the recession, contributing to double-digit declines in convention business in 2009 and single-digit declines in 2008.

This year’s first quarter saw convention attendance fall 8 percent, with January experiencing the worst drop, 16 percent, according to the Las Vegas Convention and Visitors Authority.

The number of conventions and meetings in Las Vegas fell 7 percent in the first quarter, 13 percent in January.

MGM Mirage executives blamed CityCenter’s operating losses primarily on slow convention business at Aria.

“We started out in a hole on conventions” because a year ago, when people were booking conventions for early 2010, the future of CityCenter, and MGM Mirage overall, was “very much in doubt,” Murren said.

Increased group bookings are helping raise Aria’s occupancy rate, which was 63 percent in the first quarter but is rising into the 80 percent range, according to the company.

With much riding on convention business, Aria’s secret weapon may be its Leadership in Energy and Efficient Design-certified convention space. The eco-friendly label isn’t translating into profits for Aria today, but may give the hotel a competitive advantage over most because they lack it, convention experts say.

Many companies — including those that sell eco-friendly products — have green mandates that would encourage or require that they seek out hotels that promote green initiatives, said Lori Cioffi, publisher of Meetings & Conventions magazine. Such space also could serve as a valuable marketing tool to lure nonprofit associations that care about the environment, she added.

MGM is marketing CityCenter’s supposed green advantage for all visitors as virtually every building in the complex received LEED ratings. But a 2008 survey by Market Metrix showed that only 12 percent of customers rate green initiatives “very important” when picking a hotel. The hope is that meeting planners will be more influenced by how green CityCenter is than the average tourist — yet another example of the key role conventions are expected to play.

Chuck Bowling, an MGM executive vice president, said momentum is building.

“Overall, we’re definitely seeing some general signs that corporate America is done retrenching and they have acknowledged that they need to get out in front of their customers. We’ve seen a really big uptick in short-lead corporate conferences.”