MGM Taking Airline Approach to Boosting Earnings
In an effort to enhance profits and reduce expenses, MGM Resorts International (NYSE: MGM) is adopting strategies from the airline sector by implementing increased fees and cost-saving measures.
During the J.P. Morgan Gaming, Lodging, Restaurant and Leisure Management Access Forum held last week, leaders from the top operator emphasized profit-increasing and expense-reducing strategies, including increasing ATM fees and transferring room furniture between properties instead of purchasing new sofas and desks.
"If you’ve bellied up to an ATM machine lately, it wouldn’t surprise you to know that those fees have gone up,” said CEO Bill Hornbuckle at the conference. “Some of its fee-based based on general volumes and we were under-market in a couple of instances. We’ve positioned ourselves well and we’re already seeing a return.”
These actions follow MGM's announcement last December regarding increased parking and resort fees at all 12 of its properties on the Strip. Self-parking at MGM casino hotels on the Strip costs $20 per day from Monday to Thursday, with the rate increasing to $24 daily on Fridays, Saturdays, and Sundays.
MGM Charges Might Enhance Profits, Yet Clients May Hesitate
Last year, the Bellagio operator informed analysts and investors that its plans to reduce costs and increase fees might contribute $200 million to its earnings before interest, taxes, depreciation, and amortization (EBITDA), with $150 million of that gain possibly being achieved this year.
If the actions seem recognizable, it's because they recall trends seen in the airline sector over the years, where airlines have charged passengers for various items, including checked luggage, headphones, and in-flight meals. It’s no surprise that customers dislike the sensation of being nickel-and-dimed.
On the Reddit Vegas forum, several users criticized MGM’s acceptance of increased fees, theorizing that the operator aims to concentrate on wealthier customers while excluding price-sensitive consumers. Some mentioned that the increased costs are off-putting for both residents and visitors.
Regarding the increased ATM fees, MGM previously had lower charges than its competitor Caesars Entertainment — the second-largest player on the Strip — but the recent decision by MGM to elevate these fees serves as a reminder to patrons that withdrawing cash from an ATM at almost any casino on the Strip can incur costs ranging from $10 to $20, not including any fees imposed by the patron’s own bank.
That Sofa May Seem Recognizable
Regular visitors to MGM’s Strip casino and hotels, especially those who visit several properties, may find room furnishings at one location that they previously saw in another room. This is due to the fact that “furniture recycling” represents one of the ways the operator is reducing costs.
For instance, the $300 million renovation of MGM Grand currently in progress has led to some fixtures being relocated to the Excalibur. Earlier, MGM transferred certain furniture pieces from the upscale Bellagio to the Luxor.
“We’re going to reduce the age of our rooms from nine years a few years ago to four years now and that will allow us to sustain growth and average daily room rates and retention and growth of this high-value group business among other things,” said CFO Jonathan Halkyard at the J.P. Morgan conference.