How Australian casino operators are combating the high-roller drought
Despite the return of direct flights between Australia and China, it will take a while for wealthy Chinese gamblers to return. Here’s why.
A recovery in wealthy Chinese gamblers is likely to take another 18 months, despite the return of direct flights between Australia and China, according to S&P Global Ratings.
S&P credit analysts Shawn Park, Aras Poon and Tristan Ong, say Asia-Pacific gaming markets were facing fewer Chinese players at the table as the nation’s economy slows and tourists take shorter trips.
But Australian operators are better placed than rivals in other markets in the region after they abolished Chinese junkets – or gambling tour groups – in the wake of several explosive inquiries. In particular, S&P analysts highlighted the performance of SkyCity, operator of Adelaide casino, as being able to wean itself from cashed-up Chinese gamblers.
“We expect Chinese tourists to take about 12–18 months to return to market more meaningfully. Except for Macau, Chinese visitation to other markets still has a lot of catching-up to do,” the analysts said.
“Chinese tourists are showing a growing preference for shorter trips, and are increasingly travelling at home amid the depreciation of renminbi and government efforts to stimulate the weak economy by promoting domestic tourism. Travellers also have less appetite for spending, in our view, and pent-up demand is likely on a diminishing trend.”
“The absence of Chinese junket operators has rocked some gaming markets and will continue to affect some gaming companies. Not all gaming revenues in Asia-Pacific markets will recover to pre-pandemic levels, but earnings for most should normalise over the next 12–24 months.”
The warning comes as Star Entertainment chief executive Robbie Cooke said he is not expecting the number of wealthy Chinese tourists to rebound to pre-pandemic levels as the world’s second-biggest economy slows, and the troubled casino group deals with the fallout of two bombshell inquiries.
But Mr Cooke is encouraged by international tourists beginning to return, with several Chinese airlines resuming direct flights to Brisbane after three-pandemic plagued years.
“It’s refreshing to see Queensland is sort of talking about three flights a week coming in from China with one of the Chinese carriers. So it’s coming back, but it’s probably going to be more measured than it was pre-Covid,” Mr Cooke said as Star posted a full-year statutory loss of $2.4bn in late August.
While Australian casinos have felt the absence of Chinese high-rollers, S&P analysts said they were better placed to defend their earnings than other markets in the region, such as Macau and Cambodia.
“GGR (gross gaming revenue) will improve in some countries; in others it won’t. Among the deciding factors are tighter regulation on junkets, and a drop in discretionary spending due to weaker macroeconomic conditions,” S&P analysts said.
“For countries in this basket – Macao, Cambodia – we do not expect GGR to recover to pre-pandemic levels over the next 12–24 months. On the other hand, markets that had limited exposure to junkets -Singapore, Malaysia, Australia, and New Zealand – will likely reach or even surpass pre-pandemic GGR levels.”
The analysts highlighted New Zealand – where dual-listed and Adelaide casino operator SkyCity is headquartered – as being able to pivot away from Chinese gamblers.
“New Zealand, for example, has yet to experience a meaningful increase in the volume of returning Chinese tourists. Most international tourists have been from Australia, Europe, and the US.
“Some countries, such as Malaysia, Australia, and New Zealand, are backed by captive local demand to offset ongoing weakness in Chinese visitation.”
The report questioned the sustainability of SkyCity’s earnings, which have rebounded from pre-pandemic levels as it becomes more dependent on poker machines than traditional table games. Normalised profit jumped to $NZ138.8m ($129.7m) last year from $NZ9.7m in 2022.
“The pace of recovery has been quicker than we expected. Underpinning the result was solid growth in mass-market electronic gaming machines (EGM), with EGM revenue now well ahead of pre-pandemic levels. That said, SkyCity’s earnings composition has changed from pre-Covid-19.
“EGM revenue represented 50 per cent of fiscal 2023 normalised revenue, versus 38 per cent in fiscal 2019. Table game revenue continues to recover but remains below pre-Covid levels. We attribute the slower rate of recovery for table games to a shortage of staff, which affected operating hours during the first half of fiscal 2023.
“International Business revenue is now minimal and more focused on VIP play, following SkyCity’s decision to cease dealing with junket operators in April 2021.”
While SkyCity’s earnings have rebounded, it is subject to several punitive actions from Australian and New Zealand regulators over anti-money laundering breaches and responsible gambling.
“SkyCity Adelaide recently booked a provision of $45m for a potential civil penalty and associated legal costs. Although these initiatives would result in higher spending for the company, we do not expect any margin erosion to occur.
“This is because we forecast revenue growth to outpace the increased costs. This reflects management’s initiatives such as the restructuring of the Adelaide casino cost base and international tourism visitation, which continues to improve across SkyCity’s casinos.”
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