Itʼs that time of year. People gather together around radios, TVs and computer screens with anticipation, expectation and trepidation. For what, exactly? The State of the Nation address! The presidentʼs assessment of South Africaʼs affairs and his promises for the year to come.It makes you wonder … whatʼs the state of the nation in the hotel and hospitality industry?
Joop Demes, (CEO) and Kamil Abdul-Karrim (Managing Director) of Pam Golding Hospitality and Tourism recently evaluated the state of South Africaʼs hotel industry in an illuminating interview with HOTELS magazine. The great news is that while the global and local economic recessions have played their part in temporarily slowing down the hotel industry, hope is on the horizon!
Hope for hospitality and tourism
Here are a few of the challenges as well as the good news regarding the ʻstate of the nationʼ.
The bad news:
- Room supply exceeds demand.
- The corporate market is more budget-conscious, which forces the industry to offer discounted rates.
- The government market has decreased. Although it has stabilised, it will take time to be restored to 2007/2008 standards.
- The international corporate market fluctuates with the global economy which is currently under pressure.
- Global and local economic recessions impact both occupancy levels and room rates.
- Uncontrollable factors including the price hikes in water, electricity, gas, property rates, and fuel present a challenge to hotel operators.
- There is competition between luxury and non-luxury hotels because of discounting practices.
The good news:
Joop Demes was asked, “What is the good news about the hotel business in South Africa right now?” This was his response:
- South Africa is doing relatively well, compared to the rest of the world.
- The South African Government continues to spend money and the economy is in relatively good shape with currency, inflation and interest rates that have settled down and stabilised.
- Banks are careful, but have liquidity (financial resources).
- There are very few distressed situations from a hospitality point of view compared to other parts of the worlds, and for the hotels that do get into trouble, solutions can invariably be found.
- Although South Africaʼs July 2011 year-to-date RevPAR (revenue per available room) of $64-39 has declined by 14.9% compared to the same period last year, this figure compares quite favourably with USAʼs July year-to-date RevPAR of $61-33. It also doesnʼt take into account the increased demand for accommodation during the Soccer World Cup 2010.
- With presence in a few gateway cities in South Africa, international and regional hotel operators will find it much easier to expand into a number of attractive Southern and Western African countries.
- There are many hotels in our neighbouring countries that offer opportunities where, with a good refurbishment, strong global brand and a good hotel operator at the helm, have the potential to operate much more efficiently.
Good news for hoteliers and entrepreneurs
This is also a good time for hospitality entrepreneurs. Demes and Abdul-Karrim shared some interesting insights into current hospitality opportunities:
There are opportunities in the budget or economy market in places outside of Durban, Cape Town and Johannesburg for ʻbudget boutiqueʼ hotels: small, comfortable, affordable B&B-type hotels.- In general, hotels are not being sold because business conditions are poor, but also for other reasons.
- Business conditions should improve over the next three years.
The ʻstate of the hospitality nationʼ
In a nutshell, South Africaʼs hotel industry is under pressure but performing well on an international scale. It has its challenges, but with those challenges come great opportunities and plenty of good news. The future looks bright!
