MGM Resorts Sees Travel Costs Draining Las Vegas Pricing Power

Key Points

• MGM Resorts’ Strip net revenue fell 2% to $2 billion and adjusted EBITDA plus rent fell 12% to $531 million, with JPMorgan’s Dan Politzer noting eight consecutive quarters of Strip RevPAR declines.
• Hornbuckle blamed airline pricing first, citing airfares about 45% higher than last summer and the loss of Spirit Airlines’ low fares; federal data via Cirium showed Las Vegas fares up 22% in March and 20% in April, against 12% nationally.
• Occupancy held up while rates fell — citywide September occupancy was flat with ADR down 6% — and group and convention bookings topped 500,000 room nights, with December looking softer on less convention business.

Summary

MGM Resorts, which controls 40% of Las Vegas Strip hotel rooms, reported a soft third quarter on the Strip, with net revenue down 2% year over year to $2 billion and adjusted EBITDA plus rent down 12% to $531 million. CEO Bill Hornbuckle pointed to airline pricing first, saying airfares to Las Vegas ran about 45% higher than last summer, and he tied the shift to the disappearance of Spirit Airlines’ low fares and how other carriers now price the market. Room rates slid through the quarter: roughly flat in July, down a mid-single-digit percentage in August, and down a high-single-digit percentage in September, with declines spreading beyond budget properties, according to COO Ayesha Molino. Citywide data from the LVCVA showed the same pattern — August RevPAR fell 11.5% to $111, and September occupancy held flat while average daily rate fell 6% — which points to a pricing problem more than a visitation problem. International demand remains weak, with Hornbuckle saying Canadian travel to the city is down more than 30% over two years, which he attributed in part to “political rhetoric.” Group and convention business was the offset, with more than 500,000 room nights booked in the quarter, ahead of internal targets, and executives said October is tracking closer to July, with Formula One expected to lift November and December bookings running softer on less convention business.