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For Macau, Light at the End of the Tunnel

Analysts are looking for gaming revenues to come back strong now that the Chinese government will again issue tourist visas for individual travel to the casino hub. The program, which is already back in neighboring Zhuhai, will be expanded to all of Guangdong province—up to 70 percent of the Macau market—later this month and will go nationwide in September.

GGB Exclusive
For Macau, Light at the End of the Tunnel

The months of battering that Macau casinos have suffered during the coronavirus pandemic may be coming to an end with announcements out of China that it will again issue visas for mainland citizens to visit the gaming hub.

The visas, covering package tours and independent travel under the country’s Individual Visit Scheme (IVS) were restarted in the neighboring city of Zhuhai in Guangdong Province on August 12. They will be extended to the rest of Guangdong on August 26 and go nationwide on September 23.

Excluded will be residents of cities considered “mid-risk” and “high-risk” in terms of Covid-19 infections and those who have traveled to those places in the 14 days prior to their visa applications.

Absent a flare-up of the virus, which could lead to another shutdown, as authorities have warned, the return to something very close to normal travel will likely reopen the floodgates in time for the eight-day Golden Week holiday beginning October 1, the second-busiest travel season in China after Lunar New Year and a cash cow for the casinos.

“It’s what the market has been waiting for, definitely,” said Brendan Bussmann, a partner with industry consultants Global Market Advisors and the firm’s director of government affairs.

“It’s yet to be seen how this all plays out,” he told GGB News. “But obviously with more and more restrictions being lifted, that should increase revenue.”

Operators greeted the news with silence, as they normally do in matters of local or central government policy. Similarly, Macau officials responded with caution. “We do hope to see more mainland Chinese tourists coming in,” said Secretary for Social Affairs and Culture Ao Ieong U. “Our economy requires the support of these tourists.”

The IVS, instituted in 2003 to counter the SARS epidemic, has grown over the years to encompass 49 mainland cities and is the most lucrative source of Macau gamblers, both VIP and mass market. Of the 38.3 million visits to the territory last year, upwards of 70 percent were mainland Chinese, and the IVS accounted for some 47 percent of them. Roughly 70 percent of those visas originated in Guangdong, home to more than 110 million people and the most populous province in the country.

Analysts credit Guangdong with providing around 40 percent of the win generated by mass-market gamblers and 15-20 percent or more of VIP, and absent the IVS, they had written off any chance of the market’s recovery.

Not surprisingly, the central government’s decision in late January to suspend it was a leading factor, along with stringent health and safety controls which included mandatory quarantines on both sides of the border, in decimating visitation to a city whose economy depends almost completely on Chinese tourism. Through July, the territory’s gaming revenues have plummeted by around 75 percent from last year’s world-leading US$36.5 billion.

Analysts with JP Morgan expect the year-on-year slide will slow from 85 percent in August to 70 percent in September on the assumption that demand from Zhuhai and Guangdong will “almost fully recover within weeks of visa resumption.”

Analysts with brokerage Sanford C. Bernstein said they’re looking for “strong (gaming revenue) recovery” next month and in the fourth quarter, recovering to around 35-40 percent of last year’s over the same period.

“Macau should be able to get to those levels by mid-autumn,” they said.

“Now, the only meaningful ‘unknown’ is timing of Hong Kong border/quarantine easing,” the JP Morgan analysts said.

Hong Kong accounted for nearly 13 percent of Macau visitation last year and around 10 percent of pre-Covid gaming revenues, according to their estimate.

As “unknowns” go, however, there remains the question of what happens if the virus surges back on the mainland, or if it rears its head again in Macau, whose officials frequently talk up “zero tolerance” since the last known infection was detected in the city in March.

“That’s the challenge, how to keep the cases at zero,” says Bussmann.

As Warwick Bartlett, founder and principal of UK-based Global Gaming and Betting Consultants, notes: “We have seen in the past areas released from lock down only to be locked down again when the virus returned. Nevertheless, Beijing has been cautious so far, has more experience of Covid-19 than any other country, and one would expect they have made the right calculations in this phased program of visa issuance.”

There would appear to be little doubt of that, considering how long the central government has waited. Then again, as Bussmann observed, echoing the general sentiment across the industry, “It’s hard to predict anything in the current environment.”

Bartlett agreed, telling GGB News, “If all goes well, we could see the market opening up completely by autumn. But this is crystal ball gazing. What we have learned so far is that there is no certainty with the virus or government’s reaction to it.”

As things stand in Bussmann’s view, “uncertainty” is the only “prediction” anyone can venture with any degree of accuracy.

“If (Covid) cases start to arise, what will be the reaction?” he wondered. “I don’t think we want to know the answer to that.”

Articles by Author: James Rutherford

James Rutherford is a journalist based in Atlantic City. Prior to joining GGB News, he worked in Macau as an editor and writer with the English-language monthly Inside Asian Gaming. He is co-author of “Trumped! The Inside Story of the Real Donald Trump: His Cunning Rise and Spectacular Fall” (Crossroad Press, 2015).