Johannesburg – Big discounts on hotel rooms countrywide have created an imbalance in the market that affects less expensive hotels in particular.
Some five-start hotels’ average daily rates for rooms are currently at lower levels, with the result that they are cannibalising the market of the four-star hotels and even certain three-star establishments.
This is evident from recent research by Kamil Abdul Karrim, managing director of Pam Golding Tourism & Hospitality Consulting.
Joop Demes, chief executive of Pam Golding Hospitality, says the discount on five-star hotels’ daily rates for rooms is 19.4%, that on four stars 19.9% and that on three stars 12.2%. The discount is calculated by extrapolating the average 2008 room tariffs using the inflation yardstick of 6% a year, and comparing it with current average room tariffs, he says.
At national level the average discount is 12.6%.
The discount that starts at five-star level is forcing down the tariffs of the other levels and obliging hotels with lesser gradings to give discounts as well, says Abdul Karrim. This has a negative effect on the affordable hotels as their customers are being enticed by hotels with higher gradings.
But one needs to remember that this is not the case with all five-star hotels and that several of them are still doing business at top daily room tariffs, says.
Hotel guests can consequently get a more luxurious room for the price of a cheaper one. The four-star guest will stay in a five-star hotel, the three-star guest in the four star, the two star in the three star, while the one star guest will also upgrade.
The dilemma is that the demand for one-star hotel accommodation is on the decline and because there is no market segment below this level to fill the vacuum, occupancies in the one- to three-star hotel segment are declining.
He says this has contributed to occupancies of three-star hotels falling from 70.4% in 2007 to 57.3% this year. It's a surprise, because the cheaper segments were previously rarely affected by imbalances between demand and supply.
Demes says it's a temporary phenomenon and not sustainable because certain of the newer hotels will eventually have to raise their tariffs to service their debt.
The 15 on Orange hotel in Cape Town. The owner of the hotel, A Million Up Investments (AMU), was recently placed in liquidation.Signs of recovery
After exceptionally difficult times between the last quarter of 2008 and the third quarter of 2011, the South African hotel industry is starting to show sustainable signs of recovery.
Joop Demes, chief executive of Pam Golding Hospitality, says that according to the Smith Travel Research (STR) “Global Hotel Benchmark” report for July this year, the average income per available room (revPAR) in hotels for the year to date grew between 9.8% for three-star hotels to 12.6% for five-star hotels.
In a recent research report on the hospitality industry by audit firm PwC, revPAR growth of 14.4% is expected for this year and an annual growth rate of 8.7% from 2012 to 2016.
There have nevertheless been a number of casualties in the industry with probably a few more in prospect, he says.
Hotels that are struggling are normally those with excessive debt, not being run by well-known and reliable operators and frequently in the wrong location.
The most recent casualty was the Quantum Property Group (QPG) subsidiary A Million Up Investments (AMU), which has been put into final liquidation. The company’s only asset is the luxurious 15 on Orange hotel in Cape Town.
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