Covid-19 recovery will take years – Tsogo Sun Hotels CEO

March was ‘a catastrophe’, with the start of lockdown resulting in the total closure of its portfolio.
The ‘obliteration’ of demand contributed to the group reporting a R1.2bn loss for the year to March, says CEO Marcel von Aulock. Image: Supplied

It will take two to three years for occupancy rates to recover and some of its hotels may not open for another year due to the impact of Covid-19, says Tsogo Sun Hotels group CEO Marcel von Aulock.

He made the gloomy forecast during a presentation of the JSE-listed hotel giant’s year-end results to March 31 on Friday, as well as in an interview with Moneyweb.

Tsogo Sun Hotels, which was unbundled from Tsogo Sun Gaming last year, is South Africa’s largest listed hotel group, with more than 110 hotels across the country.

Read: Embattled tourism industry wants to start ‘opening up’ in Level 3

Tsogo Sun Hotels reported a R1.2 billion loss for the year, which Von Aulock said was largely due to the “obliteration” of demand in March as a result of the impact of the lockdown on business and R1.2 billion in write-downs related to its majority stake in Hospitality Property Fund (HPF). The latter is the only JSE-listed hotel-focused real estate investment trust (Reit) and also released its full-year results on Friday.

Tsogo Sun Hotels’ revenue is weighted towards the second half of its financial year, which includes the December/January peak holiday season and March, the final month of its financial year. It owns a 59% stake in HPF, which saw its distributable earnings decline 14% for the year. Both groups did not to declare a dividend.

“Our fourth quarter [to the end of March] saw a significant revenue drop on the prior year of around R153 million, and that pretty much all came about in March … March was just a catastrophe,” Von Aulock said.

“We saw the initial impact of Covid-19-related [international] travel effects in late February and then March was just a wash. We just saw massive cancellations – levels that I have never seen before – ultimately resulting in a closing of the entire portfolio on March 27 when the shutdown kicked in.”

Read: Lockdown causes ‘total devastation’ to tourism & hospitality

Asked about his expectations for the current financial year, Von Aulock said things are very uncertain with the large majority of the group’s hotels still closed due to lockdown restrictions and travel bans.

“This year may turn out to be a write-off, with most hotels having been closed in April and May. We don’t have a firm idea of when the hotel industry will be allowed to operate,” he said.

“We are unlikely to see any international travel to South Africa for the rest of the year, so we will be completely reliant on domestic travel, from business, government and domestic tourism.”

While he welcomed President Cyril Ramaphosa’s announcement on May 24 that limited business travel will be phased in under the eased lockdown in Level 3 (from June), Von Aulock does not anticipate a significant increase in demand.

“It is a step in the right direction. However, we will continue to lobby government to allow more tourism businesses to operate, including hotels for domestic leisure travel,” he said. “Business travel will be strictly regulated – essentially, you will only be allowed to travel for essential business and will need a permit.

“It won’t be business as usual for us. Businesspeople may stay at some of our hotels, but our on-site restaurants and banqueting facilities won’t be operating. This [food, beverages and events] represents a significant chunk of our revenues.”

He said demand for hotel accommodation is likely to remain under pressure in the short- to medium term. “At Tsogo Sun, we believe that we’re only likely to reach pre-Covid-19 occupancy levels in two to three years.”

“In some nodes, where we have multiple hotels, we may only reopen some hotels in a years’ time.

“In other properties, such as the new Southern Sun Rosebank [formerly Crowne Plaza] and the Elangeni and Maharani Hotel in Durban, we can open part of the hotel, based on demand and to keep down costs.”

Von Aulock said the group employs around 4 400 permanent staff and a further 6 500 temporary or casual staff. However, it is currently operating with a “skeleton staff” as only around 17 hotels are operational – as quarantine hotels or for essential service workers and for the repatriation for international tourists.

“Our staff are getting about a third of their salaries, however, we have applied for the UIF Ters benefit and have also put medical aid and retirement contributions on hold,” he said.

“Staff costs represent the highest cost of our business, so we had no option but to cut.”

Read:
Submitted correctly, UIF is paid out in 24 hours – fund commissioner
UIF to employers: Let us pay Ters benefits directly to employees

“We have not opted for the ‘no work, no pay’ rule,” he added. “Cutting our staff salaries was the most difficult and unpleasant side of this whole Covid-19 economic trauma. However, they have been understanding.”

Meanwhile, during a Covid-19 briefing on Level 3 regulations on Saturday, Tourism Minister Mmamoloko Kubayi-Ngubane hinted that domestic leisure travel may be allowed by September.

“The past two months of lockdown have been difficult for the tourism sector. We continue to see many businesses in the sector fighting for survival and our projections showed that almost 600 000 jobs [are] at risk if the sector doesn’t come into operation by September 2020.”

Read: Solidarity’s row with tourism minister not over

“This reality led to both government and [the] private sector working together to be both innovative and putting protocol guidelines to get the sector back into operation,” she added.

While leisure travel as well as conferences, events, festivals and entertainment destinations such as casinos are not allowed operate or take place during Level 3, Kubayi-Ngubane revealed details of tourism and hospitality businesses and services that are now allowed to operate.

These include:

  • Restaurants for delivery or collection of food.
  • Restaurants with liquor licences are allowed to sell alcohol only for takeout and delivery.
  • Professional services, such as tourist guides, tour operators, travel agents, tourism information officers.
  • Professional services including training of nature guides and other related services that are able to ensure safe distance.
  • Public and private game farms for self-drive excursions.
  • Hiking to be done in compliance with [exercising] guidelines and not in groups
  • Accommodation activities are allowed except for leisure (travel) and establishments will no longer require a letter from the tourism minister to operate.
  • Hunting activities.

The minister also welcomed the opening of domestic commercial flights for interprovincial business travel during Level 3, which was confirmed by Transport Minister Fikile Mbalula over the weekend.

Car rental companies and long-distance public transport operators are also now allowed to operate.

Read: SA to allow domestic air travel for business from June 1

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Bears can’t help themselves. Even when they do reopen they will run at a loss for a long time yet.

I’ve read elsewhere that hotels overseas are temporarily reinventing themselves by letting out rooms to people who either need to self-isolate or need a quiet place for a “home office” if there are too many distractions at home.

Most hotels in SA have been in the firing line long before the virus arrived. They are big, expensive, bulky, outdated and not flexible enough to deal with market changes.

The boutique guest houses and B&Bs in SA along with cheeper alternatives via Booking.com have exposed them.

So what should they do? Turn into boarding houses or become apartments……. there must be a plan perhaps a radical one for the use of the real estate and the facilities?

Perhaps yes, depends on the location, local services and attractions. But I am not sure if the hotel groups will let go of the property too easily.
Educational facilities, student or low cost housing, office spaces, even production facilities can be an option.

End of comments.

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