Sands serves French flavour to whet mainland tourism appetite

Ask many mainland Chinese what their dream travel destination is and the answer is unlikely to be Macau. According to a survey by CLSA, Macau came bottom out of a list of 21 destinations, with Europe, the U.S. and Australia topping the list.

So, could Sheldon Adelson have hit upon a winning formula with his latest resort — the $2.8 billion Parisian? The property, like its sister next door, aims to bring a little bit of Europe to the Cotai strip, providing a taste of all things French without the lengthy voyage and language complexities.

“Look at where Chinese outbound have been traveling to predominantly in the past decade. Paris and the Eiffel tour are iconic to Chinese visitors,” said Glenn McCartney, associate professor in Gaming & Hospitality Management, University of Macau.

“There has been the mention of a London-themed resort possibility where you could imagine iconic British scenes such as the British flag, Tower Bridge to the British phone box. Sure there are many more attractions around France and the UK, but in the world of the fabricated theme environment and winning audiences, you pick those that will appeal the most.”

Analysts who have visited the property agree that Sands has succeeded in creating a concept that works for the mainland market and in particular the mass sector.

“Simply put, we think Parisian is the right product targeting the right market segments at the right time,” Union Gaming analysts said. “The property has generally exceeded our expectations, and most importantly seems to hit the sweet spot of what a typical mainland mass market visitor generally responds well to (sense of grandeur, massive scale, European highlights).”

CLSA picked up the theme, adding the resort has a much more family feel than Wynn Resorts’ upscale Wynn Palace, which made its debut last month.

Cotai dominance

With the opening of the Parisian, Las Vegas Sands now dominates the centre of the Cotai strip, with the Venetian next door and Sands Cotai Central across the road. In the near future, the properties will be connected so that visitors don’t have to set foot outside. Significantly the resort stands in between Melco Crown Entertainment’s City of Dreams and its new sister property, Studio City.

“This issue of location on Cotai and perception of convenience to Chinese travelers is so important,” McCartney said.

Opening night on Sept. 13 featured a blaze of fireworks lighting up a 50 percent-scale replica of the Eiffel Tower. The property also boasts an Aqua Park, a wide range of more affordable retail brands and 3000 hotel rooms, marking a 9 percent increase in Macau’s installed base.

Despite its mass market appeal, and broad non-gaming focus, Sands was still only awarded 100 tables at the open, like the VIP-focused Wynn Palace.

The resort moved over 310 tables from other properties for a total of 410, split between 49 VIP and 361 mass. Three junkets — Sun City, Guandong and Tak Chun — are operating at the casino. The Parisian will further be able to increase its table count by 25 in January next year and a further 25 the following year.

Analysts on the whole were upbeat about the resort’s attraction, but warn its success is likely to come from significant cannibalization, both from other Sands’ properties and rivals in Macau.

“When fully ramped in 2018, we estimate that Parisian will generate over one-fifth of profitability at Sands China and have an ROI of over 20 percent of the nearly US$3bn development cost. However, Parisian will cannibalize legacy properties (higher than we originally had expected); although the integrated resort will be net additive to Sands’ profitability,” Bernstein Research said.

Bernstein estimates EBITDA at Sands China of $2.46 billion in 2017 and $2.64 billion in 2018.

CLSA projects property EBITDA of $198 million in 2017 rising to $362 million the following year. However, it forecasts growth at the Parisian will come at the expense of other group resorts. It says it expects combined EBITDA at Sands’ Macau properties to decline to $2 billion in 2018 from $2.2 billion in 2015.

Cannibalization underestimated

 “The casino floors were packed during the opening night with minimum bets above The Venetian’s, but we believe it took share away from other properties, including the Venetian,” Morgan Stanley said, also adding that the risk of self-cannibalization may have been underestimated.

Outside of the Sands Group, analysts expect Melco Entertainment’s Studio City, already suffering from a slower-than-expected ramp up, to take a hit. Instead of helping draw visitors further down the Cotai strip, the Parisian may pull them in the other direction.

“The bottom line is that Parisian seems to be significantly more compelling than Studio City from a mass market consumer perspective and should these trends be maintained Parisian could prove less of a benefit and more of a headwind for Studio City.”

The opening of the resort was helped by a strong social media marketing campaign and Sands’ large customer database and experienced marketing team. The increasing use of social media in China may also benefit The Parisian as visitors post holiday snaps next to the Eiffel Tower.

“It’s about the creation of experiences more – not just through being there, but sharing them on social media. It’s the iconic architecture, fountains, Eiffel Tour, walking around the mall,” McCartney said.

Despite the positive reception for the property, analysts are still cautious on the near term prospects for Macau.

Although Morgan Stanley called the Parisian a “perfect casino resort,” focused on the grind mass and playing on the Chinese love for Paris and Europe, it doesn’t expect it to grow the market overall any time soon.

“We believe the Parisian’s strengths are not enough to drive more than 10 percent year on year growth in the mass segment in 2H16/17 in view of falling spending per capita,” it said.