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Not even the World Cup helped

Feb 03 2011 00:00 Bruce Whitfield
IT’S HARD TO BELIEVE in this day and age any hotel chain anywhere in the world would have only just woken up to the wonder of Internet booking engines. However, the lights appear to be finally coming on at the perpetually ailing The Don Group, which for the first time last year – after South Africa’s hotel industry found rooms being dumped unceremoniously by Fifa booking agent Match – managed to secure at least some occupancies through “the newly engaged Internet booking services”.

Don’s annual report proclaims proudly: “The board has placed increasing reliance on online platforms for domestic and international bookings using ‘booking engines’ servicing the United States, Europe and Asia.”

Discovering booking engines in 2011 is probably like the GM of the Paris Ritz discovering 100 years ago the marvels of electricity meant devices called fridges stopped its breakfast milk from going sour overnight. It’s a revelation the business should have cottoned on to years before.

However, the Soccer World Cup did have some advantages: The Don Group saw a 164% increase in revenues in its 2010 financial year – courtesy of its recently acquired 51% stake in iKapa Tours and Travel, a tour operator that benefited from managing soccer supporter operations during the big 2010 event. The bad news is a repeat is unlikely this year.

Its hotels segment was 67% below budget, and with turnover at R58,6m, was lower than 2009. Despite the iKapa kicker the group still lost money.

The Don Group, 40% owned by CEO Thabiso Tlelai, has struggled to make headway in SA’s increasingly competitive accommodation sector – particularly in its core Gauteng and Cape markets, where a frenzy of pre-World Cup building activity now means lower occupancies and price wars are the norm in an effort to secure business travellers, a segment still taking strain since the 2008 financial crisis began.

The Don Group trades at 20c/share and in the current environment has little potential upside despite aggressive cost-cutting in both its hotels and travel agency businesses. With a net asset value of around 66c there has to be a better use for its well-located property assets.

Finweek has previously suggested converting its well-positioned suite hotels into sectional titles, distributing the proceeds to shareholders and running the travel agency operation. We humbly resubmit the idea and will waive consultancy fees.
 
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