Macau Golden Week Flops as Punters Stay Home
In normal times Macau would be enjoying a stampede of tourists. After half a year of a complete revenue drought, the city’s casinos would have been hoping the highly anticipated Golden Week would be a bounce-back in fortunes. The holiday which marks the founding of the People’s Republic is usually marked by a tourism population twice the regular size.
Despite Beijing rekindling the visa program for gambling visitors from overseas, Macau’s gaming floors have not felt any material differences and the venues remain all but deserted. The most optimistic estimates currently circulating amongst various key stakeholders are that Golden Week 2020 will generate a maximum of half of normal capacity, a huge disappointment for an industry that represents a large portion of Macau’s local economy in 2019.
No brand is immune from the drying up of casino customers – from Wynn Macau to Melco Resorts and the countless other startup brands, no one on the strip is expecting to experience any rebound. According to IGamiX, a gambling industry consultancy, the industry will experience just 30% of its normal $1bn revenue generation. There is a perception, though, that Golden Week is the first of a series of steps back to brighter days.
Amidst all the uncertainty on the long-term sustainability of the Macau gaming industry, there is a consensus opinion forming that revitalizing the sector will take considerable time. All operators have taken steps to shore up financial liquidity, utilizing debt financing instruments in several cases as to not devalue their share prices.
Las Vegas Recovery Outshining Macau
The tremendous recovery enjoyed by the Las Vegas reopening which hit revenues in July of 60% normal capacity has given a new underwhelming sense of disappointment to Macau’s dismal performance. The Macau gaming industry is normally five times greater in terms of gaming returns than Las Vegas. Similarly, Nagacorp Ltd the largest gaming brand in Cambodia, gaming revenue hit 90% of pre-Covid levels following the reopening of its main complex in July.
The contrast couldn’t be any more discouraging. Macau is expecting to generate just 12% of pre-Covid in September 2020. The major drought in revenue comes despite the Macau government stepping up its acceptance of global visas and Chinese mainland citizens being able to freely travel to the city.
Local Gambling Industry’s Future Stability in Doubt
The negative outlook has exacerbated pre-existing concerns in the overreliance of the gambling industry within the Macau economy. The sector was already in dire straits pre-Covid, due to increased local competition, the slowdown of economic growth across China, and political chaos in neighboring Hong Kong. The pandemic has exposed deeply rooted vulnerability in the Macau economic model, the overreliance on gambling and tourism.
Travel agents operating in the region have alluded to a set of unfavorable entry requirements as a potential reason for the downturn. Arrivals have to provide a negative test before being allowed through the border. Moreover, visitors are wary of being trapped in Macau if there is a sudden spike in cases. Hotels throughout the city are feeling the hit too, with only five out of 23 reporting full bookings during the Golden Week.
Prices across the city have taken account of this major demand shock. Hotel room prices are down 40% compared to 2019, and a variety of other amenities such as restaurants, day excursions, and chauffeur services have had to slash prices to attract the scarcity of market demand.
Macau Steps Up Revival Efforts
The Macau Tourism Office has launched a myriad of creative campaigns in mainland China to try and spur new excitement in the city. One such scheme is a $36 million voucher scheme – winners of the lottery competition will be awarded customer vouchers to spend across the city at a variety of premium venues.
Another point of concern for the Macau government is the eroding popularity of the city amongst wealthy Chinese citizens. Approximately half the gambling industry’s revenue comes from a small minority of VIPs. The junket operators utilized to facilitate cross-border transactions have been the target of a Beijing crackdown in recent months labeling it a “profound financial risk”.
Active steps are being taken by the authorities in China to hinder the capital outflow to offshore gambling companies. The Chinese government began freezing bank accounts and arresting thousands of individuals working to circumvent the strict laws. Despite gambling in Macau being legal, many regular VIP clients of the city have been spooked by the aggressive position adopted by the government.
The Macau land-based casino industry’s recovery is tied to the liquidity of Asian junket operators. Unfortunately, the junkets which enjoyed a long-period of financing high-stakes gamblers en masse is facing a major shortage of cash and customers. Pacific Intermediary Co is one such company serving VIPs in Macau, but since lending operations have been hindered they are finding it very difficult to stay afloat.
Business leaders in Macau have exhausted a series of revival measures in an effort to overcome the challenges of 2020. In order to survive the city will need to diversify its income away from land-based casino classics such as roulette and blackjack. In the past decade, the city’s biggest operators have attempted to use shopping malls, amusement parks, and entertainment venues. Future development into food & beverage, retail, leisure, and infrastructure are essential if Macau is to launch a successful recovery in 2021.