Hotel rooms are in excess in Macau due to the Chinese government crackdown on Junkets. About 80 to 90 percent of booked rooms are made through Junkets. Their dealings with VIP and high rollers helped keep the prices of hotel rooms up, but now hotel prices are falling. Many Junkets have had to shut down their operations, and hotels and casinos are downsizing. Despite trouble with excess hotel rooms and dropping prices one hotel is staying strong with their luxury room fee according to Nomura, a Japanese brokerage. The company revealed Thursday, June 25, 2015 the boutique hotel casino, Louis XIII would charge $1 million HKD per night or about $128, 997 USD.
A management meeting revealed Louis XIII Holdings Ltd plans to open in July 2016. They are targeting high end gamblers or whales with 16 VIP tables and 50 mass tables. But, is the price going to be too high given information from top analysts? Not likely, due to the high-end focus of the property that treats all guests as VIP.
A recent report to Macau by Morgan Stanley personnel shows hotel quality overall is deteriorating, in terms of customers. There are price wars going on between hotels to attract more customers. The US Bank showed several 5-star hotels are going for $160 USD per night, which is sometimes half or a third of the price they used to charge.
Wynn Macau had an average cost of $333 USD per night last year. Four Seasons Macau was charging $400 USD. For main hotel chains in 2015 such as Crown Towers the fee is approximately $200 USD and East Asia Hotel is charging only $75 USD.
There is worry about the increase in hotel availability with the new Cotai properties opening in 2017. According to Morgan Stanley the supply is going to increase by 50%. There is a firm belief that the hotel market is going to continue in a downturn in the next year, even for the next couple of years.
Morgan Stanley came back from the Macau trip stating they searched for hope the market would recover soon, but found none. Lower margins, salary hikes, and regulations including the smoking ban are having a negative effect on Macau. The island off China is still focusing on revenue from VIPs, which accounts for 50% of revenue right now. Morgan Stanley believes “profit margin erosion,” is going to happen no matter what.
Louis XIII seems to be the only positive casino-hotel operation when it comes to the government crackdown. They believe they can entice Macau VIPs to their hotel with the proper target. Nomura stated, “upper-middle class people who are not the target of China’s anti-graft campaign,” are the customers they are seeking. Another difference is Louis XIII is only going to depend on one Junket, the Neptune Group, which will reduce problems.