Morgan Stanley analysts have said that casino operators in Macau have no choice but to focus on cost cutting after gross gaming revenue fell 44 per cent in the second quarter of the year, with no signs of bottoming.
“Cost cutting measures have intensified in the last six months after companies realised that some of the revenue losses are permanent,” MS Research said in a note. Staff cost is the biggest portion of the controllable cost at 60 to 70 per cent of total operating cost excluding tax and junket commission.
The second most important cost cutting measures were seen in advertising. MS said total staff costs rose six per cent half-on-half in in the first half of the year for five companies, excluding Melco Crown, despite natural attrition of five per cent half-on-half mainly due to wage inflation of five per cent during the first half.
“Galaxy has announced a salary freeze for senior management, but we think wage inflation is inevitable in future unless the companies become loss-making. Many companies mentioned about staff attrition due to excess labour and the opening of new casinos in Cotai.
“However, only Sands China has seen a material decline of full-time employees by 11 per cent or 3,000 staff by the end of June 2015. Staff numbers for other companies have barely moved as they need to keep excess staff for Cotai expansion.”
