With room rates and gaming revenues down and visitor volume flat, MGM Mirage last week laid off 400 supervisors and managers as part of a $75 million cost-cutting plan.
The layoffs fueled a new round of headlines with questions about whether Las Vegas, which is coming off record growth, can live up to its recession-proof reputation. While recent numbers suggest Las Vegas is feeling the softening economy, experts say it is too soon to say if it is a trend.
"I think we need a few more months before we can say we're definitely trending ... downward," said Frank Streshley, senior analyst for the Nevada Gaming Commission.
"We have had two months in a row where we had declines [in gaming revenues], and three out of the last four have had declines," he said. "But when you look at the monthly numbers ... October was an all-time gaming revenue month and we turned around in November and had a double-digit decline. We came back with a record-strong December."
Gaming revenues in January and February dropped 3.99% and 4.05%, respectively, from the same months in 2007. Although gaming revenues fluctuate, largely depending on events and conventions, it was the first time since spring 2003 that Las Vegas has seen gaming revenues decline two months in a row.
Visitor volume dropped 0.6% in January, then jumped 3.1% in February, which had an extra day this year. Each extra day equals about 3 percentage points, Streshley said, meaning visitor volume was likely flat.
Hotel occupancy levels for January and February were slightly lower, by .5% and .9%, respectively, than in 2007, but as percentages they are still hovering in the mid-to-high 80s. "You can't do much better than that," said Bruce Baltin, an analyst with PKF Consulting. "Ninety percent is kind of where they tend to peak out."
Indeed, Las Vegas occupancy levels are way above last year's national average of 63%, which is considered high. And they are 10 percentage points higher than the post-9/11 lows Las Vegas recorded in January 2002.
Baltin noted that Las Vegas is coming off a record year. In fact, gaming revenues have increased every year since 1970, except for 2001 and 2002. He also said that while occupancy levels were down slightly, inventory had gone up.
"This is not unusual for Las Vegas," he said. "When we have had economic downturns in the past Vegas has softened, but it usually rebounds pretty quickly, too."
Still, casino and hotel operators are feeling the declines, however slight, reporting that visitors are spending less, staying fewer nights and opting for cheaper rooms.
Average daily room rates in January and February were $130.96 and $128.8, respectively, down 2.5% and 5% year over year but higher than in 2006.
But that was after they jumped in all but one month of 2007, including a 10% hike in December.
"Although it has taken a few months, the economy's impact can now clearly be seen in our industry," MGM Mirage spokesman Alan Feldman said. "MGM Mirage's revenues have softened and our operating margins are down from their usual levels."
The MGM layoffs, which represent less than 1% of MGM's 70,000 global employees, are part of a cost-reduction plan put in place when the credit crisis hit last summer. "This is an industry which requires nimble reaction to market conditions," Feldman said.
The bulk of layoffs took place in Las Vegas, where MGM Mirage operates 10 resorts on the Strip, including the Bellagio, MGM Grand, Mirage and Mandalay Bay, and is building the massive $8.4 billion CityCenter.
Feldman told the Associated Press no further cuts were planned "unless the economy should take a serious dive for the worse." But MGM declined to comment on whether it had changed its forecast for the year.
During a call with investors earlier this year to discuss its 2007 earnings, MGM said January occupancy on the Strip was off 10%. But it said February would be flat and that the numbers would get better as the year went on.
Las Vegas has also recently seen several high-profile projects hit the skids. The Cosmopolitan Resort and Casino is facing foreclosure, and the owners of the Ritz-Carlton at Lake Las Vegas filed for bankruptcy protection.
The problems with those projects, however, are largely unrelated to visitor and gaming volume, analysts say.
Still, Baltin insisted that Las Vegas overall remains healthy, as does MGM's CityCenter project.
"Even though the Las Vegas market is very healthy, obviously the market includes a lot of individual developers and developments that have their own challenges," he said.
To contact reporter Jeri Clausing, send e-mail to [email protected].