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MR JOHN LOOS

A SENIOR ECONOMIST PROSPECTIVE

February 2022 hotel revenues – still-strong year-on-year growth off a low 2020/early-2021 base, but still far weaker than pre-lockdown levels.
The StatsSA release of February 2022 preliminary monthly tourism statistics show the Hotel Sector to be really battling to fully recover from the harsh Covid-19-related lockdown shock back in 2020. This is despite year-on-year growth appearing to be impressive.

On a year-on-year growth rate basis, total Hotel Sector income was a very strong 175%, slightly slower than the 177.6% rate for January, but these growth rates have limited significance given that this income was coming off a very low base when compared with 2020/early-2021 “lockdown” levels.

Lockdown restrictions over the 2020/21 summer period had still been quite severe during the “2nd wave” of Covid-19, still creating a very low base off which the February 2022 year-on-year growth in hotel income comes.

Given the abnormalities created in growth rates by the low lockdown base, it makes more sense to view total revenue value, and compare it to the comparable month back in early-2020, a pre-COVID 19 month.

We then see a more accurate picture of a Hotel Sector whose income is still under severe pressure.

Total Hotel Industry Income in February 2022 was still     -33.9% below the income for February 2020, the last month prior to the 2020 lockdown announcement in March of that year.

Hotel income growth does continue to outpace the growth in income in both the “Guest House and Guest Farm” category as well as “Camp Sites and Caravan Parks”, with the former category under longer term pressure while the latter category having already recovered far earlier during the post-lockdown phase.

Going further to view occupancy rates, in February 2022, the national hotel occupancy rate was 35.5%, still well-below the 53.9% rate for February 2020.

It isn’t only a low occupancy rate that still constrains hotel income. It is a more constrained client financial environment too, and the average hotel income per stay night in February 2022, despite significant post-lockdown recovery, was still -23.1% down on the February 2020 level.

Conclusion

The Hotel Sector remains under severe income pressure, despite significant recovery off the near-zero base created at a stage of 2020 by hard lockdowns.

These still very weak revenue figures, while expected to continue to improve gradually as the year progresses, lead us to remain of the expectation that the Hotel Property Market will continue to underperform the major 3 Commercial Property Markets (i.e., Industrial, Retail and Office) in 2022.

These February hotel income numbers continue to show a Hotel Sector that is far from “fully-recovered” back to 2019/early-2020 levels.

We would expect gradual improvement in 2022 on the back of Covid-19 seemingly having receded as a threat, and lockdown regulations relaxed even further from late in 2021.

A stronger economy since the low of 2020 has brought about some improvement in pricing power for the Hospitality Accommodation and Restaurant Sector, as witnessed in the CPI (Consumer Price Index) for this sector. From -0.5% year-on-year deflation in February 2021, this index’s inflation rate has risen to 6.1% as at February 2022, supportive of a rise in average income per stay night following a major 2020 lockdown dip.

However, certain input cost increases may be reflected in this inflation increase, as the general inflation environment has deteriorated of late, so cost pressure for the Hotel Sector may also be rising.

But a number of factors continue to constrain the industry, slowing its “full recovery”.

Firstly, domestic holiday tourists as a group are more financially pressured than prior to Covid-19, due to the impact of the 2020 recession on employment and incomes, not to mention recently rising CPI inflation and interest rates. With much holiday tourism being nonessential in nature, this expenditure category gets put on the backburner for many households while they nurse their finances back to health.

Secondly, we have argued for a while that business travel not only battles from similar financial constraints following the 2020 recession impact on businesses, but the Business Sector has also successfully “Zoomified” much of its interaction during forced lockdowns. This modern communication likely pushes it partially away from less efficient physical travel. Much of that costly physical business travel may therefore never return. Many hotels may have to be less dependent on domestic business travel on a more permanent basis, therefore.

There have also been the severe restrictions on foreign visitors during the Covid-19 period, and foreign tourist levels have unlikely returned to Pre-Covid-19 levels just yet despite many lockdown measures having been rolled back

But more recently, KZN Province has been hit by severe flooding, and this may have been having an impact over the Easter Weekend and possibly beyond, a typically busy time for hoteliers that may have been less busy due to the floods and the damage they have caused.

We would expect hotel occupancy and income improvements to continue in 2022, on the assumption that everyone remains freer to move around as vaccine rollouts progress, across the world as well as in SA, and the virus threat recedes.

But the financial impact from the 2020 recession on households and businesses alike lingers, and this is a key drag on the pace of recovery in what is a non-essential spending category for many. Therefore, we may not see 2019/early-2020 levels of hotel revenues returning yet this year, especially not in real (inflation adjusted) terms.

2022-01-28T00:00

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