Friday dump: Reef Casino

Was looking for a Friday dump from the airport but it was Reef Casino (RCT) which got in with an annual result after market closed. $10.1 million is the lowest result since 2010 as flagged in the distribution estimate in December: Hard grind at Reef

Commentary wasn’t as forthcoming as hoped particularly nothing on trading since and into the Chinese new year period.

Complex performance Rental paid to Trust  Total complex rentals to the Trust were 4.4% lower due to more challenging trading and economic conditions in 2018 even as visitations to the casino increased by 6.0%.
Casino 

Electronic games Revenues were 4.0%# lower than 2017. We continued to implement measures and take action to increase our competitiveness in the local market. 

Table games Revenues were 12.8%# higher than 2017. Stronger premium play was in a large part due to an improved Chinese New Year tourist season. Softer grind play was mainly due to an overall softer China tourist market. Hotel 

Room accommodation Record revenues were 17.8% higher than 2017. Successful yield management, product packaging and leveraging off Accor’s global and Australian network continue to be key to a good performance.

 Food and beverage Revenues were 0.2%# higher than 2017. Our food and beverage facilities continued to play a key role in supporting our casino operations.
# On a comparative basis without t he impact of AASB 15 Revenue from Contracts with Customers applied for the first time in this period.

Two things.

1) Room accommodation revenues are driven by both higher occupancy and higher rates associated with reduced capacity in Cairns for the period which is also mentioned previously in the report and in previous posts here at Cairnseconomy. Commentators on NVS/IVS expenditure for TTNQ should note this.

2) EGM (pokie) revenue down -4.4% is a stark contrast to the regular numbers posted here for booming pubs and clubs in Cairns: Pokies finally rolling over

It’s also a stark contrast to the most recent report from Star Group (SGR) where the annual results report this week pretty much boasted about gains in EGM share for SEQ and Jupiters Broadbeach.

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No Nova News

Commentary in the latest report from WGC to the Singapore exchange:

Aspial 2018Q4

Nothing much changes in commentary except that there have been about 7 additional sales in the quarter which probably isn’t bad given the sales history today and current property climate:

Project Nova City Tower 1
Type Residential & Commercial
Total Units 187
Launch Date 4Q2016 (calendar year)
Units Launched 101
20172Q % Sold* 34%
20173Q % Sold* 34%
20174Q % Sold* 35%
20181Q % Sold* 39%
20182Q % Sold* 50%
20183Q % Sold* 54%
20184Q % Sold* 61%
* % sold based on number of units launched

Still no indication of any construction timetable for Nova and news around the project has been relative quiet of late. A curiosity is sales at Australia 108 in Melbourne which had been as high as 98% before the completion of stage 1 in 2018 but now reported at 89%.

1 Computed based on the number of sale and purchase agreements that have been entered into and still subsisting (less any sale and purchase agreements for those completed units that have been rescinded) or fully settled as at the date of this announcement.

Cairns Business Counts

A quick preliminary look at ABS business numbers count data out today for Cairns Regional Council area listed from bottom to top of industry division losses and gains:

Accommodation and Food Services   -29
Construction   -19
Retail Trade   -19
Manufacturing   -13
Electricity, Gas, Water and Waste Services   -10
Rental, Hiring and Real Estate Services   -6
Agriculture, Forestry and Fishing   -4
Information Media and Telecommunications   -4
Arts and Recreation Services   -4
Mining   -2
Wholesale Trade   -1
Public Administration and Safety   2
Education and Training   4
Not Categorised   4
Financial and Insurance Services   6
Other Services   14
Health Care and Social Assistance   34
Administrative and Support Services   36
Professional, Scientific and Technical Services   49
Transport, Postal and Warehousing   207
Total   263

Cairns business numbers were up 1.9% for the year to June 2018 v 2.4% for Queensland. However almost all that gain was in Transport, Postal and Warehousing category (+207 or +21%) and almost all of that was in non employing businesses with turnover <$50k. Is this Uber drivers or something?

Some Queensland analysis from Nick Behrens

 

All eyes on China

Chinese travellers lead the way down under was how the ABS led with the latest overseas arrivals data. China may have overtaken New Zealand but has slowed significantly from previous levels: Short term arrivals data shows Chinese growth slowing further

To update from last month:

OAD December 1

December is a more average month in the volatile Chinese arrivals but not sure the most recent months haven’t been just slightly more positive?

OAD December 2

Much neglected is the purpose of visit data:

OAD December 3

Education may lag a long third behind Holiday and VFR (Visiting Friends & Relatives) over the year but get a load of those peaks around the university calendar. This was a significant  factor in 2017 correlated with Chinese arrivals. Which is why I think in our FNQ context that maybe we should be looking here:

OAD December 4

Sydney Airport updated for January today and reported January growth in Chinese numbers at 20%. However this was attributed to end of month traffic with the Chinese New Year period moved forward to earlier February. Domestic at Sydney was flat following recent weaker months.

Lots of Cairns stuff due over the next week: Cairns Airport January; Reef Casino Annual Result; Experience Co half yearly; World Class Global including Nova.

 

Pokies finally rolling over?

Booming pokies growth numbers in Cairns finally look to be rolling over in line with broader trends for Queensland.

EGM Jan19

These are the LGA for Cairns and Townsville Councils. Caution around that though as modest 0.8% growth in January for Cairns may be impacted by rain and flooding towards the end of the month. Townsville was down -1.1% on the previous January but most rainfall and flooding has been in February.

Cairns City SA2 (ex casino) was down -4.6% on the previous January. Douglas was down a whopping -20.2% but that was mostly because January 2018 was one of those mysterious bumps with an unseasonal splurge by losing punters that year. Cairns Regional Council ex the City SA2 which has about 60% of operating EGM’s in the region (ex casino) held up with 2% growth for the month.

Reef Casino is not included in any of these numbers which has I think has about 500 or 20% of approved EGM’s within the Cairns LGA. Pokies at the casino have been under pressure with competition from pubs and clubs so total growth for Cairns may be lower than indicated. Will look at the further with the imminent RCT annual results.

I should update previous regional data which showed growth in 2018  was weighted to regions outside SEQ.

 

 

Insurance and Underinsurance

Underinsurance is going to be an issue with events in Townsville. Particularly flood and we are going to see how previous regulatory changes since 2011 work out in practice.

The Insurance Council is constantly on about underinsurance however you can only wonder when your insurer comes back with a contents renewal value which implies you have stripped Harvey Norman of flat screen TV’s in the past year.

This study from JCU is worth a look and bookmark reference: Underinsurance in cyclone and flood environments: a case study in Cairns, Queensland

This is a small sample which is acknowledged. Probably the most interesting bit though was this:

Underinsurance

Spot the anomalies? What would be really interesting though would be if they had thrown in a question on Earthquake risk in Cairns.

Whilst earthquake is not widely recognised as a significant threat to Cairns, our research and the known record of seismic activity along the entire east coast of Australia leads us to conclude that strong earthquake poses the third greatest risk to the Cairns community. This risk is largely derived from the geology of the region. Much of Cairns is built on thick sediments. In addition, the sediments that underlie much of the downtown area are classed as ‘soft’. All these sediments are likely to significantly amplify strong ground motions, even from relatively distant earthquakes. Much of the major construction boom in Cairns took place after the publication of the first Australian earthquake loadings standard in 1979. However, this standard was not used widely in Queensland and, unlike its 1993 successor, did not cover domestic buildings. Nonetheless, many Cairns buildings are earthquake-resistant to a degree, having been designed to comply with wind loading standards from around the late 1950s for engineered buildings and 1982 for domestic buildings.

That report is from 1998.

Experience flushed again

Experience Co is apparently learning the hard way on the vagaries of our tropical climate with another seasonal profit warning ahead of the upcoming half year results. The ugly details:

Experience Co Limited (“Experience Co” or “the Company”) (ASX: EXP) today announces the following trading update, revised guidance, executive leadership and board changes:
1. Unaudited results for H1 FY2019 The unaudited results for H1 FY2019 are summarised as $84.3m revenue and $17.6m EBITDAI. In summary, skydiving pax numbers, revenue and contribution were marginally ahead of management internal forecasts, whilst other adventure activities were behind due to a combination of factors including, softer than anticipated international and domestic visitors in December 2018 and significantly higher than average rainfall for the December month. The full results, with management commentary, will be set out in the ASX Appendix 4D and the Half Year Financial Report expected to be released on 26 February 2019.
2. Revised Guidance for FY2019 The Directors have revised the FY2019 earnings guidance due to the continuation of softer trading conditions in the FNQ other adventure activities, combined with continued adverse weather conditions impacting volumes and earnings in both January and February 2019. We also expect this momentum will have some impact on volumes in the coming months. This severe weather event saw extensive flooding, airline and hotel cancellations and impacted tour operators in the region. Management has reviewed the forward projections for all operations for H2 FY2019 and as a result provides the following revenue and EBITDAI expectations for FY2019 as follows:

Previous Guidance Revised Guidance Revenue $165m – $175m $155m – $165m EBITDAI $37m – $41m $30m – $33m

Further details on the revised guidance will be provided when the Company releases its half year results at the end of the month.

The “other adventure activities” are pretty much the Cairns FNQ businesses: Raging Thunder; Reef Magic; Big Cat; GBR Helicopters; Tropical Journeys

And

3. Resignation of CEO/Executive Director CEO and Executive Director, Anthony Ritter has resigned from the Company as an executive and as a Director, with immediate effect.
4. Interim CEO arrangements Non-Executive Chairman, Bob East, will assume the role of Executive Chairman, pending appointment of a replacement CEO. The Board has commenced a formal process for the recruitment of a replacement CEO for the business.
5. Board changes Founder and Managing Director, Anthony Boucaut (Bowie), will step down as an Executive Director of the Company when a new CEO is appointed. At that time, he will join the Board as a Non-Executive Director of the Company. Bowie is keen to remain involved in the ongoing strategy and development of the business and both he and the Board believe that his extensive experience and expertise will be of benefit to the future direction of the business. The transition to a Non-Executive Director also coincides with his 20-year anniversary of founding the business.

Bob East was the highly regarded former CEO of Mantra Group until the takeover of that company by Accor. East joined the board last year after completion of that takeover and was elevated to the Chair at the AGM in November.

Only just posted at ASX this morning so will have a closer look later ……..

Previous posts: Update on Experience; Experience washed away in wet season

WTF happened to BNE – CNS?

I had looked before at the numbers for top flight routes and intended to return for a closer look. BITRE data is a collection of monstrously large and cumbersome excel files which can be a deterrent but was finally motivated by comments elsewhere on “hot” tourism which would seem to conflict with soft numbers at Cairns Airport.

Top route data at BITRE includes city pairs BNE-CNS, CNS-SYD and CNS-MEL. The three major capitals contribute an overwhelming majority of domestic airline passenger traffic to Cairns. The largest route is BNE-CNS which has shown a disturbing trend over the past year or so.

BNECNS1BNECNS2

The moving annual totals data from BITRE indicates seats BNE-CNS are down 7.4% and passenger numbers down 3.7% year to November 2018. Annual seat numbers on the route peaked back in November 2017. Maybe I have been asleep but can’t recall any previous commentary at all on this in Cairns?

Growth via SYD and MEL is softer than previous levels but remains positive at 0.9% and 1.6% respectively for passengers. Which would seem to suggest that the negative annual numbers we have seen start to come through at Cairns Airport can be mostly attributed to Brisbane. We haven’t had any comment with the monthly numbers from the Airport for a while now.

Qantas have recently announced an additional 11 return flights on the route from March 31: Qantas boosts flights for Queensland travellers. However it isn’t clear how much of that will be additional capacity rather than return of seats lost on the route since 2017?

Load factor on the route has risen to an historical 87.5% high for the series in line with rising airfares and Alan Joyce’s bonus. Someone still isn’t happy though: Qantas says productivity commission sux

 

Note: BITRE data is revenue passengers on scheduled flights a slightly different basis to numbers reported by the Airport however trends are generally consistent. The monthly Airport numbers posted here and by HTW are also ex transits.

Airport Regulation Draft Report

The productivity Commission has released its draft report on Economic Regulation of Airports.

The Airports seem to have come out of this quite well but not everyone is happy it seems: How Australia’s airport monopolies are costing us.

A quick flick through references to Cairns and some charts of interest. Cairns appears in the report as a second tier non-monitored airport. The monitored airports are the big four at Sydney, Melbourne, Brisbane, Perth. The post privatisation circumstances of Cairns Airport are also slightly different.

Cairns Airport, which is operated under a 99-year lease from the Queensland Government, is not regulated under the Airports Act, but is subject to state regulation (Airport Assets (Restructuring and Disposal) Act 2008 (Qld)). It has been encouraged by the Australian Government to publish the same information as the second-tier airports, and it does so with the exception of service quality outcomes.

 

Pc Airports 2

Pc Airports 1

The profile for Cairns here is, perhaps surprisingly, closest to Townsville and quite different from Mackay and Rockhampton. Unfortunate that Whitsundays isn’t included for comparison where Proserpine and Hamilton Island compete and split the numbers. Virgin/Tiger share is also relatively larger than average for Brisbane and Gold Coast.

 

Pc Airports 3

Domestic scheduled charges at Adelaide, Darwin and Gold Coast airports have remained relatively flat or grown slowly in real terms since 2011 and at Cairns since 2014. Charges at Hobart Airport increased substantially in 2016 after several years of minimal change and have remained fairly constant in real terms since then.
At Gold Coast and Darwin airports, there is little or no difference between domestic and international charges. At Adelaide and Cairns Airport there has been a persistent gap of more than $10 between the two charges.

Access charges for taxis and rideshare services at some regional airports are similar to those of the monitored airports. For example, North Queensland Airports (sub. 49, pp. 30-31) stated that at Cairns Airport, landside access fees for taxis and ridesharing services are $4.40 and $4.84, respectively. Like the monitored airports, Cairns Airport provides taxi and rideshare drivers access to waiting facilities and amenities.

Cairns, Darwin, Gold Coast and Hobart airports do not have a level of market power that warrants regulation at this time. In summary: 

none of these airports are gateways to major business hubs — at least not to the extent of the monitored airports. They are more substitutable as a result and have less market power 

these airports serve a higher proportion of leisure passengers than the monitored airports, which is associated with more elastic demand (and less market power). Leisure passengers also have more flexibility in their holiday destination, meaning these airports compete with characteristically similar airports that are not nearby. This is especially the case for Cairns, Gold Coast and Hobart. Gold Coast Airport is also significantly constrained by Brisbane Airport and Sunshine Coast Airport.

You are invited to examine the draft report and to make written submissions by Monday 25 March 2019.

 

Update after a document search on Whitsundays:

Is the passenger coming or going?
The extent to which a passenger has alternatives also depends on whether they live in the catchment area of the relevant airport. Some passengers have the flexibility to choose the destination of their trip — leisure passengers in particular have the option of switching travel destinations. For example, a passenger interested in scuba diving might choose between a holiday at the Ningaloo Reef in Western Australia and a holiday on the Great Barrier Reef in Queensland. Switching may also occur between international destinations — a passenger may choose between Queenstown and Thredbo for a skiing holiday, or between Sydney and New York for a place to spend the New Year. In these examples, passengers generally have little choice of departure point, regardless of the purpose of their travel (even leisure travellers) but there is no requirement for the two destination airports to be near to each other to be good substitutes.
All airports face a limited amount of competition from other airports due to switching from visiting leisure passengers. Airports with both a high proportion of passengers travelling for leisure and a very small permanent population in their catchment area, such as Hamilton or Whitsunday Island airports in Queensland, will face more competition and have less market power than airports with densely populated catchment areas.

I don’t know who at the Productivity Commission thought this was a clever or informed analysis.

 

 

Moar rental bond stuff

Following the last post a quick browse at RTA bond data for Cairns Regional Council area postcodes but also including Douglas. This is the change in number of bonds held by the RTA over five years to December 31.

Postcode         2013         2018         Change #         Change %
4861                  116           135                  19                  16.4%
4865                  528           534                   6                    1.1%
4868                 2683        2829               146                   5.4%
4869                 2002         2013                11                   0.5%
4870               11724       11592             -132                 -1.1%
4878                 1999         2062                63                   3.2%
4879                2971          2900               -71                  -2.4%
4873                  672            665                -7                  -1.0%
4877                1066           907              -159                -14.9%

Go Babinda! The bulk of rentals are in the central 4870 postcode which includes the City and is among the largest population postcodes in Queensland. What stands out here though is postcodes where we have seen declines all have a significant tourism accommodation component. Which means they are also attractive lifestyle locations. Port Douglas 4877 stands out.

We should probably expect some shift in tenure from rental to home ownership in parts of these areas such as 4879 around the beaches which would also be consistent with census data for Cairns with a shift to higher home ownership. There has also been negligible new strata unit capacity in these locations. Tenure in strata buildings with management rights can be very fluid between owners, renters and holiday accommodation. An Airbnb effect can’t be discounted.

I went looking elsewhere for something similar to what we are seeing in Cairns such as the Whitsundays but it wasn’t there at all …….