Cheap transport to Macau can be a losing bet
Macau looks like a tough town for low-cost transport providers, and not just because they must compete against effective monopolies and duopolies.
Last year, it was budget airline Viva Macau that went bust, blaming the Macau government for unjustly cancelling its operating licence and restoring flagship carrier Air Macau's de facto monopoly.
On Wednesday, it was start-up ferry operator Macao Dragon, which fell into liquidation, blaming the Macau government for capping the number of passengers it was allowed to carry at just 65 per cent of its capacity. 'Although the Macau government has promised to lift these caps, they have not yet done so and we are now unable to run the business on a viable basis. The circumstances have made it impossible for us to continue operations,' Macao Dragon said in a statement.
But Macau's apparent hostility to start-ups is not all that it seems.
In the case of Viva, the airline had been propped up through the financial crisis by a bailout loan of 200 million patacas issued by the government.
Macao Dragon was set up in 2006 by shipping magnate David Liang Chong-hou, whose family had previously been involved in the Hong Kong-to-Macau ferry business.
The firm waited four years for the Macau government to issue it a licence, but when it finally started operations in July last year it was pitted against stiff competition from the better established Shun Tak Holdings, owned by the family of casino mogul Stanley Ho Hung-sun, and CotaiJet, owned by Las Vegas billionaire Sheldon Adelson's Sands China.
It was also caught in the crosshairs of rising costs and infrastructure bottlenecks. Macau capped the ferry operator at carrying 750 passengers from Hong Kong despite its ability to carry 1,152 people.
But this was because the temporary ferry terminal on Taipa Island can only accommodate 1,000 people at a time, Macau Maritime Administration director Susana Wong Soi-man said yesterday. Multiple operators share the temporary terminal, and construction of a larger permanent facility, already several years behind schedule, is now set for 2013.
At the same time, since Macao Dragon launched operations 14 months ago, fuel costs have soared. The price of marine diesel for Singapore delivery surged to US$948 per tonne as of July 9, up 49 per cent from US$636 per tonne a year earlier.
Shun Tak's shipping business and CotaiJet have suffered operating losses. But for the Ho family and Sands China, who own and operate lucrative casinos, this is just the cost of bringing punters to Macau.
Macao Dragon did not have the casino business to absorb its losses. Nor did New World First Ferries, which last month sold off its Hong Kong-Macau ferry business along with seven vessels to Shun Tak for HK$350 million. (Although the family of New World chairman Cheng Yu-tung owns a substantial stake in the parent company of the Ho family's casino business, SJM Holdings.)
In another sense, business was personal for Macao Dragon. The company's founding directors were David Liang and his son, Francis Liang Sai-cheong. David Liang's father was the late Liang Yuen-cheong, who served as a director of Hang Seng Bank and a vice chairman of New World Development.
In 1964, the eldest Liang established the Hongkong Macao Hydrofoil Company to compete on the popular route against a rival business operated by Stanley Ho, who held the Macau gaming monopoly from 1962 until 2002.
Among the start-up company's other founding shareholders were Liang's fellow Hang Seng Bank director Ho Tim, and Ho's half brother who lived in Macau, Ho Yin - a powerful community leader and the father of former Macau chief executive Edmund Ho Hau-wah.
Liang Yuen-cheong took majority control of the hydrofoil company in 1974 and, after his death in 1979, his stake and management of the company was passed to his sons, David and brothers.
But the competition intensified with Shun Tak, which had started operating Boeing-built jetfoils. In 1994, the Liangs sold Hongkong and Macau Hydrofoil to a unit of China Travel Service (CTS) Hong Kong.
Five years later, the company was co-opted into Shun Tak's fold, when the Ho family firm formed its joint-venture ferry business with CTS to form what is claimed to be the world's biggest high-speed ferry fleet, TurboJet. Today, Shun Tak has an effective 42.6 per cent stake in Hongkong and Macau Hydrofoil.
The number of visitors to Macau last year, down 5 per cent, with 50.5 per cent from the mainland and 30.9 per cent from Hong Kong