Hotel group City Lodge is bracing for tough times ahead, with CEO Clifford Ross saying that trading conditions and occupancies have remained under pressure in the first six weeks of its new financial year.

On Wednesday, City Lodge reported a 3.1% slide in normalised headline earnings to R362.2m in the year to end-June, with room occupancies retreating to 63% (66% in 2016). The company’s shares were rattled, dropping more than 4% to R135 in late trade on the JSE.

With the local economy moribund, Ross hoped that a catalyst would soon emerge to improve sentiment and provide fresh economic growth impetus to stimulate both business and leisure travel. City Lodge financial director Andrew Widdeger said although trading remained tough, City Lodge’s fortunes could turn quickly.

"We are highly leveraged to any small improvements in occupancies." He noted resistance to room-rate increases, pointing out that the latest rate adjustment in August was well below inflation. In the year under review, the company had managed to pass on inflation-linked increases. Widdeger played down concerns around the influence of Airbnb on City Lodge.

"We are mostly affected by Airbnb in Cape Town, where the market is vibrant and the size of the cake is growing. There’s no real effect in Johannesburg yet."

Widdeger said City Lodge was still alive to new opportunities, especially in Africa.

A 147-room Town Lodge in Windhoek was scheduled for opening in September, with new hotel developments in Kenya, Tanzania and Mozambique progressing well.

Margins tended to be better, he said, in the company’s African hotels. He estimated that these cross-border developments could generate 20% to 25% of City Lodge’s revenue in two to three years. African hotel operations accounted for about 10% of the company’s more than R1.5bn turnover in the past financial year.

Locally, City Lodge is set to extend its flagship property at OR Tambo International Airport by 62 rooms to 365 rooms. This would come on stream in the first quarter of 2018, Ross said.


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