LEISURE LETTER (03/11/2015)

Tickers: SGMS, HOT, RCL, CCL

EVENTS

  • March 11 - SGMS 4Q CC, 4:30pm pw: SGMS
  • March 16-19: Cruise Shipping Miami Conference
  • March 19: Galaxy FY 2014 results

HEADLINE NEWS

Beijing -  Li Gang, the director of the city's liaison office there, said measures were in place to ensure that officials who head for the former Portuguese enclave "would be discovered". The top official did not elaborate on what specific measures had been introduced but it is common knowledge that identity checks are now carried out on every person who gambles in casino VIP rooms.

"As the crackdown on graft is stepped up, some corrupt officials - including executives of some state-owned enterprises - now dare not go to Macau to gamble. Moreover, because of measures taken by Macau's gambling industry, if such officials go gambling in Macau, they will be discovered," said Li.

ARTICLE HERE

Takeaway:  Beijing's watching you - corrupt officials.  And by corrupt they mean any government official.  Perception is reality.

COMPANY NEWS  

GALAXY - A mainland Chinese worker accidentally fell to his death from scaffolding at the Galaxy Macau Phase II project in Cotai yesterday afternoon, resulting in a suspension of the works at the site ordered by the Labour Affairs Bureau (DSAL). All scaffolding works at the accident site were to be suspended, and the contractor also had to submit an accident report to DSAL.

ARTICLE HERE

Takeaway: Another unfortunate accident at a Cotai construction site. Galaxy Ph2 May 27 opening could be delayed.

SGMS - "MONOPOLY MILLIONAIRES' CLUB," the first-of-its kind television game show will launch a new multi-state companion lottery scratch ticket later this month -with as many as 14 state lotteries joining immediately, and more states to follow. Originally created as a multi-state lottery draw game in 2014, the following states will be the first to roll out this exciting new scratch ticket: AZ, GA, IN, KY, ME, MN, NJ, NM, NY, NC, PA, RI, SD, TN.  

Twenty-three states ended the sale of Monopoly Millionaires’ Club last December after just two months of operation, citing lower than anticipated ticket sales.

Takeaway: 2nd time a charm?

Genting Singapore - has authorized repurchase of 10% of its shares. The first repurchase of stock was for 6 million shares totaling US$3.983 million. Genting Singapore has said it will repurchase up to 1.224 billion of its 12.084 billion shares.

Takeaway: And the price keeps getting cheaper

HOT - The James Royal Palm has been sold by Chesapeake Lodging Trust and will join Starwood's yet to be named collection of independent hotels. Temporarily, the hotel will operate under Starwood's Luxury Collection brand, and is slated to join the collection of independent hotels by June.  HEI Hotels and Resorts has taken over management of the hotel.

ARTICLE HERE

HOT - is poised to open more than 40 new hotels and resorts across Europe in the next five years, expanding its portfolio by almost 30%.  Starwood is opening five new hotels in Turkey this year, including The St. Regis Istanbul which debuted March 1. In Russia, two new Starwood hotels are opening in 2015 and six more are in the planning stages, doubling Starwood’s presence in Russia over the next three years.

Also on tap is the launch of the Aloft brand in Stuttgart and Munich this summer, and the introduction of the W and Element brands to The Netherlands by year-end

ARTICLE HERE 

Takeaway: It's a good time to expand in Europe as a weak euro stimulates demand. But in the near term, the plunging euro will hurt reported earnings. 

MCR development - announced it has acquired a portfolio of 18 Marriott and Hilton hotels (the “Portfolio”) for approximately $206 million. Collectively, the Portfolio represents 1,787 rooms across 11 states in growing cities including Charlotte, Savannah, Cincinnati, Tulsa and San Antonio. The Portfolio has an average age of less than 10 years and is unencumbered by management agreements. All hotels were acquired with fee simple title.

MCR will own and manage the Portfolio, which will continue to operate under its respective Marriott or Hilton brand affiliations, with long-term franchise agreements in place. The Portfolio includes multiple brands including Marriott’s Courtyard and TownePlace Suites and Hilton’s Hampton Inn & Suites, Hilton Garden Inn and Homewood Suites.

ARTICLE HERE

Takeaway: Large select-service transaction

RCL - Royal Caribbean will kick off a new "BOGO50" offer tomorrow that gives guests who purchase a full cruise fare, 50% off the second passenger and buy one, get one premium beverage package 50% off. BOGO50 offer excludes Quantum, Anthem, Ovation, and Harmony of the Seas, Transatlantic, Transpacific, and China sailings.

ARTICLE HERE 

CCL - Carnival UK executive VP of operations, David Noyes,  said he believed cruise prices would continue to climb. “Cruising is such great value - we’ll always aim to make sure that’s the case. Clearly as the market continues to grow, I like to think that the price will grow in line with that.”

However, despite Britannia having been designed to emulate a luxury hotel, Noyes insisted that the ship would not always command a premium price. “Prices vary according to sailings,” he added.

Noyes also explained how he envisaged Britannia would help push the number of UK cruisers to 2 million, from the current 1.7 million which cruised in 2013 (latest figures). “Britannia will add 5% to the capacity of the whole UK market, so that will get us close to the two million point.”

ARTICLE HERE

Takeaway: Noyes is right. Pricing does depend on demand and so far, it's been mixed.

CCL - Harris CapRock Communications, a premier global provider of managed communication solutions, has increased the bandwith levels to enhance Internet acess in Carnival Cruise Line's ships. For a flat rate of $5 per day (RM18 per day), Carnival offers its passenger the first-ever social media package for an unlimited access to popular social media sites and apps.

ARTICLE HERE

INDUSTRY NEWS

Beijing- China's central government says it will soon alter the individual traveler scheme “to better suit Hong Kong’s situation”. These will include refinements to the scheme, which allows residents of 49 mainland cities to travel to Hong Kong, and another arrangement that enables two million Shenzhen residents to use one visa to visit Hong Kong multiple times, according to deputy director of the Hong Kong and Macau Affairs Office Zhou Bo.

Zhou said the adjustments would be a response to concerns raised by Hong Kong Chief Executive Leung Chun-ying over the tourist schemes, and were designed “to make the policy better suit Hong Kong’s general situation”. “The tourist capacity of Hong Kong and Macau have by and large reached saturation, as shown in the studies conducted by the two SAR governments. It does not come as a surprise certain problems occur,” he said.

Zhou did not tell when the adjustments were expected, but said they would come soon.

Takeaway: Changes to travel schemes will not only impact Hong Kong but Macau as well.

Japan-  In a long shot, some members of Abe's Liberal Democratic Party are aiming to resubmit the expired bill to the relatively minor Land and Transport Committee – which deals with issues like removing unsightly utility poles in favor of underground lines. This would bypass the busy, and far more prominent, Cabinet Committee, normally chosen for such major legal changes.

"As long as the ruling coalition can agree and win support, it doesn't matter which committee it's submitted to," LDP lawmaker Takeshi Iwaya told Reuters, adding that more discussion among ruling coalition members was needed.

ARTICLE HERE

Takeaway: Last-ditch effort on Japan

CT - Connecticut lawmakers said Tuesday they would introduce legislation to allow the Mashantucket Pequot Tribal Nation and the Mohegan Tribe to open as many as three more casinos in the state.

ARTICLE HERE

Takeaway: Exactly what US gaming needs - more supply

Feb Iowa SS GGR: +2% YoY

Feb Missouri SS GGR: +1% YoY

Tripadvisor hotel survey -  

  • While Travel is expected to rise, U.S. traveler budgets remain flat. U.S. travel budgets are expected to average $8,700 in 2015, the same as last year.
  • The U.S. is the #1 most popular destination worldwide according to the places travelers say they visited in 2014 and plan to visit in 2015.
  • In 2013, two in three hotel businesses (67%) felt optimistic about their profitability for the year ahead. This year, that proportion rises to nearly three in four (73%), and is driven largely by more hoteliers feeling "very optimistic" about their profitability for 2015.
  • Half of all properties globally (59% in the U.S.) intend to increase their room rates in 2015, according to survey respondents. 
  • More than one third (35%) of global accommodations and 42% of U.S. accommodations plan to raise rates by between 3-10%, with resorts the most likely to plan increases. 
  • South Africa (72%), Austria (68%) and Brazil (68%) are the most likely to raise rates, according to respondents, with over two thirds of businesses in these markets planning increases. 
  • Accommodations in China will see the biggest reductions in 2015, with 18% of hoteliers planning to decrease room rates, but not by more than 10%

ARTICLE HERE

Takeaway: Not surprisingly, US lodging optimism is the high in 2015 while China lags. 

GBTA - Global Business Travel Association slightly downgraded its forecast for Chinese business travel from its outlook published in 2H 2014 due to expectations for slower economic growth in China coupled with continued uncertainty in the global economy. Total spending on Chinese-originated business travel grew an estimated 16.6% in 2014 to $261 billion USD. GBTA projects it will continue to grow 14.2% in 2015, down from our previous projection of 18%, and will grow another 12% in 2016 reaching $334 billion USD. 

“While this is slower growth for China, it is all relative,” said Michael W. McCormick, GBTA executive director and COO. “There is simply no other market to compare China to as their economic engine continues to move forward at a phenomenal pace producing double-digit business travel spending growth. Whether China becomes the world’s largest business travel market at the end of 2016 or the beginning of 2017 does not matter—what matters is that economic policies being set are showing signs of having a long-term positive impact on the economy, which points to a healthy business travel industry for years to come.” 

ARTICLE HERE

Takeaway: Chinese outbound business travel growth may slow in 2015 and 2016. 

Asia cruise demand/supply - has overtaken Northern Europe as the third biggest region in terms of passenger capacity, according to independent data from the 2015-2016 Cruise Industry News Annual Report. This year, Asia will grow by 20%, accounting for just over 2.2 million passengers with 69 ships sailing in the region. While Star Cruises remains the biggest operator in the Asian market, Royal Caribbean International will grow by leaps and bounds, adding nearly 200,000 more passengers to its regional capacity YoY. Asia capacity now accounts for just over 10% of the global cruise industry, trailing only the Caribbean and Mediterranean.

ARTICLE HERE

Takeaway: Expectations are high for Asia cruise demand in 2015.

macro

Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015.