[DMCForum] DCS09Prelude Expected to Cost Even Less!!

[Bob Brandys <BobB@xxxxxxxxxxxxxx>]

 From Today's Las Vegas Sun

Capacity crunch

Times are tough in the Las Vegas resort business, and they are about to 
get a lot tougher.

Hotel room occupancy and rates plummeted last year as the bottom fell 
out of the demand side of the supply-demand curve. Resort operators are 
bracing for a big challenge on the supply side as CityCenter and 
Fontainebleau prepare to open before year’s end, part of a capacity 
increase of more than 12,000 rooms that threatens to send rates 
spiraling lower.

Last year’s shake-up on the demand side was dramatic. Although 
visitation was off 4.4 percent to 44.1 million people in 2008, the 
average daily room rate plunged 9.8 percent to $119.19 a night. That 
compares with an average rate of $132.09 in 2007, the all-time high, 
and $119.66 in 2006.

Jeremy Aguero, principal analyst for Applied Analysis, a Las 
Vegas-based economic consulting firm, said he expects the issues of 
capacity and driving higher room rates will be around for at least 
three years, but he also thinks MGM Mirage may be best equipped to 
address it.

Aguero thinks it’s possible that underperforming properties or portions 
of hotels would be closed. But he wouldn’t speculate which ones they 
would be.

There is precedence for such drastic action: During the winter lull 
Herbst Gaming closed hotel rooms Mondays through Thursdays at Buffalo 
Bill’s in Primm, and Black Gaming cut capacity by closing rooms at the 
Oasis in Mesquite.

Many companies in the tourism industry have yield management formulas, 
which involve optimizing revenue opportunities based on inventory, 
which has a finite shelf life. For airlines, the value of the product 
ends as soon as the plane leaves the gate. For hotels, tonight’s hotel 
room can’t be restocked and sold tomorrow.

Cutting capacity is riskier in the resort industry because other 
revenue could be affected if rooms are closed.

“We may end up harming our casinos, restaurants and entertainment 
offerings, which could result in less overall spending per night,” 
Feldman said. “It’s a pretty involved calculation. Most of our 
properties are sized in such a way that they work best when near full 
capacity.”

“To take supply out of the market probably doesn’t make sense,” Lerner 
said. “That’s not how multiproperty operators view the world anyway.”

But he expects CityCenter will cannibalize business from existing 
resorts, including MGM’s.



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