[TOP STORY] Hotel income still behind pre-pandemic numbers

These days ‘we don’t jump on a plane at the drop of a hat to go to Cape Town for a few meetings and stay overnight in a hotel’: John Loos of FNB Commercial Property Finance.

SIMON BROWN: I’m chatting now with John Loos, property sector strategist at FNB Commercial Property Finance. John, I appreciate the early morning time. You pulled the data on April hotel-income statistics. The short answer is we are still not back at pre-pandemic levels. We see income down just over a third, occupancies at a third versus 48.9%. The sector’s recovering, but it’s some way behind those 2019 pre-pandemic numbers.

JOHN LOOS: That’s right, 34% down on April 2019, Simon. So a long way to go. It’s almost, I would say, not surprising. I know lockdown regulations have by and large gone, but there are a whole lot of headwinds that still plague it. One thing I think one has to realise is that, if you look at leisure tourism, that’s often on the back-burner for households that took an income knock over this big recession of 2020. So that probably struggles to catch up as households repair their incomes. On the business side too I think it’s a similar thing – financially pressured.

But we’ve also unified a lot of our corporate interactions, so we don’t jump on a plane at the drop of a hat to go to Cape Town for a few meetings and stay overnight in a hotel. I think that’s a more permanent structural change. We do a lot more of our interaction online. So a portion of that travel doesn’t come back, I guess.

SIMON BROWN: That’s a good point, because I’m one of those folks who would spend, I don’t know, 20, 30, 40 nights a year in a hotel, because I was somewhere doing a presentation or something like that – and that hasn’t reduced, it has vanished. It is now just zero. I appreciate that some folks are going back to it, but that is a structural change. That has gone. It’s business that has just disappeared into the ethos. Businesses have learned the whole online story.

JOHN LOOS: It’s amazing how we just carried on in our way of operating, jumping on planes, travelling around. It’s not only costly in terms of flights and hotels, it’s also time-consuming. It’s a whole day or two, or whatever it might be of travel – and it’s unproductive.

And yes, one of the benefits of the forced lockdowns is that it showed us how to work more efficiently and time-efficiently. But on the downside for the hotel sector in the short term I think that’s a big challenge – [for] that part of the hotel sector that depends on business travel heavily, I think.

SIMON BROWN: Price inflation within the hotels certainly was moving higher. That suggests they’re getting more money per room night. But I suspect input costs are also rising and potentially are offsetting the rate increases they can put through; the hotels simply don’t have that pricing power right now because of the amount of capacity.

JOHN LOOS: Yes. I think their pricing power has definitely improved from what it was in the lockdowns, and at one stage in late 2020 the hotel accommodation and restaurant CPI was in deflation. That’s now a lot better, that’s at 5.6% in the April numbers. So there is more pricing power. I don’t think that that reflects necessarily a massive increase in profitability, but it looks like they are able to pass inflationary increases on to their clients more than what they [could] two years ago.

SIMON BROWN: You mentioned people travelling for leisure. To the point, it’s a tough economy out there and I think many folks may be just going down the road [from Johannesburg] to Vereeniging to visit family, rather than catching the aeroplane to Cape Town or somewhere. Do we get any sense on international, or is that data not available within the sector?

JOHN LOOS: No, I’m not clear quite on internationals at the moment, but I think there are a couple of headwinds for both international and domestic tourists apart from the big recession that many will be recovering from still. But then there’s this inflation surge. The cost of living is rising more sharply – not only here but globally for many people – and of course interest rates are rising too. That’s the cost of credit or servicing debt going up.

So what do a certain portion of leisure tourists or aspirant leisure tourists do? You reprioritise expenditure, you focus more on the basics. That too I think is challenging for leisure tourism, which is largely a non-essential item.

SIMON BROWN: I take your point. It’s not just South Africans under pressure, it’s Brits, it’s Europeans, it’s Americans, it’s the Chinese – everyone. It is a tough planet [to be on] right now as a consumer journalist.

Property sector strategist at FNB Commercial Property Finance John Loos, I appreciate the early morning insight as always.

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