City Lodge taxed profit falls 26% in subdued economy
Hotel group’s average occupancy falls from 61% to 58% on low business and consumer confidence
Low business and consumer confidence continue to haunt listed hotels group City Lodge Hotels as full-year net profit fell more than a quarter with more of its rooms unused in the year to end-June.
Average group occupancy fell to 55% from the previous year's 59%, the operator of Courtyard Hotels and Town Lodges said on Friday.
In SA, occupancies slumped to 58% from 61% because of low business and consumer confidence, high unemployment and uncertainty about Eskom’s sustainability as well as land expropriation, the group said. The economy shrank in the first quarter of 2019.
Also, room rates in SA rose at less than the inflation rate “due to increased competitor discounting”.
City Lodge CEO Andrew Widegger bemoaned SA's bleak economic growth prospects. The company experienced similar conditions in financial 2018.
Widegger said the country needed “new catalysts” to boost investment confidence and economic growth.
“Our portfolio of hotels in South Africa, Southern Africa and East Africa is in excellent shape after ongoing refurbishments and the addition of exciting new properties.
“Our entire operational team is highly motivated to deliver on our brand promise and growing market share in a depressed environment, ideally positioning the group to benefit from better trading conditions as they arise,” Widegger said.
Group revenue rose 3% to R1.5bn, but operating costs rose faster. As a result, group taxed profit fell 26% to R205.5m.
City Lodge Hotels said it would pay a gross final dividend of 137c a share, bringing the total dividend for the year to 366c, a drop of 19.4%.
Tshwane University of Technology's Unathi Henama said City Lodge’s lower taxed profit was no surprise, given tough economic conditions.
The government had also curbed spending on travel. “It is also important to realise that domestic arrivals in the past two years had been in decline,” Henama said.
He said the growth of Airbnb, the rental platform for short-term travellers, affected the local hotel industry, “but I do not think we should exaggerate the impact”.
“In as much as Airbnb is competition to the hotels, it has also cultivated a new market of people who, in the past possibly could not even afford a hotel. The tough economic conditions are primarily to blame for the decline in profit.”
City Lodge could not immediately respond to questions about the impact of Airbnb on hotel occupancies.
The group said occupancies in Botswana “improved slightly” in the second half, although Town Lodge Windhoek “performed below expectations” amid weak economic growth in Namibia.
The Kenyan business “experienced a weaker second half due to increased hotel supply and economic growth not translating into commercial activity”. Occupancies there were lower than in the prior year.
Meanwhile, the group said that given SA’s economic woes “the weaker trend of the past year has extended into the new financial year”.
“New catalysts are needed to boost investment confidence and spur economic growth,” it said. “Against this backdrop, there are some encouraging signs, such as the notable efforts by the national department of tourism to develop and grow this industry that is so important to the future of SA.”
The group said its portfolio of hotels in SA, Southern Africa and East Africa “is in excellent shape” thanks to refurbishments and addition of new properties.