SA's hospitality outlook


Experts in the tourism industry are confident that South Africa’s hospitality industry is prepared to grow further in the next few years—and the most recent PwC Hospitality Outlook: 2015 – 2019 echoes this viewpoint.

Although South Africa’s economy has weakened, the hotel industry in 2014 has benefited from an increase in foreign visitors and rising room rates. Going forward, though, especially with the latest revision of the country’s visa regulations, the question remains: How well is South Africa’s hospitality and tourism sector really prepared for further growth, given the tough global economic times?

According to the PwC report, most growth in the sector expected to be generated in Cape Town—and by the year 2019, the overall occupancy rate across all sectors in South Africa will continue to increase, rising to an estimated 58.3% from 54.4% in 2014. The hotel occupancy rate reached its highest level in 2014 of 59% since 2008. The hotel occupancy rate is expected to increase to 62% by 2019 but still remain lower than the 68.4% achieved in 2008. And five star hotels are expected to achieve a high of 80% occupancy in 2019.

Pietro Calicchio, PwC Head of Hospitality & Gaming for Southern Africa, told Service, in their view, the sector is indeed well prepared for growth, as there is sufficient infrastructure in place to take advantage of future growth.

“The major hotel operators have continued to maintain, expand and invest in their properties and this places them in a good position. Additional international market players have also entered the market, and there is a wide range of hotels available from affordable to high end thus giving the traveller a wide variety of choice. The weakened Rand makes SA an attractive destination for foreign travellers, however the impact of visa regulations may stifle some of this potential upturn.

“Our current strengths when it comes to promoting SA as a travel destination, includes the fact that we have a wide number of offering such as beaches, mountain-type vacations, well developed cities, game lodges and safaris—all in close proximity to one another. Over and above that our weather (mild winters and warm summers), good travel infrastructure and world-class conferencing and hotel facilities further adds to the attractiveness of the destination,” says Calicchio.

Looking back at developments in the travel industry over tha past 10 years, he says the industry has definitely moved forward from where it was.

Calicchio credits a number of technological developments and the improvement of SA’s digital landscape—online booking systems have been introduced, the voice of the customer can be heard over social media (promoters and detractors), and online travel agents have impacted the way accommodation providers do business —as one of the main contributors to the favourable development of our travel industry.

“Travellers today have a wealth of information at their disposal and expect real time information on their hotels, flights and other aspects of the travel experience. More hotels have been built in the country and we have seen new entrants to the market such as the Marriott, Four Seasons and the Radisson groups.

“Hosting the World Cup in 2010 had a significant impact on the industry. New hotels were built, and South Africa received great publicity during the World Cup. There has also been developments in other improved infrastructure, such as the Gautrain, and roads have been improved. Low cost air carriers have made it more affordable and easier to travel within the country and to some regional countries.

“The country’s ability to host world class events such as the World Cup in 2010 showcased the country to the world and resulted in additional capacity and other infrastructure in the country being built. Good economic growth in prior years also aided in bringing more travellers to the country,” he says.

However, crime related matters and other problems that the country is currently tackling (such as the energy crisis) all impact negatively on the perception of South Africa. South Africa is a long haul travel destination and the lack of direct flights to certain international cities together with the higher cost involved may impact on the decision to visit the country.

One of the most significant recent developments in 2014 and 2015 in the South African tourism industry was the revision of the country’s visa regulations, which may make it more difficult for certain foreign travellers to travel to SA when compared to other countries they may want to visit.

Under the revised regulations tourists to South Africa will have to apply in person for visas to visit South Africa so that biometric data can be reliably collected. In addition, parents and guardians travelling with minors must have an unabridged birth certificate that shows the names of both parents.

Nikki Forster, Hospitality Industry Leader for PwC, Southern Africa, says although the new regulations are intended to protect South Africa they could have unforeseen consequences for the tourism and hospitality industries. “Furthermore, the regulations may be onerous for tourists to comply with. It still remains to be seen as to how they will affect the tourism and hospitality sectors.”

Worldwide, governments are focusing on efforts to relax visa requirements to promote tourism. Tourism industry commentators in South Africa say the regulations have already adversely affected travel from China and India.

PwC’s report features information about hotel accommodation in Nigeria, Mauritius and Kenya. The accommodation sector in South Africa consists of hotels, guest houses and guest farms, game lodges, caravan sites, camping sites and other overnight accommodation.

“The accommodation market in South Africa enjoyed its third consecutive year of strong growth with a 9.1% advance following two years of double-digit gains. We expect total room revenue in South Africa to expand at an 8% compound annual rate overall and by 8.1% compounded annually for hotels,” says Forster.

Growth in room rates will be the main driver of revenue, with new hotels in Cape Town leading the expansion.

In 2014 overall spending on rooms in South Africa rose 9.1% to R18.9 billion, with rising room rates being the principal driver. Hotel room rates rose 7% just above inflation with five-star hotels achieving the fastest growth at 12.8%. With the market now improving, there is renewed activity in the hotel industry as major hotel chains upgrade current facilities, renovate their properties or make plans to expand and open new hotels. The report estimates that by 2019 there will be about 63 600 hotel rooms available—up from 60 800 in 2014.

Elsewhere in Africa, the hotel markets in Nigeria and Kenya were both adversely affected by terrorist activity in 2014 and Nigeria was also hurt by the outbreak of the Ebola virus in West Africa.  Because of its strong economy, the hotel industry in Nigeria has attracted significant investment and the number of hotel rooms in Nigeria is expected to more than double during the next five years with much of the growth taking place in Lagos. The number of available hotel rooms in Mauritius, a resort destination, is also expected to increase at a 2.8% compound annual rate.

Overall room availability in South Africa is expected to increase at modest rates for each category with guest houses projected to be the fastest-growing category averaging 1.0% compounded annually. Overall room availability is projected to increase at a 0.7% compound annual rate to 120 300 in 2019 from 115 900 in 2014.

The overall occupancy rate rose to 54.4% in 2014 with each category increasing. Guest houses/guest farms had the highest occupancy rate at 62.9%. The overall occupancy rate is forecast to climb to 58.3% in 2019.

Total room revenue is forecast to reach R27.7 billion in 2019, an 8% compound annual increase from 2014. Stay unit nights rose 3.6% in 2014 with most of the growth generated by a 10% increase in caravan/camping sites and other accommodation.

“We expect stay unit nights to rebound in 2015, helped by an improving global economy and pick-up in economic growth. Growth, however, may be hampered by the recent imposition in 2014 of the new requirements needed to obtain a visa and in 2015 related to travelling with minors. Consequently we project stay unit nights to grow more slowly over the forecast period compared with increases during the 2010-13 period,” adds Foster.

It is also expected that the market can sustain mid-single-digit price rate increases in room rates without adversely affecting stay unit nights. The average room will cost R1 083 in 2019 from R820 in 2014.

Forster says: “The South African hotel market faces a number of challenges, but we are very optimistic in its ability to compete, adapt and succeed, especially as the global economy continues to improve following the recent economic uncertainty.

“Growth in travel and tourism is also expected to boost growth in the accommodation industry across the African continent during the next five years.”

Calicchio’s advice to improve on the challenges we face in the tourism sector, is to introduce more awareness campaigns about the country and its facilities—and to promote local travel as well.

“There are a lot of positives that SA has built on and this has come through in the increase in tourism. The key is to keep on building on these and to ensure SA remains an attractive destination when compared to the other countries we are competing with for the tourism revenues,” Calicchio concludes.

Jocelyn Newmarch


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