New Macau Pac On Ferry Terminal Goes Operational In May: Expect Speeded Up Pace Of Mass GGR Recovery

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Includes: LVS, MGM, MLCO, WYNN
by: Howard Jay Klein
Summary

The new terminal's 18 berths will move over 400,000 passengers a day, and that number is growing.

It will shorten or eliminate the need for shuttle bus routes or taxi rides to key casino properties.

The terminal includes a new helipad, a proven transportation plus for VIP business.

"The wisest are the most annoyed at the loss of time." -- Dante Alighieri

Macau authorities have made it official. After a series of logistics and systems tests now under way, the eagerly awaited opening of the new Pac On Ferry Terminal in Macau is scheduled to open this coming May.

On many fronts, this is good news for casino operators and particularly welcome news for those located on Cotai. To really understand the bullish consequences of this development one needs to comprehend something of the psychological mind set of gamblers, mass, premium mass or VIP: Impatience is a signal characteristic of the gambler. And in my nearly 30 years experience in the industry watching them, I've concluded that there appears to be a direct ratio of rising impatience with rising gaming budgets. From quarter slot players to $25,000 a hand baccarat players, the level of impatience with transportation delays from home to the gaming position grows exponentially. Anything you can cut from the travel time at length will transform into gaming revenue. That's why, among other reasons, the Cotai casino operators were eager participants in the planning, logistics and systems elements of the new terminal projects.

Currently, tourists arriving in Macau by ferry disembark at the Outer Harbor Ferry terminal and then must take either shuttle buses or taxis to the casinos. They must queue, board their buses, await seating of fellow passengers and then ride anywhere from 15 to 20 minutes to the casino doors and then debark. It sounds perfectly reasonable on the surface, but to many gamblers it is just another small, but royal, pain in the you-know-where.

The new Pac On Ferry terminal will virtually cut anywhere from 20 minutes to a half hour of annoying embarking and debarking, on shuttle buses or cabs to reach their destinations. What might seem like no time at all to society in general, can feel like hours to a gambler, eager to get at the tables as fast as he or she can. This is especially true of day trippers for obvious reasons. Now with a total of 18 berths, increased sailings and capacity it is expected to boost daily tourist traffic to the Cotai area. Presently the ferry moves around 400,000 passengers a day and this is expected to grow. Macau officials have from the beginning stressed that one of the central imperatives behind the building of the new terminal was to enhance tourism.

Last year, shuttle bus traffic congestion slowed regular public transportation and it prompted Macau officials to get the casinos to reduce the total number of runs and routes by 20%. Now with the new terminal in operation, access to the casinos will be faster for a greater number of tourists and that will be the first of many infrastructure transportation improvements casino operators have been awaiting for years. Next up will be the light rail system, which is not expected to become operational until 2019.

Meanwhile, the new Pac On Terminal will be a welcome addition to ease congestion and capacity issues for the Cotai based properties. It will quadruple the size of the current Outer Harbor Ferry Terminal much farther away.

A new helipad will be a boost to VIP

Along with the new ferry terminal, a helipad will open as well. While it is not yet clear how officials will position its use, it is expected that with its time saving conveniences to ever impatient VIP players. There's history here. From almost its first days of legal gaming in 1978, Atlantic City casinos used its Bader Field in city heliport to transport high rollers from helicopter ports in and around Metropolitan New York -- its prime target VIP market. The comparisons were stunning. A limo ride in off peak travel hours from the metro area to AC could take two and a half hours. Stuck in traffic, it could rise to over three and a half. By contrast, a flight on a Sikorsky helicopter of that time, swept VIP players from the area south to AC in under 40 minutes.

Every casino ran helicopter service whose cost was absorbed as a high expense comp running over $2,000 a head. But analysis of the play off the choppers consistently showed the expense was well leveraged and always showed a strong profit. There's no doubt that today's Macau Cotai operators, many of whom know that history, are eager to get moving on a program to airlift VIP business to their doors.

Results to keep an eye on

Right now Macau officials have yet to specify the day in May when the terminal will officially open to passengers making it difficult to forecast the revenue impacts on the Cotai operators for that month. We could see a healthy surge in day tripping mass business right away. But the best measure will come with the June GG numbers. That will give analysts a full month to track the relationship between total increased passenger volume and rising mass GGR revenue. There is little doubt it will be a definable contributor to increase of total bodies moved and aggregated longer playing time in general.

Specific Cotai operators that could see a visitation boost: Las Vegas Sands (NYSE:LVS), Wynn Resorts (NASDAQ:WYNN), Galaxy Entertainment (OTC:GLXY), and Melco Crown (MPEL).

Summary

The recovery of Macau casino GGR revenues and improving earnings profiles of its major operators moves forward on four basic propellants:

1. Easing of fears over Chinese government crack downs on regulations that have inhibited much VIP business. Now, that segment is embarked on a rising trend again.

2. Over 4,100 added hotel rooms at the Cotai by Wynn and LVS, plus another 1,400 to come later this year from MGM (NYSE:MGM). This capacity converts day trippers to overnight guests with larger gaming and non-gaming budgets.

3. The operators stressing promotions, facilities and attractions more specifically geared to the mass business rather than a continuing over dependence on VIP alone.

4. Improving infrastructure projects long in the planning. The transportation linkages to Macau that have curbed potential visitation have long been the caution flags raised by analysts in forecasting forward earnings for key operators. As each one of these infrastructure obstacles fall, so will the total levels of long term visitation increase. Visitation numbers can be impacted positively or negatively by many factors, among them macro factors in the Chinese economy. Some analysts see a tightening of bank credit, currency moves, the knock on effect of Trump Administration moves against Chinese export policies as events that could have a dampening effect in Q3 and 4 Macau results, especially in VIP recovery. To me, forecasting that kind of long range macro impact on gaming revenue is roughly comparable to reading the entrails of animals in medieval times. I'm not saying its right or wrong, just that nobody, but nobody know or can confidently say, which macro factors will ease or slow the GGR recovery.

5. Ease and speed of transportation, historically in the casino business, has always been a huge factor in growth. To the extent that the long awaited Pac On Terminal will contribute to that growth, we think it's a no-brainer. This is a business of bodies. More bodies, more heads on beds, more mouths that need feeding, more people sitting at baccarat games and slot machines-result: more revenue.

We think the June visitation number is key here. If you own, or contemplate owning Macau-centric stocks, you should make sure to check out May GGR trends but be very attuned to the Q3 and Q4 GGR numbers, mainly in mass revenue, gaming and non-gaming.

Author's Note: All my gaming shares are held in a blind trust for my children and grandchildren in order to avoid potential conflicts of interest with casino clients.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.