News for the Hospitality Executive
|By Rod Smith, Las Vegas Review-Journal
Knight Ridder/Tribune Business News
Feb. 26, 2004 - Despite flat room rates and tepid leisure travel demand, major Strip hotel-casinos are successfully squeezing ever-higher profits per room, a Fulcrum Global Partners report released this week said.
Although revenue per room has been flat for five years, cash flow per room has increased 13.3 percent since 1999 and 15 percent since the low point following the Sept. 11, 2001, terrorist attacks.
Cash flow, a key measure of profitability for the gaming industry, is generally defined as earnings before interest taxes, depreciation and amortization.
And Fulcrum found the profit-squeezing strategies now in place should keep accelerating improved cash flow per room was greased both by through 2005 even if the economic recovery falters.
University of Nevada, Las Vegas professor and casino industry expert Bill Thompson said the new emphasis on hotel operations and room revenues is important to the community because it helps stabilize the local economy.
"Everybody talks about diversifying. Well, we're diversifying away from gambling toward noncasino tourism," he said. "We're not relying as much on gambling per se, which is where we are vulnerable to all the things that are happening around the country."
Brian Gordon, spokesman for Applied Analysis, a Las Vegas-based financial consulting firm, said the emphasis on room revenues is here to stay and major operators are continuing to increase the profits they are generating per room on the Strip, as they have since feeling the squeeze caused by Sept. 11, 2001.
Fulcrum gaming analyst Joe Greff said the path to improved cash flow per room was greased both by yield management programs to boost room rates and cost savings measures put in place following the terrorist attacks and the dip in leisure and business travel they caused.
He added that Mandalay Resort Group, MGM Mirage and Caesars Entertainment are well suited to further benefit from the trends because of their focus on the Las Vegas market.
However, he warned MGM Mirage may be vulnerable to room revenue wars because of its added capacity once the new Bellagio tower opens at the end of 2004 and increased competition for the Bellagio after Wynn Las Vegas opens in 2005.
By comparison, Fulcrum projected substantial gains in cash flow per room through 2005 at Caesars Entertainment, thanks to traction from improvements at Caesars Palace; Mandalay Resort Group, thanks to the boost from its new convention center and the opening of its new hotel tower this year; and Harrah's Entertainment, thanks to successful cross-marketing programs.
Fulcrum's report confirmed operators' claims they are improving the management of their room revenue programs and that both leisure travel and convention business are driving the Las Vegas market and improving pricing power for the major operators, Greff said.
He said Mandalay Resort Group has demonstrated the most impressive improvement in cash flow per room each year since 1999, thanks to the company's focus on yield management and its successful transition from a slot-focused operator to a company more focused on revenue generated per available room.
MGM Mirage, on the other hand, posted the highest cash flow per room because of the high-end skew of its properties, especially Bellagio, but showed less improvement over the past five years because of its already strong performance.
Caesars Entertainment has posted the weakest performance in terms of cash flow relative to room supply, Greff found, because of its unfocused corporate strategy under previous management and the "underwhelming performance" of Caesars Palace.
Finally, although Harrah's posted strong numbers, Greff pointed out it is marching to a different drummer since its strategy is to fill its rooms with gamblers to boost gambling revenues rather than maximize room yield.
-----To see more of the Las Vegas Review-Journal, or to subscribe to the newspaper, go to http://www.lvrj.com.
(c) 2004, Las Vegas Review-Journal. Distributed by Knight Ridder/Tribune Business News. MBG, MGG, CZR, HET,