To take your questions in reverse order …
No, you probably can’t stay open at a 50% occupancy rate. The Las Vegas Hotel & Casino (better known as the Las Vegas Hilton, before the Hilton chain yanked its name off the property) hit a low of 54% occupancy last January, then crept up to 63% in February. At that rate, controlling shareholder Goldman Sachs is expecting to report a $5.5 million loss this year.
However, industry experts tell us there’s no specific number that represents a break-even point. It’s a sliding scale, governed by two variables: occupancy and room rate. The higher your occupancy, the bigger the price you can charge for the room. Basic stuff, right? Tell that to the Westin Casuarina, a recent foreclosure victim. It became insolvent because it was routinely charging some of the highest rates on the Strip during periods when low pricing and meager occupancy were the norm, due to declines in consumer spending. It ignored market forces and learned the hard way that empty rooms don’t make money.
Although MGM Resorts International doesn’t bust out profit-and-loss statements for each of its nine Strip hotels – 11, if you count Aria and Vdara, which belong to a subsidiary -- as a group they are hugely profitable in terms of rooms per se. In 2010, MGM took in $1.37 billion from hotel rooms that it cost $423 million to operate: a $947 million (or 320%) profit. Last year, room revenues were $1.55 billion on an operating cost of $486 million: over $1 billion in the black. That incredible profit margin isn’t as big as it looks once comped rooms are factored into the equation. Unfortunately, companies like MGM do not bust out individual types of "promotional allowances." They lump the free room nights in with comped meals, free play, etc.
In keeping with the laws of supply and demand, the MGM hotels with the highest rates were also those that enjoyed the best occupancy. Bargain-priced Circus Circus, where rooms went for an average of $54/night in 2011, could only manage a sub-prime 76% occupancy (the citywide hotel average is 87%). And despite rates hovering at $230, Bellagio filled 93% of its rooms. MGM’s best performer overall was The Mirage, 22 years old and outperforming its contemporaries: 95% occupancy at $144/night. (Luxor did significantly less well and the rapidly aging Excalibur fared worse still.)
To chart the rise and fall (and rise) of Las Vegas, we turn to the archives of the Las Vegas Convention & Visitors Authority. Mind you, both occupancy percentages and room rates are diluted by the inclusion of motel figures, which historically tend to be well below average in both categories. In 2002, 84% of rooms were occupied at an average daily rate of $77. Subsequent years were as follows, with room rates rounded to the nearest dollar:
2003: 85% at $82.50 2004: 88% at $90 2005: 89% at $103 2006: 90% at $120 2007: 90% at $132 2008: 86% at $119 2009: 81.5% at $93 2010: 80% at $95 2011: 84% at $105
LVCVA data for this year has only been aggregated through February. So far, occupancy is running at 80% but at an average of $111/night. However, New Year’s Eve- and Chinese New Year-related business probably accounts for the disconnect between low occupancy and high prices. Expect that supply/demand aberration to narrow between now and year’s end.
