Monday, August 08, 2022

Australia faces slow growth amidst bush fires, weak VIP

Australia’s gaming industry faces an uncertain 2020, as the catastrophic bushfires deter foreign visitation and hit already softening domestic demand.

The country’s two main operators reported a slowdown in their 2019 statements due to weakness in the VIP market as a result of China’s economic slowdown. They now have to contend with the likelihood of a further downturn in tourism dollars and a drop in discretionary spending at home.

Consumer sentiment had already weakened significantly in Australia before Christmas with the Westpac index of consumer sentiment down 1.9 percent in December from the prior month and down 8.9 percent from the year earlier. 

Domestic revenue is the backbone of Australia’s gaming industry and in the year to end-June had been the bright spot, helping to offset falling VIP spending.

“In our view, the fallout from the bushfires may further dampen sentiment towards gaming as domestic leisure travel, or general entertainment spending may be put on hold as people prioritise the rebuilding of those areas destroyed by the fires,” said Fitch Ratings analyst Kelly Amato. “However, we do not see this as likely to have a material impact on the earnings of the casinos, with these revenues having been relatively resilient historically and continuing to be supported by favourable licence conditions (one casino per major city currently). 

“Likewise, there may be some decline in VIP revenues should foreign VIPs postpone plans to come to Australia owing to the bushfires, however VIP revenues are historically volatile and make up a small proportion of the domestic casinos’ earnings.”

Australia’s IRs are mostly located in large urban centers such as Sydney, Melbourne, Perth and Brisbane, which apart from the smoke have not been affected by the fires. However, the country is estimated to have some 196,301 gaming machines installed in bars and clubs across Australia, representing about 2.6 percent of the global total, according to the Gaming Technologies Association.

J.P. Morgan analyst Don Carducci adds that the main impact in terms of Australia’s gaming industry will be on these pubs and clubs in locally affected areas. 

However, “The casinos will likely see tourism reduced in 2H20 results due to lower inbound visitation,” Carducci said. “I imagine forward bookings for airlines will see commentary in February mention softer trading for mid/late 2020 international volumes.”

The bush fires had ravaged an area of 10.7 million acres, bigger than Belgium, as of Jan. 8, devastating large swathes of Victoria, New South Wales and South Australia. At least 26 people have been killed and more than half a billion animals are thought to have perished, among them critically endangered species that may never recover. 

In the year to end-September, before the wildfires took hold, Australia had welcomed more than 9.4 million tourists, an increase of 2.7 percent on the prior year. For 2020, Tourism Australia had projected total tourism spending of $44.6 billion, up 5 percent, creating an industry worth between $115 - $120 billion.

As of yet, the tourism authorities have not updated their forecasts for the coming year, although analysts estimate a loss of tourism earnings will be a drag on the economy.

In early January, Philippa Harrison, managing director of Tourism Australia encouraged visitors to not cancel their plans, pointing out extensive areas of the country remain unaffected. 

“Whilst bushfires continue to impact parts of Australia, many areas are unaffected and most tourism businesses are still open,” she said in a statement on the organisation’s website.

“It is more important than ever that we rally around our communities and the tourism sector who may have been impacted.”

Star Entertainment, which operates a casino in Sydney, The Star Gold Coast and is developing an IR in Brisbane, cancelled its New Year fireworks display on the Gold Coast as a result of the disaster, saying instead it would donate the funds to firefighting charities. It also donated profit from the sale of drinks at its Garden Kitchen and Bar.

“Given the periods of emergency that have existed, and the destruction of property that has taken place, we felt there was a more thoughtful and telling contribution we could make than continuing with our annual fireworks display to welcome in the new year,” Star Gold Coast COO Jess Mellor said. 

The company has also announced it will grant paid leave to workers volunteering to sign up for emergency services.

The gaming and entertainment group has a new company policy allowing four weeks paid leave for workers called into action during natural disasters, which can be increased on request. So far, the group has donated $150,000 to relief efforts.

For its part, Crown Resorts and the Packer family foundation have donated $5 million to firefighting and other charities dedicated to helping those affected by the bushfires. 

“We hope these funds play a small part in helping our firefighters, and easing the suffering of people who have lost their homes and the poor wildlife caught up in the blaze,” James Packer said. “We just want to do our bit.” 

While the most obvious fallout from the fires is likely to be on reduced tourist visitation and on domestic consumer sentiment, there are other knock-on effects likely to hit the industry, such as rising insurance premiums as a result of climate change. 

In December, Reef Casino Trust, which owns a casino of the same name in Cairns, reported that its annual insurance premium had gone up by $487,000 to $1.3 million, with reduced loss coverage for events, such as named cyclones and floods.  

Queensland Tourism Industry Council’s chief executive, Daniel Gschwind was cited as saying in local media that “Insurance companies have for a number of years highlighted their concerns about climate change. I guess they have made an assessment in terms of how globally we’ll deal with this – or not deal with this – and they’ve sent us the bill.”

According to the Australian Insurance Council, as of this week, insurers had received 8,985 claims since September from New South Wales, Victoria, Queensland and South Australia. Many more claims are expected to be lodged in the coming days and weeks and insurance losses currently stand at $700 million.

Costs are also expected to rise for a wide range of essential items, especially fresh fruits and vegetables and potentially wine. 

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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