Asia tourism prospects shine bright for Australia's Star

The Star Entertainment Group, formerly known as Echo Entertainment Group, is undergoing a group-wide renaissance, reshaping its brand identity and revamping its properties to take advantage of a forecast surge in Asian tourism.

Its vision for The Star Sydney complex is a prime example, with a planned spend of about $1 billion ($701.4 million) to upgrade the property, including a $500 million luxury hotel tower, more shops, restaurants and amenities. The revamp is likely to give the company a jump-start when it comes to taking advantage of rising demand ahead of the arrival of James Packer’s six-star Barangaroo project in 2020.

In a recent report, Morgan Stanley forecast a 15 percent compound average growth rate for Chinese tourism in Australia through to 2020, accelerating to 17 percent from 2020 to 2025. Chinese tourism spending is forecast to rise from AU$5 billion to AU$13 billion by 2020.

The two Sydney developments are part of an Australia-wide boom in casino investment. Three more properties are planned in Queensland, including the redevelopment by The Star of the Queen’s Wharf site in downtown Brisbane. The Star Entertainment Group CEO Matt Bekier says the added capacity is much needed as he is “absolutely convinced” the next boom for the country will be from tourism.

Swiss-born Bekier - an executive from the old guard and “architect” of the TABCORP demerger while then CFO - is now the longest-serving CEO at 18 months on the job. He says tourism is going to be the big story for Australia in the next 20 years.

“We need to build up capacity and participate in that proposition,” he told AGB in an interview in Sydney.

According to data on affluent Chinese, Australia is the number one destination in terms of desirability, yet comes much further down the list in terms of actual visitation. In the last few months there has been a 40 percent increase in Chinese inbound tourists, with Mainland China having now overtaken New Zealand as the largest source of visitors for New South Wales.

And around one third of the Asian visitors in NSW find their way to the casino, Bekier says, adding that their research shows that the tourist likes to do two to three destinations, typically two city destinations and then something else.

“The opportunity for us is if they come to Sydney, we’ll also take them to the Gold Coast and eventually Brisbane. If they arrive into Brisbane – a great access point, runs 24 hours, no curfews – they get that as a first city destination before moving to the different experience of the Gold Coast.”

"Investors like that we are working with our partners Chow Tai Fook and Far East and not trying to fund everything on our own”

Bekier thinks that when Barangaroo opens in Sydney the city will be such a great destination with the two new hotels and additional facilities including high-end casinos that it will provide an opportunity for VIP customers to spend more time in Sydney rather than traveling between Sydney and Melbourne..

The short-term headlines focusing on a downturn in the Chinese economy, slumping stock markets and crumbling gaming revenue in Macau mask a longer-term shift in wealth and spending amongst the Chinese that will ultimately support outbound travel.

Household wealth is rising. Last year, the Chinese middle class swelled to 109 million adults, vaulting ahead of the 92 million adults that form part of the American middle class, according to a Credit Suisse report. The number of Chinese dollar millionaires is expected to reach 2.3 million by 2020, a 74 percent increase over 2015.

In the 90’s, about nine percent of disposable income was spent on leisure and entertainment. Now it’s about 16 percent and in 2020 it will be over 25 percent.

“Not only are the wallets getting bigger, but they are also spending differently and the number one thing they want to do is travel and have experiences,” Bekier says. “As a result, Chinese outbound tourism is going through the roof. That provides us with an opportunity. These are not high roller VIPs, but more premium mass. A lot of them are US dollar millionaires.”

He says the typical Chinese visitor spends around nine days in Sydney and spends about AU$8,000, more than any other tourist.

The Star observed 50 percent growth from international VIP business in 2015. The Group’s overall business mix is 70 percent domestic and 30 percent international VIP.

To capitalize on this forecast demand, Star has begun to recruit a team that will be based out of Hong Kong and Singapore to actively market to the premium mass. Currently the group has around 25 sales reps in the region and has recently recruited a new head of International VIP Business Development.

“We have had good growth out of South East Asia and from China over the last couple of years. The SEA customer is slightly different from that of China, typically direct (no junket) and more experience. The profile is that of a player who has been around the region and the world – very serious players. A lot of the Chinese players don’t have quite the same history and run through junkets.”

All the properties are also being rebranded to achieve a single identity. By the end of the year Jupiters will be rebranded to become The Star Gold Coast and Brisbane will be called The Star Brisbane when the Queen’s Wharf development becomes operational around 2022.

Jupiters, a large casino with plans for multiple hotels and signature F&B venues, and adjacent to the biggest shopping mall in Queensland, will benefit from a massive revitalization. Within the next nine months all the existing 592 hotel rooms will be refurbished, followed by the construction of a new six-star all-suite hotel tower the year after, and many new restaurants. As of today, around one third of the planned F&B venues have already been built.

“You will be seeing a stronger marketing presence in markets where we need to be, Macau, Singapore, to establish the brand. It’s going to take us some time but we can’t do it under different umbrellas. Indonesia, Malaysia and Singapore are markets also showing potential for growth,” said Bekier.

The loyalty system that was called Absolute Rewards will now be called Star Club. The private gaming rooms which currently have different names in different properties are being aligned to the tiers of the loyalty system and all the names will be consistent.

“If you’re a “black” player in Sydney you will have access to a similar experience on the Gold Coast and in Brisbane so people know where to go. I’m Swiss I need order,” says the CEO.

However, the current lack of capacity in Australia may serve as an impediment to growth unless the problem is addressed. In December, five-star hotel utilization in Sydney was 97 percent, and has been running at capacity for a while now. Bekier says The Star could do with 1,000 hotel rooms in Sydney.

Star has teamed up with Asian investors Chow Tai Fook and Far East Consortium to develop its Brisbane resort and to potentially help finance the expansion in Sydney. Hong Kong-based Chow Tai Fook boasts a jewellery chain and property development amongst its businesses and the group is planning to leverage the company’s extensive Chinese client base.

With a retail client list of around 1.4 million and connections with another 50 million Chinese travellers the prospects are fairly substantial, Bekier says.

Commenting on Star’s ongoing prospects, Bekier says: “I think investors like the fact that we are driving new and multiple lines of business. We are tapping into the domestic business, the international VIP and continue to gain and expand market share. Investors also like that we are working with our partners Chow Tai Fook and Far East and not trying to fund everything on our own.”

Morgan Stanley says it expects Australia’s share of the VIP market to continue to rise, after a gain from 4 percent to 5.9 percent of the global market in 2015. It says Star is likely to be a key beneficiary, given its head start in Sydney, the international gateway city, and its ultimate monopoly in Brisbane.