| 1)
|
Describe
performance the
past six months
and what you expect
going forward into
2012. |
| |
a)
[kk] RevPAR
over the first six
months of 2011 compared
to the same period
in 2010 reflects
a decrease of 16.5%
(measured in South
African Rand) driven
predominantly by
the substantially
higher Rates achieved
during June 2010
as a result of the
FIFA 2010 World
Cup. Occupancy however
reflects a much
lower decrease of
6.4%, which when
viewed in the context
of the increased
occupancy level
during the World
Cup, as well as
the full absorption
of increased Hotel
Room inventory (much
of which came on
line just prior
to the World Cup),
reflects a marked
move towards a bottoming-out
of the recession
and Global Contagion
driven consistent
decline over the
past three years. |
| |
b)
The next six months
will be the acid
test for whether
the Hotel Industry
is stabilising and
moving toward a
recovery phase,
and early indications
are that if the
World Cup effect
was factored out,
demand levels would
at least be stable
year on year and
this will form a
good base for an
improvement in 2012
with demand levels
gradually eroding
the current inventory
dilutionary environment.
Rates however are
not expected to
increase substantially
as the inventory
driven competitive
environment remains
a challenge to effective
yielding in the
industry. |
| |
|
| 2) |
Is a 10% drop in
rate and occupancy
over the past three
years accurate? |
| |
a)
[kk] Occupancy
has decreased from
70.2% for the year
ended December 2008
and is currently
at 53.9%, driven
by the Global Contagion,
the recent South
African Recession
and substantially
by the accelerated
increase in Hotel
Room inventory over
the past three years. |
| |
b)
Average Room Rate
has however increased
from R795 for the
year ended December
2008 to the current
level of R847.It
is therefore accurate
that Occupancy has
reduced over the
past 3 years but
inaccurate that
Rate has decreased
over the same period. |
| |
|
| 3)
|
Why
such a precipitous
drop in business
after the World
Cup? |
| |
a)
[kk]
Measuring the decrease
in RevPAR in 2011
compared to 2010
does not unfortunately
reflect the full
picture as both
Rate and Occupancy
have driven the
benchmark.Occupancy
has dropped by 5.9%
year on year for
the seven months
ended 31 July, considering
that that the World
Cup during June/July
2010 saw a substantial
influx of visitors
to the Country and
the related demand
for accommodation.
If the effects of
the World Cup period
demand were to be
factored out, then
we would well be
flat or even at
a slightly higher
level than 2010.
The drop in Occupancy
is therefore directly
driven by World
Cup Period demand. |
| |
b)
Average Room Rate
is lower than last
year due to the
considerably higher
rates achieved during
the World Cup, before
June the decline
was only a few percent. |
| |
|
| 4)
|
Why
has corporate business
been so
weak and when will
it return? |
| |
a)
[kk]
Corporate business
has not dropped
substantially further
from the high levels
experienced in 2007/8
since 2010 and is
currently pretty
much at the levels
experienced in 2009.
The challenge however
is that Corporate
Demand has stagnated
relative to the
aggressively increased
Inventory base.
A further challenge
is that Corporate
buying habits have
changed and the
buying decision
is considerably
more price driven,
leading to an aggressive
discounting regime
in the industry. |
| |
b)
What has however
changed is the demand
from the Government
sector which has
reduced substantially
from the previous
2007/8 levels, and
whilst this has
stabilised over
the past year, improvement
to previous high
levels may still
be a while away. |
| |
c)
International Corporate
demand remains volatile
and erratic Global
Economic environment
is debilitating
the recovery to
past levels. |
| |
|
| 5) |
Is
lift and location
still an issue for
long haul business
and what is the
prognostication
for global travellers
returning? |
| |
a)
[kk] Lift
and location issues
have not changed
dramatically and
are not necessarily
a debilitating factor
to International
Arrivals. The main
issue is that traditional
markets have reflected
no growth, and in
most cases have
declined, as a direct
result of prevailing
Global Economic
conditions, and
the improvement
of Global Travel
to South Africa
will be substantially
driven by the exploration
of new markets,
with the BRICS relationship
proving to be critical
over the long term. |
| |
|
| 6)
|
What
are the biggest
issues facing operators
when it comes to
turning around business? |
| |
a)
[kk] One
of the biggest issues
facing the industry
is ‘Cost-Push’
related inflation
affecting utility
and transportation
costs. The sustained
abnormal increase
in electricity costs
together with the
substantial increase
in water, gas and
property rates cost
present a substantial
challenge to operators.
These costs have
increased substantially
above inflation
rates while the
current market dynamics
are repressing rates
and the ability
to yield pricing.
Fuel cost increases
are presenting a
further ‘cost-push’
pressure on operating
costs. |
| |
b)
Turnarounds are
therefore debilitated
by these uncontrollable
factors as well
as the prevailing
market dynamics
driven by increased
inventory and the
discounting regime. |
| |
|
| 7)
|
What
opportunities (operations,
acquisition, etc.)
present themselves
in the marketplace? |
| |
a)
[jd] This
has been answered
as part of question
nine. |
| |
|
| 8)
|
How
are non-luxury hotels
fairing? |
| |
a)
[kk] Non-Luxury
hotels, while they
should be benefiting
from the Corporate
and Government down-pricing,
cannot completely
harness these benefits,
as the discounting
at the Luxury Level
to retain business,
means that the Economy
and Mid-Market hotels
are unable to harness
this opportunity.
The current market
dynamics is exerting
a ‘top-down’
pricing regime in
the industry and
you could well bargain
a Luxury room at
the same cost as
an Economy or Mid-Market
room. The bulk of
the inventory growth
has taken place
at the Luxury Level
and the only survival
strategy for these
new entrants has
up to now been discounting.
Non-Luxury hotels
are therefore faced
with considerable
challenges in the
short-term, but
the sustainability
of this level of
hotel is off a considerably
lower cost base,
resulting in the
ultimate longevity
of these products. |
| |
|
| 9)
|
Does
this slump expose
the limited growth
opportunity in the
country? |
| |
a)
[jd] We
have at present
too much inventory
at the four and
five star level
in most cities in
South Africa. There
are however a number
of good Joint Venture
opportunities available
(with existing Hotels)
as there is no doubt
that in a competitive
market, Branding
together with global
reach and sales
& marketing
are very important
factors. |
| |
b)
There are a number
of good opportunities
in the budget/economy
sector of the market
in primary and secondary
cities. |
| |
c)
We also see an opportunity
for a ‘budget
boutique’
or a ‘B &
B’ Hotel,
a product that is
sexy, attractive
but small in size
and public areas. |
| |
|
| 10)
|
How
many assets have
traded hands or
close as a result
of poor business
conditions? |
| |
a)
[jd] This
number is surprisingly
small and one needs
to fully understand
the background before
one makes a statement
that this is due
to the poor business
conditions. |
| |
b)
Since the beginning
of 2011 there has
been no Hotel in
South Africa, that
we aware of, that
has been sold as
a result of poor
business conditions. |
| |
c)
Let us consider
the Hotels in South
Africa that since
the beginning of
this year have closed
or re-branded: |
| |
| i)
|
Cape
Town - Hotel
Le Vendôme
(closed)
(1) This Hotel
was closed
in the beginning
of 2011. We
sold this
Hotel a number
of years ago
to the current
owner who
elected to
manage the
Hotel without
an Operator
from the Middle
East. Staff
issues, which
escalated
finally led
to the Owners
closing the
Hotel. Any
good Operator
should be
able to re-open
the Hotel
and trade. |
| ii)
|
Cape
Town - Alphen
Hotel (closed)
(1) Very small
Hotel with
20 to 30 keys
leased by
an Organisation
called Queensgate
who were liquidated
in 2010. Hotel
should be
able to operate
as a large
upmarket guest
house. |
| iii)
|
Cape
Town - Coral
Hotel (‘reflagged’)
(1) South
African reported
that this
Hotel was
sold, as a
distressed
Hotel, to
Hilton. Newspapers
were totally
incorrect
as the Owners
made a very
wise decision
and change
the Brand
from Coral
to Hilton. |
| iv)
|
Johannesburg
– The
Grace Hotel
(1) Issues
regarding
location,
Brand and
terms of the
lease although
new owners
Southern Sun
will be able
to address
two of the
three ‘stress
factors’.
(2) They have
bought the
property at
the right
price, and
(3) They have
a very strong
Brand. |
|
| |
d)
Judging from the
above, one must
agree that South
African Hotels have
been pretty sheltered
from the economic
slowdown. |
| |
|
| 11)
|
How
much rate discounting
is being done in
the marketplace? |
| |
a)
[jd] Most
Operators in South
Africa have an achieved
rate that is plus
or minus 50 to 65%
of rack rate. City
Lodge and Formule
One are from a group
point of view the
exceptions achieved
rate is plus or
minus 85% to 90%
of rack rate. |
| |
b)
Average achieved
rate, ignoring World
Cup 2010 factor,
is only down with
less than 5%. |
| |
|
| 12)
|
What
is happening on
the development
side of the business
in South Africa,
if anything? |
| |
a)
[jd] The
Trophy/Boutique
Hotel buyer has
disappeared and
it is very difficult
to find a Buyer
or Developer for
this kind of product. |
| |
b)
Four and five star
Hotel market well
supplied in most
cities. |
| |
c)
Opportunity for
Budget Hotels throughout
the region. |
| |
d)
South Africa continues
to attract Buyers
for small Hotels
and for Guesthouses
– lifestyle
and value for money
aspects are important
factors –
we have sold nine
small hotels and
guesthouses to mainly
Europeans since
the beginning of
this year, with
an average of plus
or minus $1,5 Million. |
| |
|
| 13)
|
What
is the outlook?
When will business
start to rebound
and when will it
reach its potential,
or will it not? |
| |
a)
[kk] The
prognosis is that
we still face a
challenging period
of between 2 to
3 years. As indicated,
2012 is expected
at best to reflect
a marginal recovery
on the 2010/11 years,
but the level of
inventory dilution
is considerable,
and demand needs
to improve substantially
to pre- 2009 levels
for a reasonable
impact in the absorption
of increased inventory.
The years 2013 and
2014 are expected
to reflect marked
improvement –
however this will
depend strongly
on the Local and
Global Economic
circumstances, which
totally debilitates
the expression of
a more substantial
prognosis. |
| |
|
| 14)
|
Africa
Sun says it is exiting
the luxury segment
in South Africa
saying it is no
longer sustainable.
Agree, disagree,
comment? |
| |
a)
[jd] I
totally disagree
– one needs
to consider a number
of important factors
before one makes
a statement like
this; |
| |
b)
The location of
this very Hotel
has been a challenge,
the Brand found
little recognition
in a competitive
Johannesburg market
place, and the terms
of the lease where
simply too rich. |
| |
|
| 15)
|
Is
this more a story
about a few people
making bad investments
and just not understanding
the industry? |
| |
a)
[jd] Brand
and location can
be addressed through
a careful pricing
strategy, which
should be possible
as a result of a
‘cheaper’
capital cost. |
| |
b)
But if you combine
a secondary location
with a debatable
brand, over capitalised
and or over geared
than you will end
up in a pretty messy
situation. Cases
like this we have
not seen as yet
but there are a
few candidates. |
| |
|
| 16)
|
What
is the good news
about the hotel
business in South
Africa right now? |
| |
a)
[jd] South
Africa is doing
relatively well,
compared to the
rest of the World
and there are opportunities
in certain sectors
& segments together
with JV and Management
Contract opportunities
for certain International
Operators &
Brands. |
| |
b)
The South African
Government continues
to spend money and
the Economy is in
relatively good
shape with currency,
inflation and interest
rates that have
settled down and
stabilised. |
| |
c)
Banks are careful,
but have liquidity. |
| |
d)
There are very few
distressed situations
from a Hoteling
point of view compared
to other part of
the Worlds and for
the Hotels that
do get into trouble,
solutions can invariably
be found. |
| |
e)
Although South Africa’s
July 2011 ytdRevPAR
of $64-39 has declined
with 14.9% compared
to the same period
last year, this
figure compares
quite favourably
with USA’s
July ytdRevPAR of
$61-33. |
| |
f)
With presence in
a few gateway cities
in South Africa,
the International
Hotel Operators
will find it much
easier to expand
in a number of attractive
Southern & Western
African countries. |
| |
g)
There are many Hotels
in our neighbouring
countries that offer
an opportunity where
with a good refurbishment,
Global Brand and
Management contract,
one has an opportunity
to re-position the
Hotel in question. |
