China's Golden Week holidays failed to deliver a much-anticipated boost for Macao's gaming industry as mainland tourist arrivals plummeted 84% year over year, deepening losses for casino operators that have been battered by the COVID-19 pandemic.

It is estimated that gaming revenue during the eight-day holiday that began Oct. 1 fell 76% year over year with a daily average of 279 million Macanese patacas, according to projections by investment banks including Jefferies and China International Capital Corp., and Macao-based gaming consultancy IGamiX.

The requirement for a negative COVID-19 test and the lengthy processing period for tourist visas contributed to total inbound arrivals falling 86% to 156,300, of which 145,442 were from mainland China, according to preliminary data released by the Macao Government Tourism Office. In contrast, the Asian gaming hub recorded an 11% growth in inbound arrivals during the 2019 Golden Week, although visitor numbers began falling thereafter as protests grew in neighboring Hong Kong.

Despite reports of "rocketing" hotel bookings by state media and buy-one-get-one-free flight promotions on Alibaba's travel booking platform Fliggy, occupancy rates are estimated to have been between 35% and 45% of capacity, according to channel checks carried out by CICC analysts.

China began to ease travel restrictions to Macao for residents from the Guangdong province starting late August before reinstating tourist visas from all other Chinese provinces from Sept. 23. Visitors returning from Macao are exempt from quarantine but wariness over infections has prevented many Chinese from traveling.

Despite the dismal numbers, the 76% decline sets a new baseline for the recovery outlook for casino operators in Macao, said Ben Lee, managing partner, gaming developments and marketing at IGamiX.

Gaming revenue in Macao dropped 82.5% to 38.61 billion patacas from January through September. Second-quarter revenue of operators including Wynn Macau Ltd., Melco Resorts & Entertainment Ltd., MGM China Holdings Ltd. and Sands China Ltd. fell in the range of 88% to 98%.

The final tally for gaming revenue during Golden Week should be in line with the 84% drop in visitors, but a decline of 75% could offer some hope to the sector, said David Bonnet, managing partner at corporate finance house Delta State Holdings. In the most optimistic scenario, casinos would need to generate half of 2019's revenue in 2021 in order to operate on a break-even basis, he said.

On-the-ground checks carried out by IGamiX found that this year's Golden Week activity was mainly driven by young couples and families lured by discounted hotel rates and flights. Group tours have yet to return to the gambling floor, according to the consultancy.

"It's a very different profile that we have seen this Golden Week compared to other Golden Weeks. Other Golden Weeks we always see the die-hard gamblers, but not this time. They are just not gamblers," Lee said.

The VIP segment had been expected to lead the rebound but tightening regulations on capital outflow by Chinese authorities and a crackdown on overseas gambling may have deterred this audience, Lee said. Bonnet said this part of the market is a "low-margins, high-compliance" business characterized by "low-quality revenue" and commissions paid to junkets. He believes the new, younger profile of visitor could present better growth opportunities and more revenue streams for casinos and resorts.

"The casinos have to figure out how to cater to them. It's not so easy to plan. The VIP business is a hugely commoditized affair. All the VIP rooms look the same, all the benefits to VIP customers are similar," Bonnet said. "How Macao recovers has to be on the strength of the customers. Because of the size of the properties, [they] need people to stay in the hotels, eat at the restaurants and play on the card tables."

During Golden Week, the mass market segment outperformed the VIP segment, the former's volumes declining by 70% to 72%, compared to the 85% to 87% drop in the latter, according to Jefferies analysts.

"We expect this trend to continue with mass driving the recovery rather than VIP," Jefferies analysts wrote in an Oct. 8 research note.

Though it has only registered 46 confirmed cases since January, Macao maintains strict entry requirements. Foreign visitors are banned with the exception of those coming from mainland China, Hong Kong and Taiwan, though a 14-day quarantine remains mandatory for Hong Kong and Taiwan.

Patrons are required to produce a negative COVID-19 test before entering casinos, while six casino operators have received approval to set up testing facilities at their properties. Casinos were briefly closed in February after an employee was infected.

The removal of the requirement of a negative COVID-19 test would be key to helping the recovery of the gaming sector, although it is not likely before the rollout of a vaccine, said IGamiX's Lee.

A more holistic approach calls for the removal of quarantines for visitors from Hong Kong, Bonnet said, as it is a major conduit for visitors and capital flow. Visitors could access Macao from Hong Kong previously by ferry and land via the Hong Kong-Zhuhai-Macao Bridge launched in late 2018.

"The outlook is very bad. We can't even have a Hong Kong-Macao travel bubble," Bonnet said.