Scientific Game

Getting Past China

Reduced spending by mainland visitors highlights the need for Macau to expand its tourist sources. Whether more international travelers will visit and whether Macau can handle them remain to be seen

Friday, 10 April 2015 15:11
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Diversificatio n remains one of Macau’s loudest buzzwords, a government imperative for casino operators and a key to making Macau the world center of tourism and leisure envisioned by Beijing’s Five Year Plan for 2011-15. Economic diversification has proven elusive in view of Macau’s gaming-centric tourist mix; customers want what they want.

Another potential area of diversification, greater variety in Macau’s visitor pool, has been largely unexplored, an outcome of what’s been sound financial judgment, if poor risk management. Now, with edicts out of Beijing again discouraging high rollers away from visiting Macau, the decision to focus on the China market highlights Macau’s vulnerability, deepens the current downturn and limits options to reverse it. Yet there’s no assurance that tourists from beyond Greater China—the mainland, Hong Kong and Taiwan —will visit Macau in great numbers; that Macau casino operators really want them; or, if they come, that Macau can delight them. 

Visitor arrivals to Macau shattered the 30 million barrier last year, rising 7.5% to 31.5 million, following two years of sluggish growth. Tourists from Greater China, Macau’s top three markets, rose 8.5% to28.6 million, 90.8% of total arrivals. The Macau Government Tourism Office, “working to diversify visitor source” through presence in 17 cities on four continents, plus Beijing, Taipei and Hong Kong, says Macau is succeeding in drawing the broader international market. “In 2003, the number of international visitor arrivals—Greater China excluded—was around 500,000, accounting for 4.2% of the total number of visitor arrivals,” MGTO’s media department states. “Ten years after, in 2014, the number increased to 2.8 million, which represented 9.2% of the total visitor arrivals.”

Those numbers, though accurate, present a skewed view. The SARS outbreak hit arrivals across the board in 2003, and it wasn’t until 2004 that Sands Macao ushered in the post-monopoly era in gaming. In the years that followed, visitor arrivals rose dramatically in all segments. By 2006, the year Macau overtook Las Vegas as the world leader in gaming revenue, total arrivals had increased to 22 million, with 1.6 million or 7.4% from beyond Greater China. In 2008, Venetian Macao’s first full year of operation, total arrivals were 23 million, just over 3 million of them international, 13.3% of the total, high marks to date on both fronts. After a dip in 2009 as the global economic slump reached Asia, international visitor numbers topped 3 million again in 2012 and have tapered since.

JOURNEY TO THE SOUTH

Since 2003, there’s been a much bigger trend at work. Mainland Chinese visitors to Macau have risen from 5.9 million, 48.3% of total arrivals in 2003, to 21.2 million, 67.4% of total arrivals last year. Since July 2003, the Individual Visitor Scheme has allowed mainland Chinese to travel to Macau (and Hong Kong) without joining a group tour. The program has expanded from an initial four cities to more than 50, encompassing some 300 million of the mainland’s richest citizens.

Despite headwinds including President Xi Jinping’s anticorruption drive and China’s slowing economic growth, Macau’s mainland arrivals grew 14.1% last year. Since 2008, mainland arrivals have not just have accounted for all of Macau’s tourism growth but offset falling arrivals from Hong Kong and Taiwan, respectively Macau’s number two and three visitor sources. Until direct flights between Taiwan and mainland China resumed in 2008, Macau (like Hong Kong) had a niche as a stopover for cross-strait travelers. Since then, Macau’s arrivals from Taiwan have fallen by 490,000 or 34%. Macau’s arrivals from Hong Kong have decreased 1.8 million from their 2007 peak.

As Macau’s tourism and gaming capacity grew, focusing on mainland China made sense. China is right next door, has 1.3 billion people, no legal casinos, and for two decades has been the world’s fastest-growing major economy. By percentages and sheer scale, China’s economic expansion has been much greater than other regional economies, The Platinum Ltd Managing Director Mary Mendoza notes, making the Chinese market by far the most tempting target for Macau operators.

Moreover, Macau has strong cultural and social ties to the mainland. About half of Macau’s population was born in the mainland, and local community leadership turned toward China during the city’s final, indifferent decades of Portugal’s colonial administration. “I’m surprised they’ve done as well as they have” attracting visitors from beyond the mainland, Spectrum Asia chief executive Paul Bromberg says. “They’re completely focused on China.”

BIG SPENDERS

Targeting China, Macau’s gaming revenue ballooned to $45.1 billion in 2013, nearly seven times the figure for the Las Vegas Strip. In addition to providing proportionately greater gaming revenue than their arrival numbers, mainland visitors are also the biggest non-gaming spenders, although the gap narrowed last year. Mainland visitors’ per capita non-gaming expenditures declined 8.2% to MOP2,354 ($294) in 2014, ahead of visitors from Singapore at MOP1,904 and Japan at MOP1,846. Despite the decline, mainland visitors accounted for 70% of total visitor non-gaming spending. Mainlanders have fueled Macau’s shopping boom; even with last year’s pullback, their MOP1,078 per capita shopping spending doubled that of any other group. Collectively, mainland visitors accounted for 33.8% of Macau’s total retail spending last year.

“They’ve been so successful with the Chinese market that they haven’t thought of expanding their horizons,” a regional gaming executive with extensive Macau experience who requested anonymity says.

It’s been lucrative for Macau to put so many eggs in the mainland basket but not necessarily prudent, Ms Mendoza, a Macau-based marketing consultant, contends. “Historically Macau’s reliance on China has always been risky,” she says, noting that the mainland’s yearlong cutback on visas to Macau from mid-2008, coupled with the global economic slump, hit Macau’s economy hard. “Less reliance on one major economic feeder to me sounds like a healthier path to growth in long-term business and economic development.”

The dangers to Macau’s economic health of relying on the mainland became apparent again as gaming revenue fell for the first time since liberalization last year to $43.9 billion amid Beijing’s crackdown on graft and undocumented fund outflows. In the longer run, Chinese travelers’ increasing sophistication and thirst for more unique experiences, particularly at the high end, plus increased regional gaming options seem destined to reduce their visits to Macau. In a report issued in January, CLSA estimates the 2014-20 compound annual growth rate for mainland arrivals to Macau at 9%, less than half the brokerage’s growth forecast for North Asia, Western Europe and Australasia, though double the rate for Hong Kong.

In addition to reducing risk, drawing a broader spectrum of visitors can make Macau a more attractive destination, Macau Institute for Tourism Studies (IFT) Assistant Professor IpKin Anthony Wong says. “It helps to diversify tourist experience and tourism products: Mainland Chinese have a strong preference for gaming and shopping. We do want to attract tourists who are also interested in other aspects of Macau: culture, food, event, sightseeing and heritage.”

“This year, MGTO will continue to explore international markets while developing different visitor segments within a market so as to diversify our visitor sources,” the government agency says. “Given the great potential of the Asian markets in the tourism industry, MGTO will allocate greater efforts in developing the Asian markets in this year.”

The convention segment, classified under MICE—for meetings, incentives, conventions and exhibitions—was supposed to be a key to diversification in terms of both non-gaming revenue and broader geographic reach. MICE helped transform Las Vegas into a more multifaceted destination and lift non-gaming revenue to nearly two-thirds of total revenue, but it’s yet to conjure similar magic in Macau.

WORKING THE ROOMS

One problem has been the sound business practice of maximizing profits from one of Macau’s scarce resources, hotel rooms. “If you’re yield-managing rooms, the highest and best use is a casino customer in the room [rather] than giving it to a convention attendee,” Global Market Advisors Partner Andrew Klebanow says.

He points out that Las Vegas has 150,000 hotel rooms, while Macau has 28,000, about 18,000 of them five-star. “All those rooms are now for casino-centric customers,” Mr Klebanow says. “Macau doesn’t have enough rooms to alter its strategy. The next stage will help, [but] they will need a lot more hotel rooms and airlift to reposition Macau.”

New Cotai resorts coming online over the next two years will add some 12,000 rooms, and experts expect Macau operators will widen their nets to fill them, particularly if Chinese high rollers remain reluctant to visit Macau and spend like old times. But more rooms alone won’t change arrival patterns.

Convincing travelers from beyond Greater China to choose Macau, whether they’re gamblers or sightseers, remains difficult for a variety of reasons. “Macau is not the easiest place to get to,” Mr Klebanow says. International flights into Macau are limited and most on regional budget airlines that premium players may shun. Flying into Hong Kong means reaching Macau via ferry—except for those who can afford the helicopter option—adding at least an hour, and more bother, to the journey. The Hong Kong-Macau-Zhuhai bridge will make the trip simpler, but that’s now unlikely to be completed before 2020, four years behind the original target.

“Macau is now being viewed as a daytrip destination [from Hong Kong],” Mr Wong says. “Given the cost associated with traveling to a daytrip destination, it may not be worth the money.” He suggests working more closely with Hong Kong and cities in the Pearl River Delta region to create a more attractive tourism zone. “Of course, this is very challenging because different cities have their own priorities and agendas,” he concedes.

“Perhaps we need to prepare the city better for non-Chinese visitors,” Mr Wong adds. “Our foreign language ability is not as good as that of Hong Kong and Singapore.” He ranks Macau’s high cost relative to other regional destinations, poor public transport, scattered tourist sties and inadequate signage as other constraints.

Spectrum Asia’s Mr Bromberg says international visitors in Hong Kong can look at a side trip to Macau in two ways. On the negative side, the ferry ride isn’t a great experience, often concluding with long waits at immigration, particularly in Macau. On the positive side, Macau offers a unique history and culture with singular attractions from museums to graveyards. “If you hunt around, it can be a very pleasant tourism and dining experience.”

SHARING THE WEALTH

“We want to market Macau not only as a city with a lot of new tourism infrastructure and entertainment but, at the same time, as a city which maintains its unique blend of East and West cultures and heritage,” MGTO says. “For the more mature markets, we’d like [repeat] visitors to explore the lesser-known places of Macau. MGTO is also diversifying tourism products to attract different types of visitors and let them participate in the plentiful events and festivities of Macau.”

This “community tourism” initiative, as MGTO terms it, driving more visitor traffic toward lesser traveled areas of Macau, aims to relieve overcrowding and spread the benefits of tourism more widely. MGTO has developed eight walking tour routes and arranged cultural performances along the routes.

According to IFT’s Mr Wong, the walking tour routes underscore a glaring flaw in MGTO’s strategy. “I do not feel that the government is working with the casino operators in attracting more visitors from beyond China. Rather, the government seems to be doing the opposite,” he says. “The eight walking tour routes are an excellent example. There is a clear segregation of the tourism products along each route away from the casino areas.” He believes the walking routes would be more compelling and logical if they included casinos. “What we should do [to] advance our marketing efforts in Macau is not to segregate casinos but to make them [part of ] an integrated and attractive product,” Mr Wong says. “What I would suggest is to leverage all the attractions, including casinos, shopping facilities, museums, heritage sites, to provide tourists a more integrated and complete travel experience.”

Ignoring casinos plays away from Macau’s greatest strength, Mr Wong believes. “We are among the best in casinos in terms of scale and number. But we are not utilizing that in our marketing plan and promotion strategy. On the contrary, we are promoting things that are not very attractive relative to other destinations.”

Mr Wong realizes embracing casinos may be as difficult as it seems obvious. “I understand that the government—both Macau and mainland China—do not want to promote gambling. However, many tourists do like to visit casinos, even though they may not like gambling. And casinos are very attractive to tourists, especially mainland Chinese.” He notes that Singapore, which keeps a close eye on anything that smacks of casino marketing, features a photograph of the Merlion, its national symbol, in front of the triple towers of Marina Bay Sands in tourism promotion materials.

“MGTO is putting a lot of effort into promoting Macau overseas. Yet, it is not a promotion/communication issue,” Mr Wong, who earned his PhD in communications and information services, claims, it’s a product issue. “Our tourism products, perhaps other than the casinos, are not attractive compared to the tourism products from other destinations.” The Macau government’s 2014 visitor survey bears that out: tourist attractions got a satisfaction rating of 40.4%, the lowest of any category. Next worst was public transport at 65.6%, and Mr Wong notes that Macau’s government wants to curb casino shuttles, which, in his research, tourists rate as Macau’s best transport option.

“The key here is that we have to be the No. 1 in something. And the only way we can achieve that is through developing more and better casino facilities,” Mr Wong says, particularly since Macau faces greater gaming competition from destinations such as South Korea. “What Macau should do is to leverage its strength to develop more casinos—not necessarily [featuring] gambling and the gaming floor—with more entertainment facilities and options. Shopping, dining, shows and events, and heritage and cultural attractions in Macau are wonderful options. We must utilize these existing tourism products to create a more complete experience for tourists, especially non-Chinese tourists, and to leverage the strengths from the casinos,” Mr Wong says, including state of the art architecture and interior design, round the clock operation and entertainment options for adults, families and children.

“In essence, casinos should be built like a theme park and a vacation wonderland. We have witnessed the difference between the contemporary integrated casinos, for example, Venetian Macao, and the older ones. Think about Vegas. I think Macau will soon follow the footsteps of Vegas.” Of course, Las Vegas first thrived relying on visitors from nearby California and has since grown into an international destination.

 

Editor at large Muhammad Cohen also blogs for Forbes on gaming throughout Asia and wrote Hong Kong On Air, a novel set during the 1997 handover about TV news, love, betrayal, high finance and cheap lingerie.

 

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