David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Wandering through a five-star hotel lobby while the sound of a grand piano tinkles off the marble flooring, it's easy to imagine the lodging industry is all about glamour and pizzazz. In fact, it's a brutal commodity business, struggling to maximize daily sales of a perishable asset -- room nights.

Every day a room is unoccupied is a waste of electricity, rent and staff costs -- not to mention the money paid to lenders and all the stuffed shirts in head office. That means hotel operators watch the dynamics of supply and demand with the same obsession as oil traders. 

Going Global
Starwood makes much more of its money overseas
Source: Company reports

It's no coincidence, then, that Marriott International is paying $12.2 billion for Starwood Hotels & Resorts just as the U.S. hotel market looks to be entering its first room glut in years. Starwood makes about 82 percent of its sales overseas and only 18 percent domestically. Marriott is its exact mirror image, according to data compiled by Bloomberg, so it looks overexposed to any looming oversupply in the U.S. 

There's a warning in this for Macau, a market that's been somewhat immune to the usual supply-demand dynamics amid explosive growth over the past decade. Even during the peak of its boom in 2013, Macau's occupancy rates rarely crept ahead of those in Las Vegas:

We Have a Vacancy
Macau's occupancy rates have rarely kept pace with Las Vegas
Sources: Las Vegas Convention and Visit Authority, Macau Direccao dos Servicos de Estatistica e Censos

Some of that discrepancy is justified. With gaming revenue of 352 billion patacas ($44 billion) in 2014, or almost seven times that of the Las Vegas strip, Macau's travel industry can lean less heavily on room revenue as a source of income. You'd also expect to see more slack in a high-growth market as hotel operators build capacity for next year and the year after. Still, Macau's gambling market is maturing, with revenue down 28 percent from a year earlier in October and the government pushing operators away from $10,000 hands of baccarat and toward more family-friendly fare such as the Batman ride and Ferris wheel at the city's latest resort, Melco Crown's Studio City.

That slowdown is alarming when you consider the coming flood of new rooms at the major casinos:

There's More to Come
Macau's big resorts are in the process of adding nearly 10,000 rooms
Source: Company reports
Note: Melco Crown "planned" total includes Studio City, opened Oct. 27

The government's mass-market push has attracted its share of complaints. Steve Wynn, the Vegas mogul who's spending $4.1 billion on his second casino in the city due to open next year, said last month that the government's sniffy attitude to gambling is hurting the viability of mass-market investments. ``The reason that these extraordinary non-gaming attractions exist is because the damn casino is the cash register," he told investors on his third-quarter conference call

He has a point. While Macau is pushing operators to concentrate less on the top end, occupancy rates indicate that's where the most demand can be found at the moment:

Putting on the Ritz
Macau's 5-star hotels are filling more rooms than the cheaper ones
Source: Macau Direccao dos Servicios de Estatistica e Censos

That's a reversal of the natural order in the hotel industry, where higher-margin luxury hotels should be able to afford somewhat lower occupancy rates than their less profitable peers in the mid-market and bottom end.

While Marriott is displaying the antennae of an expert commodities trader in spotting where the demand is and responding accordingly, Macau's government is pushing its casino operators to defy the market.  ``Build it and they will come,'' to paraphrase Field of Dreams, sounds like a great motto for those who want to ignore the bean-counters, but it's worth remembering that the line is spoken by a farmer who plows up his cornfield at the behest of baseball-playing ghosts. Macau's casinos need fewer dreams and a few more beans.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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David Fickling in Sydney at

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