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Will CityCenter's Opening Affect Las Vegas Room Rates?
Observers Believe Rates Can't Go Much Lower

By Jennifer Robison, Las Vegas Review-JournalMcClatchy-Tribune Regional News

Dec. 20, 2009--Whew. It's finally open. The hard part is over, right?

Well, not so fast. Getting CityCenter mostly open by Wednesday night proved a Herculean task for MGM Mirage. Now, the real work begins for the rest of the market, which must absorb more than 5,000 new hotel rooms while keeping room rates high enough to generate healthy cash flow.

Observers say CityCenter hasn't affected room rates on the Strip in December, but the massive complex could keep a lid on planned rate increases in early 2010.

"I think CityCenter will have an effect, and the effect will be to keep rates low," said Anthony Curtis, editor and publisher of monthly newsletter Las Vegas Advisor. "I think the market was looking to edge up going into 2010. People who set room rates were ready to start pushing them up a bit, but I think rates will be held in place several months longer, at least, because of the new inventory. This will keep rates stable and low, but you won't see it and say, 'Aha! There go rates because of CityCenter.'"

CityCenter won't depress room rates because prices can't drop much more, Curtis said.

"Casinos have drawn a line in the sand and said, 'That's enough,'" he said. "They've seen the ill effects (of low prices), like bringing in a brand of customer they maybe don't want to bring in anymore."

Bryan Allison, vice president of marketing for travel Web site Vegas.com, said he foresees a relatively robust first quarter on the Strip, though bookings and room rates could slacken by summer if the economy stays slow.

A roster of events, including the International Consumer Electronics Show, the Men's Apparel Guild in California exhibition, the Super Bowl, Chinese New Year, the National Collegiate Athletic Association's March basketball playoffs and February's 2010 NASCAR Weekend should draw a steady stream of conventioneers, revelers and bettors in the first three months of 2010 to prop up room rates, Allison said.

Also, CityCenter has been a publicity bonanza for Las Vegas and that should spur visitation to the market in the first quarter, he said.

"It'll be more interesting to see what happens as we get into the summer and some of the city's slower periods," Allison said. "If the economy roars back, prices will come back, too."

For now, Aria's room rates run lower than prices in other newer resorts, and those room rates don't seem to be dragging down rates at other hotels.

Data from Vegas.com show Aria's average daily room rate at $172 Wednesday. That's 14 percent below the $211 Encore commanded at its opening a year ago, though Allison noted that Aria, with 4,004 rooms and suites, has double Encore's 2,034 units.

Aria will open with 1,500 rooms and have the rest on line by Christmas.

Aria has sold roughly the same number of room nights through Vegas.com that Encore sold just before its opening, Allison noted.

And MGM Mirage spokesman Gordon Absher said preopening bookings at Aria outpaced bookings at Bellagio just before its 1998 opening.

"Bookings are quite brisk, especially with the tremendous amount of local, national and international media coverage we are attracting during our openings," Absher said.

Both Curtis and Allison said the bigger booking volume bodes well for Aria and indicates demand for rooms at the market's higher end, though Curtis said that CityCenter has enjoyed much more publicity for a much longer time before its opening than Bellagio experienced. Plus, Bellagio's rooms sold at a substantially higher premium compared with the rest of the market than Aria's rooms are going for, he said.

Still, Aria "is a bigger property with more inventory, and we're in a soft economy," Allison said. "Given the economic climate, they're really doing well."

Curtis and Allison also agreed that CityCenter's inventory isn't having any visible effect on overall room rates. Rather, the sour economy continues to drive rate trends far more than any specific inventory additions.

The Las Vegas Advisor found lower rates across the board in its December analysis of Strip room prices, but the declines matched drop-offs in the months leading to December, and they weren't unexpected given economic conditions.

"We didn't see any effect from CityCenter. It's not like all of a sudden, whoosh, the bottom fell out because these places (at CityCenter) are available," Curtis said. "We haven't seen that at all, and we haven't seen it in our preliminary research for January, either. No effect can trump the economy right now, not even 4,000 rooms at CityCenter. I don't think we can draw any real conclusions yet, but right now, we don't see anything out of the ordinary with rates."

Allison agreed: "It's really hard to gauge because there are so many other variables in the marketplace. We're seeing OK volume this year compared to last year, but room rates are lower across the board, so trying to tie it back to Aria or Vdara -- I just don't know how you could figure that out."

Room rates among competitors have stayed higher than rates at Aria, and some of CityCenter's upscale peers even raised rates year over year in December. The best offer the Las Vegas Advisor found at Wynn a year ago was $137 a night; today, the most affordable rate there is $159. Palazzo's rate floor has gone from $119 a year ago to more than $160 now.

Bellagio, next to CityCenter, does show some softness in its rates, Curtis noted. A year ago, room rates averaged $149 there, compared with $103 now.

Curtis said he's not ready to link Bellagio's discounts to CityCenter. It's normal for some resorts to drop rates as others push them up, and pricing differences often have to do with hotels' specific booking and revenue-management models. Rates at a hotel might rise as the property bundles bargains for shows and meals into a room-rate package, for example.

Numbers from gaming analysts at Susquehanna Financial Group show Bellagio and Aria both at $224 a night midweek, but Bellagio's $352 weekend room rate is well above Aria's $184 rate.

"It is clear that MGM is aggressively pricing Aria during its first few months to generate buzz and trial," wrote Susquehanna Financial Group analysts Robert LaFleur and Robert Shore.

The analysts added that Aria's prices haven't changed in two weeks, so "there appears to be no real tinkering with Aria's rates at present." But Aria will enjoy a slight pricing premium compared to Bellagio by February. For that month, Aria is booking rooms at $174 a night midweek, versus $154 a night at Bellagio. Weekend rates on advance bookings at Aria are $309 in February, 7 percent above Bellagio's rate.

But it's not Bellagio alone that must watch for the combined effects of CityCenter's new inventory and a shaky economy.

"This is a systemwide thing. It's the rare property that could really go out there and not run with the pack on this," Curtis said. "They're all affected down the line by pressure on people's spending."

Contact reporter Jennifer Robison at jrobison@reviewjournal.com or 702-380-4512.

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Copyright (c) 2009, Las Vegas Review-Journal

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