Recession-hit City Lodge could tap five-star market
City Lodge is beginning to feel the pressure of the weak economy as business travellers trim spending. But, as customers trade down from five-star hotels, it is in a stronger position than some of its peers.
City Lodge CEO Clifford Ross said it had seen a certain amount of buying down and the corporate market was squeezing the group hard to get a good rate.
If a company was paying the account, he said, people would travel, but weekends were a different picture - with the pressure on consumers resulting in a considerable drop in business then.
City Lodge, which targets the business-travel market, has seen a drop as companies tighten their belts to trim spending.
De Wet Schutte, analyst at Avior Capital Markets, said investor sentiment had become quite negative towards the travel and leisure sector. City Lodge was not an isolated case.
"The reality is that with a slowing economy - as we are in a technical recession - there will be downward pressure on the key metrics that drive the business," he said.
Occupancy for the group is likely to be under pressure and the Gauteng market in particular, had become more difficult in recent months, he added.
The group's interim report for the six months ended December 31 showed average occupancies had declined by 3% to 66%. Sandton and surrounding areas were a key node for the group and occupancy in the group's hotels there had been under pressure, Schutte said.
Occupancy rates at Tsogo Sun for the year ended March 31 had increased 0.8 percentage points to 63.3%. Sun International does not disclose occupancy rates.
City Lodge's share price fell by more than 7% this week but recovered, closing the week 4.4% down at R140 a share. Over the past 18 months or so, Sun International's share price had slumped 43%, Tsogo Sun was down 4.34% and City Lodge 4.9%.
"The economics that underpin the hotel industry in South Africa are sound - we are having some shorter-term challenges because of adverse conditions," he said.
Another analyst, who could not be named due to company policy, described the difference between Cape Town and Johannesburg as a tale of two cities.
Cape Town was going strong because it was supported by international tourists so hotel groups with good exposure to this market had the upper hand. Travellers from both Cape Town and Johannesburg were looking to downgrade and City Lodge could benefit from that. "Rather than people staying in five-star hotels they might be staying in three-star," she said.
Airbnb's market effect was not clear. A 2016 Airbnb report showed that 394,000 people made use of the service rather than going to a hotel; close to half of the total stayed in Cape Town, while only 29,000 took the option in Johannesburg.