Tuesday, August 16, 2022

Virus exposes China risks


The Covid-19 outbreak has highlighted once again how one of the biggest draws for casino investors in Asia can become the largest liability.

Operators and tourism authorities across the region have become increasingly reliant on the big spending Chinese outbound traveller. Some 170 million people travelled outside the country last year, swelling the coffers of IRs across Asia.

Therefore, the impact of the lockdown of several Chinese provinces and the travel bans imposed by authorities around the globe is not going to make for pretty reading once operators begin releasing their financial reports.

We already know that Macau, which shutdown its casinos for 15 days, saw an almost 88 percent plunge in gross gambling revenue in February and is on track for similar losses in March. Wynn Resorts told investors it was losing $2.5 million a day as a result of the closures while MGM China put the figure at about $1.5 million.

Even though the properties have now been allowed to reopen, albeit with restrictions, there is a major question mark over where the guests are going to come from. Out of 39.5 million travelers in 2019, 70 percent came from Mainland China, that rises to 90 percent if you include visitors from neighboring Hong Kong.

The government has paid lip service over the years to expanding its visitor base and attempting to drum up business from countries elsewhere in Asia. But at the end of the day, speak to any analyst and it’s the forecast for Chinese outbound travel that really drives projections for growth for years out into the future. The penetration of the giant Chinese market is still low, with most visitors to Macau still arriving from the bordering provinces.

As transport links into the Chinese hinterland improve, a whole new wave of Mainland visitors is tipped to make Macau their first destination for a foreign vacation.

Yes, there is some research showing Macau’s popularity may have slipped amongst more experienced and younger travelers, but given the sheer numbers involved when talking about China’s population and wealth creation, that still leaves a lot of visitors for the former Portuguese colony.

The over reliance on China and on gambling is a conundrum for policymakers responsible for the wellbeing of the local economy and community. But for the operators, after every storm there has been a rainbow which does indeed have a pot of gold waiting.

Outside of Macau, there’s also likely to be significant pain, especially in those jurisdictions where locals are banned from gambling, such as South Korea, Cambodia and Vietnam. Their visitor base may be more diverse than Macau, but in most cases the big money comes from China and the lack of visitors as a result of travel bans will significantly hurt revenue.

Here, there is more that could be done to reduce the China-dependency risk if governments were willing to review their policies on local support. Both Vietnam and South Korea would be seen as highly desirable markets.

Vietnam is trialling a pilot program, but it’s extremely limited and not expected to be expanded in the near future. For the others, it’s just a pipe dream.

The numbers from the Philippines will be interesting reading. Over the past few years, the split in gaming revenue between locals and tourists has been evolving as the glitzy new resorts in Entertainment City have opened.

The IRs have drawn in the VIP gamers, helping to make the Philippines one of the best-performing markets in Asia. However, the properties there still enjoy good support in the mass market from a large local population. The country has more than 100 million people with an economy that expanded at a 5.9 percent clip in 2019.

Before President Rodrigo Duterte mended ties with Beijing after his election in 2016, the country had a rocky relationship with China and therefore has not traditionally been reliant on Mainland travelers. South Koreans made up the biggest share of its more than 8 million arrivals last year, with China in second place, followed by the U.S. and Japan.

It won’t have escaped the coronavirus rout. Gaming there has been closed across the country due to the crisis, however, it will be interesting to note where demand bounces back most strongly.

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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