China’s outbound tourism market is unlikely to return to pre-pandemic levels until at least 2024, the Economist Intelligence Unit predicts, leaving a giant hole for Asia’s gambling jurisdictions and a headache for executives as to how to fill it.
According to the United Nations World Tourism Organisation, Chinese tourists spent $254.6 billion overseas in 2019, which was a fifth of total tourism spending. It had also been the fastest growing segment of the market, expanding by about 12.8 percent a year on average from 2009 to 2019, compared with the global average of 5.1 percent growth.
In addition to the dent to travel from Beijing’s zero-Covid policies, Asia’s gambling jurisdictions are also yet to assess the impact from its concerted crackdown on money flowing overseas for gambling purposes. As a result, there’s a major question mark over where they may travel once the borders do reopen.
“The recovery would most likely be slow,” said Michael Zhu, a partner with the Innovation Group, referring to prospects for 2022. “Frankly, given what is going on and can be expected in the near future, I would consider it fortunate to see gross gaming revenue in the APAC region reach more than half of the pre-pandemic level.”
Countries where locals are allowed to gamble, or where governments are less focused on a zero-Covid approach, are likely to be the most resilient. Some have already begun opening borders and establishing travel bubbles for vaccinated travellers, although the emergence of the Omicron variant may further delay this process.
“While no market can fully recover without Chinese tourists, several should be able to perform well,” says Andrew Klebanow, co-founder of consultancy group, C3 Gaming. “Singapore remains the most popular vacation destination in the region. The mass market will flock there as soon as vaccine travel lanes are established and testing protocols are relaxed. The Philippines is another market that is not wholly reliant on Chinese players.
Their primary market is South Korea and rest assured, as soon as they can, Koreans will head to the Philippines to avail themselves of all that the country has to offer including golf and gambling.”
However, much of the rest of Asia will struggle to replace the Chinese tourist dollar, with South Korea and Vietnam named as the two most likely to struggle. Macau is open to Chinese travellers, but it also has its own set of challenges due to the increased scrutiny of Beijing on gaming, which has added to the stop/start nature of its recovery.
“Not only were Chinese travellers the number one source market for most countries in the region, Chinese airlines supported airport growth, ensured slot fees etc, while Trip.com and the other Chinese booking engines delivered large, year-round hotel bookings,” said Gary Bowerman, founder of Asia Travel: Re-set and a regional tourism consultant. “Without China, Asia Pacific’s entire travel economy will shrink significantly.”
“Another point often overlooked about China is the investment deals and volumes that track Chinese travellers – this is hugely in doubt, not only because Chinese aren’t travelling, but because Chinese companies are retrenching, the government is checking outbound capital flows and the real estate sector is facing immense challenges.”
Lorien Pilling, director of Global Betting & Gaming Consultants, said he has been warning for several years against over-reliance on China due to volatile geo politics.
“Without Chinese tourists, there is no easy answer as to where to find customers to replace them. They were the main source of visitors for many casinos in the region. Those jurisdictions which currently restrict casino access to foreigners could even consider opening their casino resorts to domestic customers,” he said.
“Some non-gaming resorts in Thailand are reportedly looking to Europe and the Middle East for new customers. But the Covid-19 situation across much of Europe in December 2021 could mean that travel restrictions are imposed again in 2022.”
In the absence of China, the key source market most destinations are likely to pivot to is South Korea. Although nowhere near the size and scale of China, South Korea’s outbound tourism market is growing fast. In 2019, 28.7 million Koreans, or about half of its population travelled overseas and they have a high propensity to gamble.
The growing middle-class travellers in India, Thailand and Indonesia are also likely to be in the cross hairs of casino marketing departments, although again will not be able to make up for the sheer volumes left by China.
“Gaming operators in the region need to rethink their marketing plans and aim at a wider and more diversified base of perspective guests, and they probably need to create more add-on services and values to make their properties more appealing and more competitive,” Innovation Group’s Zhu said, adding that operational excellence and cost controls will also be key.
Industry insiders say that regional governments may need to take more proactive measures towards helping to support their local industry. Zhu suggests that some may consider reducing high tax rates, while others say opening gaming to local residents is the way forward.
“East Asian countries that consider casino resorts an important component of their tourism industry and currently prohibit their residents from gambling in those casinos need to re-evaluate those policies,” said Klebanow. “Regulators in South Korea recently indicated that they would consider allowing citizens from other parts of the country to gamble in Jeju. That would be a watershed event that could quickly turn around the fortunes of that gaming jurisdiction.”
Vietnam has also begun a pilot program allowing locals to gamble in two resorts – one of which has yet to open. However, Klebanow said he doesn’t expect the central government to alter its policy or timetable in 2022.
Weaning dependence from China may drag on growth in the short-to-medium term, but may lead to a more diversified and sustainable industry in Asia for the future.