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Gale-force winds have devastated nearly 1,000 homes in informal settlements across Cape Town, South Africa, leaving around 4,000 people displaced, according ...

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13/03/2023

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24/03/2022

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14/10/2021

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There's a serious shortage of stock in the system because of the knock-on effects of the global COVID-19 pandemic and the lockdowns South Africa has lived through.

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01/07/2021

07/06/2021

*M5* Business Day, premium content. *Still no cheer for troubled tourism industry*

Pandemic has hit tourist accommodation sector while slow vaccine rollout and third wave continues to deter global travellers

BL PREMIUM
07 JUNE 2021
MARCIA KLEIN

The tourism sector, whose slow road to recovery towards the end of last year was thwarted by the onset of the second wave of coronavirus, is facing more headwinds as the slow vaccine rollout and third wave cast doubt on a possible increase in tourism in 2021.

This is potentially crippling for a sector already on the brink.

Stats SA figures showed that total income for the tourist accommodation industry decreased 45.3% in March compared with March 2020. Income specifically from accommodation decreased 35.9% year on year in March and by 64.3% year on year in the first quarter of 2021, worse than the 61.1% year on year decrease recorded for the fourth quarter of 2020.

These and similar sobering statistics throughout 2020 are in large part due to the 72.6% decline in the volume of tourists to 2.8-million in 2020, from 10.2-million in 2019. While these are attributed to the pandemic, the long-term trend indicates the extent to which SA has become out of favour as a travel destination and why local destinations were already under the whip, even before the pandemic hit.

Overall travellers have decreased from nearly 24.6-million in 2006 to 12.1-million in 2020, while the tourism sector’s contribution to GDP and its role as a major employer have consistently come under pressure.

Tsogo Sun’s announcement of an occupancy rate of just 12% in the year to end-March is a shocking illustration of the extent of the fallout of the pandemic on the industry.

Tsogo said the 51% decrease in income and bottom-line losses were incurred due to the lockdown, closure of all its business in the first quarter, curfews, alcohol bans and capacity limitations.

These conditions brought accommodation establishments across the board to their knees and many have closed or are looking for buyers. Notable developments include the sale of Fairmont Zimbali, which was in business rescue, to Capital Hotels and Apartments, the closure until further notice of the Hilton hotel in Durban, Spear Reit’s plan to convert 15 on Orange in Cape Town into apartments and a hotel, and the indefinite closure of the Michelangelo hotel in Sandton. While it is difficult to quantify, industry players believe many B&Bs, Airbnbs and boutique hotels have stopped operating or converted to long-term rentals where possible.

For a labour-intensive sector, these conditions have been devastating and many workers have been retrenched, are working for a percentage of their salaries or are on restricted shifts. Tsogo Sun, for example, reduced its headcount by 1,361 in the year to March.

The industry’s major players focused on debt reduction and cost cutting, negotiated rent relief, reduced or extended payment terms with suppliers and reduced their payrolls. Sun International raised R1.2bn in a rights issue and CEO Anthony Leeming says it has enough cash flow to reduce debt levels further. Hotel owners that have stayed in business have been treading water, waiting for the expected rebound since the end of last year, but this was weak and short-lived.

City Lodge CEO Andrew Widegger says 2021 started slowly as the second wave of Covid-19 infections took hold and cancellations came through thick and fast, “as when infection rates increase, confidence to travel disappears”.

Leeming says international travel remains “low to nonexistent”, and this has not been compensated for by local leisure. The group does not see a quick recovery until progress is seen on vaccinations and the resumption of flights and routes. A strong rollout of vaccines would signal that this is a country that is worth visiting, he says, and there is definitely pent up demand. Business travel has certainly improved, but volumes remain low, and there has been some resumption of conferencing, but only with small numbers of people.

Leeming says small hotel groups are battling, most are not in a profitable position and the group has been approached about buying various hotels that cannot keep trading. For those that are operating, “there are specials everywhere, prices are at rock bottom, and hotel groups are just trying to manage costs to see through the pandemic.”

Widegger says City Lodge has introduced new specials, special weekend rates and food and beverage innovation, but there is only so much you can do to attract guests. “If you are going to stay open you need people through the door, but you also cannot be at a stage where the room rate doesn’t even cover variable costs,” he says.

The situation at hotels and resorts has had a knock-on effect on adjunct products and services such as bars, restaurants and taxis that operated in or outside their premises.

Widegger says there have been some closures, but also some new businesses opening, including restaurants, which he attributes partly to some people using retrenchment packages to start working for themselves.

Sun International’s resorts generally include the large restaurant chains that generally want to keep open for when the recovery comes. Their level of performance has been influenced by the resort they are in. At a resort such as Grand West, for example, these businesses depend on events and entertainment which are not happening, while at Times Square, restaurants are doing quite well.

Hotel performance has also differed across regions. Widegger says that in KwaZulu-Natal, a lot of customers are from the province, indicating people are opting for short trips. Similar trends are evident in Waterfall City and in outlying areas such as Bloemfontein and Rustenburg, but Cape Town has not fared as well, possibly because of the long flight from Johannesburg.

Leeming says Durban has been one of the better-performing regions while Cape Town, which has a large proportion of five-star hotels and a reliance on international and business tourism, has battled.

For Sun International, some resorts rely more than others on events and entertainment, which have been absent over the past year. As for gambling, which Leeming says felt the curfews and alcohol ban intensely, every month gets better. At casinos, the environment requires a large crowd, entertainment and “buzz”, he says, and while a lot of gambling has gone online during lockdown, “we don’t believe online has taken all that share” permanently as gambling is entertainment for many people and most of the group’s customers want to go out for the experience.

While 2021 is not signalling the recovery hotel operators hoped for, there are small signs of hope.

City Lodge is on track with its pipeline of new hotels. “In SA we just opened another hotel so we are on 50 out of 56 [planned] of SA hotels and five out of seven of rest of Africa, so we are nearly 100% there. We will probably have all open July-August depending on demand and the third wave. The group is, however, looking at selling its East Africa operations.”

Widegger says the group sees more positive trends week by week and weekend business has been better than traditionally. He does not see a return to pre-Covid-19 levels, which were depressed already, until possibly the mid to third quarter of 2022 when, hopefully, the vaccine rollout, resumption of international and pent up demand will lead to a recovery.

Leeming says Sun City is experiencing better occupancy and demand in recent months. “We have to see through today, but we are looking forward, absolutely,” he says. The group has done refurbishment at Sun City and is focusing on service and “doing a lot to sort out our product” to be in a better position when conditions improve. He expects conferencing to become more important for companies building corporate culture and teams.

Tsogo expects to be reliant on domestic leisure and sports travel in the absence of international travel, and says it will focus on cash preservation and liquidity to continue trading through the pandemic.

Other groups are doing the same and all continue to focus on strengthening balance sheets and cutting costs while they ride out the pandemic.

The longer it lasts, though, the more difficult it becomes.