Inside Asian Gaming

November 2011 | INSIDE ASIAN GAMING 17 CLSA Market Outlook Hotel rooms per thousand tourists, 2010 Source: CEIC, CLSA Asia-Pacific Markets Chinese visitors to Macau, July 2011 to date Source: Macau government, CLSA Asia-Pacific Markets Visitor average night per stay, 2010 Source: CEIC, CLSA Asia-Pacific Markets Source: CLSA Asia-Pacific Markets between Zhuhai (Gongbei) and Zhuhai Airport reduced to 25 minutes. As such, travelling time from Guangzhou to Cotai checkpoint will yield about 55 minutes and to Zhuhai airport in less than an hour. Currently, a majority of the inbound tourists to Macau still enter the city via Guangdong. Other major provinces account for a rather insignificant portion of Macau’s visitor arrivals. The visitor-arrival mix of Macau contrasts starkly to China’s population distribution. Guangdong makes up over half of the Chinese tourists to Macau, despite accounting for less than 10% of the nation’s total population. With the completion of various major transport infrastructures, Macau’s reliance on Guangdong visitors should gradually decrease, which should drive further growth in its tourists arrival. Hotel rooms—50,000 by 2020 Hotel rooms are also needed to attract a greater number of overnight visitors and to increase their length of stay in the city. As the bar graph above highlights, Macau is undersupplied in hotel rooms. There are four hotel rooms per thousand tourists in Las Vegas and more than two per thousand tourists in Singapore and Hong Kong. However, there are only 0.8 hotel room per thousand tourists in Macau. The absolute hotel count also highlights Macau’s shortage in hotel rooms. There are near 150,000 and 70,000 hotel rooms in Las Vegas and Hong Kong. Currently in Macau, there are only 20,000 hotel rooms. The strong demand for and limited supply of hotel rooms in Macau have resulted in high occupancy and average daily room (ADR) rates. A night at Starworld hotel costs over HK$1,200 (US$150), while The Venetian is charging an average room rate of over US$200. Despite the high rates, occupancy remains at high levels. Even during the global financial crisis, Starworld and The Venetian reported hotel-occupancy rates of over 75%. In 1H11, hotels in Macau achieved occupancy rates of 81-88%. Hotels in casinos outperformed the overall market by achieving 87-97%. Four Seasons was the outlier, as the hotel-management group purposely traded off occupancy for higher room rates. With the strong hotel demand in Macau, room rates have averaged US$170- 330 per night. The lack of hotel rooms have limited tourists’ length of stay in Macau, as they either find it difficult to get a hotel room or are turned off by the high room rates. The figure on the right highlights that the average length of stay of tourists in Macau is a lot shorter than in other international tourist destinations. Visitors to Singapore, Las Vegas and Hong Kong on average stay for about four nights. Visitors to Macau, however, spend on average only 1.5 nights in the city. The construction of hotel rooms has historically driven the average length of stay from 1.2 nights in 2005 to 1.5 nights in 2010. We expect new hotel rooms from Sands Cotai Central and other Cotai projects to further increase average length of stay, benefitting tourism and gaming revenue growth. With the high average daily room and hotel occupancy rates, we expect hotel properties to be profitable on their own, without casinos. International hotel-brand owners are likely to expand into Macau to capitalise on the potential boom. Currently there are only a handful of hotel brands in Macau. Given rising occupancy and ADR rates, more hotel-management companies are likely to enter into the market in the next decade. The number of global hospitability brands could grow from the current estimate of 9-10 to more than 40. The additional 30 or so should take the number of hotel rooms in Macau to nearly 50,000 (about 500/brand), from our 35,000 estimate. Guangzhou-Zhuhai mass transit