Why SA’s hotels are struggling despite recovering demand

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JEREMY MAGGS: South Africa’s hospitality sector says demand is recovering and that’s good news, I guess. But rising costs, skill shortages and unreliable infrastructure continue to prevent stronger occupancies from translating into healthier profits. So I guess it raises the bigger question: Can the industry continue blaming the operating environment, or do hotels need to rethink? Do they need to regroup on how they price, invest and manage their business?

Someone at the centre of this very important debate, because we know how critical tourism is to the South African economy, is Anton Gillis, who’s the new chief executive officer of Platinum Hospitality Holdings. Anton, good to talk to you. So if demand is recovered, what’s your perception then, why is the hospitality sector still struggling to make a sufficient profit?

ANTON GILLIS: Jeremy, great to connect again, thank you. I think there are two aspects to your question. Has demand really recovered? We were sent the Statistics South Africa incoming arrival statistics for last quarter, and we don’t believe that they are entirely accurate.

They show an increase in African travellers coming into South Africa. But what does that really mean? We believe that these are not tourists coming into the country. These are people coming into the country for business, and a lot of them are choosing to stay in the country.

We haven’t seen an influx of business that we’ve seen pre-Covid, specifically in the Asian market.

Remember, we used to drive around and see huge coaches of Chinese travellers. Where are they post-Covid? We haven’t seen them come back. We’ve got an asset on the Garden Route, which was filled predominantly with the Indian market. They too are absent post-Covid. So I think arrivals are stifled. We as an industry are begging for international travel, a couple of extra charter flights.

There are rumours going around that there are three new arrivals coming into Cape Town from the States. We look forward to that because everyone will benefit greatly. We know that there’s a shortage of global aircraft and that also stifles everyone’s best intentions. So I think on the demand side, there’s room for growth.

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There are a lot more hotel beds in South Africa, so we need a lot more tourists just to see hotels trade through this.

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JEREMY MAGGS: Anton, if that trajectory then continues, and there’s every indication then that it might, that does not bode well for your sector, does it?

ANTON GILLIS: Well, yes and no, we have a long-term view. We see this over 15 to 20 years from today and we’ve always had such a long horizon. What we need is just stable tourists coming in to explore South Africa.

The latest Trevor Noah ad that’s been flighted globally, we think will do wonders. He touches on an important aspect and that is there’s far more to South Africa than just coming to Cape Town.

There are many beautiful destinations within our country one could explore.

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JEREMY MAGGS: If I understand your thinking, you, and I guess others in the industry, want hospitality treated as a strategic economic infrastructure – your words, I think. What specific government support then are you asking taxpayers to provide?

ANTON GILLIS: Before we go to taxpayers, we would want government themselves to see us as a strategic pillar. South African Tourism has been dysfunctional for too many years now. It doesn’t seem to be a priority of anyone to get that fixed. We have the hugest amount of respect for Minister Patricia de Lille. The reality is, unfortunately, she’s coming to the end of her term. So we are really worried for what this looks like without her.

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We know there are four announcements coming to the South African Tourism board imminently. We know of at least one of the four who’s been appointed, and that’s a very good sign of the future.

What we would need from government is, and it’s difficult, but there’s something called a 1% tourism levy, which for the longest time hotels have contributed to.

Aparthotels and short-term operators

With the advent of aparthotels and other short-term operators, the majority of those do not contribute to the 1% tourism levy, and that levy serves as a purpose to promote destination South Africa. That’s where we all collectively work together to go fetch some foreign tourists.

Without them supporting that, the traditional hotels that still fund it are working for the greater good, which is not entirely fair on everyone.

We would also love to see a reformation of a tourism body where we could collectively get together to brainstorm, to strategise. With all competition considerations accounted for, the collapse of Fedhasa (Federated Hospitality Association of South Africa) nationally has really left us in a difficult position where we’re just growing further apart as an industry. We’re not coming together.

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JEREMY MAGGS: The difficulty is that operators, as I understand it, then Anton, are reportedly deferring any capital investment. But there’s an upside risk there in as much as weakening the guest experience can create an even bigger problem later down the line, surely.

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ANTON GILLIS: One hundred percent, Jeremy. I wrote an article where I reference it’s no longer relevant to have stars outside of a hotel to establish its level of quality. In the ‘90s and early 2000s, we used to go through a rigorous grading process and fight for every star we so rightly thought we deserved.

The reality is the guest is the judge of that these days. Your most recent ten guest reviews will give a very good impression of how your asset is holding. What we’re not seeing is a lot of reinvestment back into assets.

There are a lot of tired old, poorly run hotels that should be doing a lot better, but it’s no fault of the owners. Unfortunately, they just simply can’t reinvest because they haven’t had rate growth year-on-year.

They’re sitting with the same rates they’ve charged for the last 10 years. So while expenses are growing at 18% to 20% year-on-year, their total income is only growing just below inflation usually, and that’s not sustainable.

JEREMY MAGGS: Just a final question. I understand that a lot of that pressure is systemic, but surely the industry itself has got to carry some of the blame here. How much of the problems reflect on poor cost control or maybe even outdated business models?

ANTON GILLIS: I’ve got a different view. I think in Covid we were all forced to really look inside and reform and reshape how we run our business. I think with the introduction of AI and one’s ability to truly understand their own data, we’ve never been in such a competitive space.

I think hotels are being run with prudence. I think there are some really clever operators out there.

I think it comes back to an average daily rate. I don’t think we’re charging enough for what we’re delivering and what we aspire to deliver.

JEREMY MAGGS: Anton Gillis, thank you very much indeed, the chief executive officer of the Platinum Hospitality Holdings group.

#SAs #hotels #struggling #recovering #demand