By Dave Berns,  H&MM Contributing Editor

It's Steve Wynn's ode to conspicuous consumption-an Italian-themed high-end gaming resort in Las Vegas that will display masterpieces by Renoir, Monet and Matisse. With a construction budget of $1.5 billion and an appeal to $250,000-a- hand baccarat players, Bellagio will become Mirage Resorts' signature property when it opens in October.

For more than a year, casino industry executives and Wall Street financial analysts have looked to Wynn's Bellagio as the tonic to cure the desert city's ills. A relatively small increase in visitor growth, declining hotel occupancy rates and a drop-off in the number of airline flights to Las Vegas, have left many worried about the city's short-term future.

"We've seen some bad indicators," said Bill Thompson, a University of Nevada-Las Vegas business professor. "Rooms haven't been as full. Spending is down, and the question is capacity." Bellagio, many hope, will change all that. Unlike the 15,000 Las Vegas hotel rooms added since 1995, Bellagio will be the first in a wave of must-see
attractions. Along with Hilton Hotels' Paris, Circus Circus Enterprises' Mandalay Bay and Las Vegas Sands' Venetian, the new hotels with an estimated 10,000 luxury rooms combined are expected to jolt Las Vegas' annual visitor total to 35 million from 30 million. However, industry observers worry many of the trends that have gripped the gambling mecca since early 1997 will demand a greater cure than the opening of four mega-resorts that carry a combined price tag of $4.9 billion.

"I don't know what to blame more, the hotel operators or the airport, but the fact of the matter remains that we're not going to have enough people to fill all of those rooms," said Maria Vallejo, a Deutsche Morgan Grenfell casino industry analyst.

This was to be Las Vegas' year for financial resurrection, the time when Las Vegas Strip hotels steadily would increase their occupancy rates to a more- traditional low- to mid-90-percent range. Occupancy rates in the mid-80s might be outstanding for an upscale resort in Southern California, but operators such as The Mirage are accustomed to turning away reservation requests-not slashing rates to fill beds.

"Sure, they're worried. They're nervous," said Alan Feldman, v.p. of public affairs for Mirage Resorts. "Consider the leverage of one point of occupancy and what that means."

In 1997, occupancy rates were down 0.8 percent to 98 percent at Mirage Resorts' four Las Vegas - area properties - The Mirage, Treasure Island, Golden Nugget-Las Vegas and Golden Nugget-Laughlin. With a base of 8,300 rooms, that decline meant  the loss of more than $280 million in room revenue for Mirage Resorts, which is
in a business that relies upon high occupancy rates to drive other revenue streams.

Overall, the city's occupancy rate was down 4 percent in 1997 to 86.4 percent, according to the Las Vegas Convention & Visitors Authority. The city's room base increased 6.3 percent last year, while the visitor rate rose just 2.8 percent, according to the convention authority. Figures are not yet available for the citywide average daily room rate in 1997, but many companies have reported their numbers were flat or off slightly for the year. Strip resorts that were charging as much as $89 per night in 1996 had dropped their midweek rates to $39 a night
in 1997.

"Rooms, shows, retail, gambling-an unoccupied room is zero revenue in all of those areas," Feldman said. "When occupancy flutters in any sort of downward trend, the shivers are felt throughout the town."

Backing off Baccarat

Contributing to the collective shakes is uncertainty sparked by the Asian financial crisis. Deutsche Morgan Grenfell's Vallejo is projecting that baccarat play could be off as much as 20 percent this year, or slightly more than $100 million total at Las Vegas' high-end casinos.

The game, which is a favorite among wealthy Asian gamblers, is considered a measure of the health of The Strip's largest resorts. Twenty Nevada casinos- including MGM Grand, Caesars Palace and The Mirage-offered the game in the 12 months ending in November, generating $534 million in revenue. Overall, the state's casinos generated $8.3 billion in revenue during that period.

"Asian economies generally move independent of one another, but this is an unusual circumstance where they're all pretty much depressed together," Mirage Resorts' Feldman said. "How that will impact The Strip remains to be seen."

Meanwhile, a new issue has arisen in recent weeks, with financial analysts noting several of the nation's largest long-haul airlines have decreased their seat capacity to Las Vegas during the past year. Airlines, including America West, United, Delta, Continental and American, have sliced the number of flights or seats to McCarran International Airport, which traditionally has lured low-cost, low-margin airfares. Overall, the total number of daily seats was down 1,830, or 6 percent between January 1997 and January 1998, according to Jason Ader, a Bear, Stearns & Co. financial analyst.

"Air seat capacity has been enhanced by several short-haul carriers over the last year, but the air service offered by these airlines does not serve the middle- to high-end visitor being targeted by the developers of the 10,000
luxury rooms scheduled to open through the year 2000," Ader said.

The revelation prompted Sen. Richard Bryan, D-Nev., to call for a meeting of government, business and tourism leaders to develop ways to increase air traffic to Las Vegas. "We can't sit back and watch a problem developing and do nothing to overcome it before it gets to a more serious level," Bryan said.

Expensive Land

The collective fears come as land prices rocket along The Strip. Phoenix-based Aztar Corp., which owns the Tropicana, recently valued its land at $7 million an acre. Venetian builder Las Vegas Sands had its Strip-front site appraised at $5 million an acre. That compares with the $60.5 million, or $700,000 per acre, that Mirage Resorts paid in 1993 for the old Dunes, which was imploded to be replaced by Bellagio.

"If Las Vegas land prices continue to rise, we believe other newly built properties could be at more of a competitive disadvantage versus Bellagio," Prudential Securities analyst Joe Coccimiglio wrote in a recent report. "The skyrocketing cost of land would leave less to spend on entertainment features, making new properties less competitive with Bellagio."

Coccimiglio estimated 2 percent of Bellagio's budget relates to land costs, allowing Mirage Resorts to spend more money on entertainment, retail shops and restaurants. He estimated Venetian's land costs consume almost 20 percent of the budget for its 3,000-suite project at the site of the old Sands.

Despite projected growth in the city's room base versus a relatively flat increase in visitor volume, Mirage Resorts' Feldman said he remains optimistic about the short- and long-term prospects of the casino industry.
"Our industry is faced with a regular series of challenges on a daily basis," he said. "We have found ways of dealing with these in the past, and I'm certainly hopeful we're going to find that same creativity to summon up solutions for the issues we're dealing with now."