‘Revenge travel’ boosts SA’s hotels

“Revenge” travel (making up for lost time during the pandemic) has supported a surge in forward bookings, with SA hotels expecting a particularly strong rebound in international tourists this summer.

The hospitality sector, arguably the service-related industry worst affected by the pandemic, has already experienced a marked recovery in occupancy rates and revenues year to date.

JSE-listed Sun International last month reported a hefty 63% year-on-year increase in income from its hotels and resorts in the six months to June. The group’s properties include Sun City in North West province, Wild Coast Sun on the KwaZulu-Natal south coast, The Table Bay Hotel in Cape Town and The Maslow in Sandton.

CEO Anthony Leeming said the group experienced a strong recovery in domestic leisure, conferencing, sports and events revenues, which now exceed 2019 levels “despite power outages, rising fuel prices, higher inflation and international supply chain disruptions”.

However, income from corporate and international travellers remains below pre-Covid levels.

Sun International’s improved financial position and strong cash generation enabled its management to resume dividend payments for the first time since 2016. Leeming expects the positive trend to continue for the remainder of the year.

City Lodge Hotels released an equally upbeat trading statement in July. CEO Andrew Widegger said there’s been a continued recovery in weekend and leisure occupancies at City Lodge’s 53 SA hotels in recent months, which has been boosted by increased corporate activity and business travel. As such, earnings for the 12 months to June are expected to rise by at least 75% year on year.

Latest figures from global hospitality analytics group STR show that average hotel occupancies across SA clocked in at 53.2% in July, nearly three times the 18%-19% recorded in both July 2020 and 2021.  More importantly, the occupancy rate is now only about five percentage points below pre-Covid levels (58.9% in July 2019).

Industry players expect a further recovery in occupancies over the summer months on the back of a marked return in overseas visitors. Latest numbers from Wesgro initiative Cape Town Air Access show there has already been a sharp rebound in offshore arrivals at Cape Town International Airport in recent months.    

In July, 150,938 passengers travelled through the airport’s international terminal, which is only 13% below the number recorded pre-Covid in July 2019. For the year to date (January to July), international passenger volumes are still 37% below 2019 levels but a whopping 373% ahead year on year (see table).

Marc Wachsberger, founder and CEO of Capital Hotels & Apartments, believes SA will be a major beneficiary of  “revenge” travel in the coming summer months, a trend that has seen millions of leisure tourists flood Europe during its May-August summer season.  “We can see it in our forward bookings from September, especially at our coastal hotels in Cape Town and at Zimbali on KwaZulu-Natal’s north coast,” he says.

Occupancies across the group’s 12 hotels (1,500 rooms) are already back to pre-Covid levels of an average 70%, which Wachsberger expects will hit 85% by December.

Wachsberger says SA’s value for money proposition has already led to a big return of international film and television production crews to Cape Town. Capital’s self-catering properties — known as aparthotels — have been a major beneficiary of this trend, given that production travel typically involves longer stays where guests can prepare their own meals, he notes.     

However, Wachsberger says unlike European hotels where room rates have gone “through the roof”, the SA industry hasn’t yet increased its pricing from depressed Covid-levels. That’s despite hoteliers having to cope with rampant growth in electricity and utility bills as well as the cost of keeping generators running during load-shedding. 

“Hotel room rates are still down 25% from pre-Covid levels and are effectively at 2017 levels,” he says. “So SA is now beyond cheap and offers huge value for international tourists.”

FNB property strategist John Loos voices a similar sentiment. He says despite an encouraging increase in SA occupancies in recent months, most hoteliers have yet to see a recovery in revenues to pre-Covid levels.

Referring to latest Stats SA tourism data, Loos notes that the net operating income generated by the hotel sector in June was still a “significant” 26.2% below that of June 2019 in real (inflation-adjusted) terms.

The bad news for SA hoteliers is that room rates are unlikely to recover noticeably anytime soon. While Covid lockdown pressures have receded, Loos believes the recent surges in fuel and food prices, coupled to rising interest rates amid a slowing local and global economy will likely continue to exert pressure on travel spending budgets, which will make it difficult for hotels to push through rate increases. 

The delayed recovery in SA hotel rates is in stark contrast to that of major European capitals, which have already surpassed pre-Covid levels. For instance, STR reports that London’s hotel industry recorded its highest monthly room rates on record in June at an average daily rate of £209.

Average daily rates in Berlin reached €114.19 in June, the highest level recorded since September 2019, while Paris hotel revenues had already recovered to 2019 levels in March. In addition, occupancies in most European capitals had recovered to levels of close to — or exceeding — 80% in June.

Local industry players agree the recovery in SA’s hospitality industry will, for now, be driven largely by leisure travellers given that domestic business trips may take a while longer to bounce back.

In fact, Loos says he won’t be surprised if the successful  “Zoomification” of business meetings during pandemic-related lockdowns has pushed companies partially away from physical travel for good. “Many hotels may have to be less dependent on domestic business travel on a more permanent basis,” he says.  

Loos’s views are echoed by international real estate analytics firm CoStar, which predicts that hotel demand among global business travellers is likely to return to pre-Covid peaks only towards the end of 2023.

Three factors are contributing to the slower recovery of business travel: company work-from-home policies; executives re-evaluating the value of business trips against teleconferencing technology; and the broader global economic slowdown on the back of ongoing geopolitical tension, higher inflation and interest rates.

However, industry players say the advent of “bleisure” travellers may well mop up some of the capacity left by the decline in corporate business trips.  The term was first coined in 2009 but the pandemic has accelerated the adoption of the trend across the world as more companies permanently shift to work-from-anywhere policies and people seek a better work-life balance.

The latter has created increased demand from a new breed of travellers and digital nomads who want to blend work and leisure travel via extended stays, says Cobus Odendaal, CEO of Lew Geffen Sotheby’s International Realty in Joburg.

He believes the rise of bleisure travel has provided a strong underpin for the rapid growth of the aparthotel concept, both globally and in SA. “We are seeing new brands being launched and established operators converting their products and business models from traditional hotels to serviced apartments, often with onsite amenities.” 

Odendaal says continuing semigration from inland to coastal areas has created further demand for aparthotel accommodation as many breadwinners of families that have relocated to the coast still need to travel to Gauteng for work purposes. “It’s simply not practical or convenient to stay in a traditional hotel on an ongoing basis as most people want to be able to at least prepare basic meals and not be confined to one small room.”

Odendaal refers to the main commercial hubs of Joburg including  Melrose, Rosebank, Hyde Park and Sandton where a number of developers are now repurposing older buildings and bringing new stock to the market to meet the shifting demand for longer stays in aparthotels.

Flyt Property Investment, which owns Wink Aparthotels, is particularly active in this space. The company is involved in the redevelopment of the old Standard Bank building at One Thibault in the Cape Town inner city, which opens for business in November as well as Saxon Square, currently under construction in Oxford Road, Rosebank. The latter will comprise 138 fully furnished studio, one- and two-bedroom apartments alongside all the convenience amenities offered by a hotel.

 Flyt MD Ryan Flowers says the tourism sector is on the cusp of a bounce-back, which should translate into a healthy increase in demand for aparthotel-type accommodation over the coming months. The group has already increased occupancies across its Western Cape aparthotel portfolio from an average 48% by end-2021 to 75% in the first 10 days of September.