Hotel industry on the rack

Posted On Friday, 17 September 2010 02:00 Published by
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Are SA hotels overpriced, and is this why visitor volumes during the World Cup were disappointing?

Are SA hotels overpriced, and is this why visitor volumes during the World Cup were disappointing? Commentators are divided.

After the tournament the FM reported research by economics consultancy Econex blaming the low turnout on the international recession and SA’s high hotel prices, especially in US dollar terms.

Econex director Cobus Venter said though the sector did well out of the World Cup, especially in Johannesburg, “a legacy of high and rising room rates, compounded by recent rand strength, has priced SA out of the league of entire market segments that seek affordable destinations”.

But Grant Thornton Strategic Solutions director Martin Jansen van Vuuren disagrees. For example, he says, rates charged by the Crowne Plaza in Rosebank during September/October 2010 compare favourably with Crowne Plaza hotels around the world (see table).

“Based on the amount of new supply that has come onto the market, the reduction in demand and the strength of the rand, I don’t believe SA hotels have purposefully increased their rates to such an extent that they have priced themselves out of the market,” he says.

Venter agrees hoteliers haven’t intentionally overpriced their rooms.

“The increases are perfectly rational, given what has happened to the sector’s cost structure.

That’s the problem,” he says. “The structure of the economy is making the cost-efficient provision of accommodation less competitive internationally. SA has become a relatively more expensive place in which to do business.”

According to Venter, the real price of a local hotel room has more than doubled over the past 20 years in US dollar terms.

And prices increased more than 20% from the start of the global recession to the end of 2009, which excludes World Cup-related increases. “Rand appreciation in 2009 and into 2010 served as a turbocharger, lifting rates further during the recession when logic would have dictated dropping them,” he says.

Right now, SA tourism is faced with a rand that at less than R7,30/US makes growing volumes from many of its source markets difficult.

Of concern is that the currency could stay strong for some time.

Add to this the slowdown in volumes and the fact that the sector is losing profitability, and it would seem hoteliers need to think carefully about the dynamics driving the industry before they allow any more rate hikes.

Source: I-Net Bridge

Publisher: I-Net Bridge
Source: I-Net Bridge

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