Saturday, August 13, 2022

Chinese will travel, but Covid-19 raises questions on spending power


Mainland Chinese may still have a thirst for travel post the Covid-19 pandemic, but views are divided as to how much disposable income they may have to spend, especially in the region’s casinos.

China’s economy recorded its first contraction in Q1, since it started publishing such figures in 1992, as the crisis shut down vast swathes of the economy. Although factories are now up and running, worse-than-expected April producer prices showed that the shutdowns now occurring in most of its export markets mean the road to recovery may be longer than initially anticipated.

HSBC chief China economist Qu Hongbin told Bloomberg News in an interview that there is now a risk of deflation in China. While that in itself is a bad thing, it does give policymakers more room for stimulus measures, he argued, which may speed economic recovery.

Still, views are mixed as to how the gaming industry will recover and which market segment will lead.

In a recent Asia Gaming Brief webinar, Ben Lee, managing partner of iGamix Management and Consulting said that the manufacturers and exporters who are the bread basket of the gaming industry had already been suffering from the fallout of U.S./China trade tensions before the current crisis. 

“When Covid-19 happened it impacted an industry that was in the process of moving to another jurisdiction,” he said. “It cut into not only the savings of the mass market, but also the business of the entrepreneurs. Going forward they need to conserve their capital to re energize their business before they have the time or ability to spend on gaming.”

“What that means is increasing commission is not going to encourage the VIPs to come back as they don’t have the time or capital.”

Despite the changes to VIP fortunes, analysts and operators alike still believe that the high rollers will be the first to return to the tables. 

This will create a delicate balance for operators to find a way to make their properties profitable. Not only are they facing reduced numbers of higher-margin mass market arrivals, they will also be restricted from accommodating too many on the gaming floor at any given time due to social distancing measures.

Lee said this problem isn’t relevant in the VIP business, as high rollers do not crowd around tables and naturally socially distance. Though we then come back around full circle as to whether there will be sufficient spending power to create the volumes to both make up for the lack of the mass visitor and the inherently lower margins in the top tier of the market. 

Dr Wolfgang Arlt, founder of the China Outbound Tourism Institute, who also joined the panel discussion, was more upbeat about the China consumer and their willingness to spend. 

“It’s clear for most Chinese outbound travellers they are not paying from their current income they are paying from their savings. Do they have enough money, I think what we see is that people say I’m not afraid to spend money on a trip. Maybe not on a trip to Antarctica, but it will still be the case they will travel and gamble at the same time.”

Bernstein Research has noted that in Mainland China itself, there is an appetite to spend on nightlife and entertainment.

In Guangdong and Fujian Provinces, subway usage, restaurant re-opening, restaurant queuing and nightlife venue reopening continues to outperform the rest of the country with 100 percent of the nightclubs surveyed in Guangzhou now open (vs 40 percent in late April), it said in a recent note.

It also pointed out that executives from Anheuser-Busch told investors on an earnings conference call that the rate of beer sales in nightclubs that had reopened was lower, “but not materially lower,” than the prior year.

Bernstein said it expects the travel restrictions that have caused gross gambling revenue in Macau to dry up almost completely to be lifted in the next few weeks, at least between Hong Kong, Macau and Guangdong.

“The three jurisdictions remain in discussion about reducing travel restrictions, and quarantine requirements are likely to be significantly reduced for certain travelers in the next few weeks. There has been no new information on when IVS visa issuances may begin, but we anticipate a positive announcement as early as late May,” it said. “We expect IVS visa issuances to be implemented in a phased manner with group visa issuances beginning late this summer.”

The firm also pointed out that the annual China People’s Congress is scheduled to begin on May 22 and some positive announcements regarding Macau are likely. 

Morgan Stanley also notes data from Mainland China’s hotel sector is showing an improvement, although it’s the low end and top end of the market which are recovering. The mid-tier hotels were still weak. April revenue per available room dropped 67 percent, improving from a 76 percent drop in March. 

Economy hotels saw RevPAR down 40 percent, narrowing from 63 percent in March, while the decline for upscale hotels narrowed from 81 percent to 73 percent. 

 

Asia Gaming Brief is a news and intelligence service providing up to date market information for worldwide executives on relevant gaming issues in Asia.

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