SA Tourism and Hospitality Sector Show Positive Signs

Blue Quadrant Research Team
Market Commentary

SA Tourism and Hospitality Sector Show Positive Signs

The latest report from Statistics SA shows that the number of foreign arrivals into the country increased by 11.4% y/y to 1.56mn in January, with 1.441mn of these arrivals being classified as foreign visitors (up 11.1% y/y). Of the total number of foreign visitors, some 1,012,641 were classified as tourists or overnight visitors, increasing by 15.4% y/y in January. A further analysis of the data showed that foreign visitors from non-African destinations (overseas) increased by 16.2% y/y to 214,903 in January. The recent data shows a fairly robust recovery in inbound tourist arrivals following the slump in early 2015. The recovery, not unexpectedly, has likely been driven by the sharp depreciation of the currency in recent months as well as the relaxation of former strict visa rules. 

Bright Spot

As such, the broader tourism and hospitality sector may be one of the few bright spots for the economy in 2016. Indeed, despite a sluggish domestic economy, revenues and the total number of “stay nights” sold during the first two months of the year have shown a solid recovery after a slump in the second-half of 2015.  The total number of “stay nights” sold in the hotel industry during February accelerated to 4.4% y/y from 1.9% y/y in January and also comparing favorably with the outright contraction in volumes recorded for most of 2015. In fact, the y/y growth rate reported in February was the highest since at least the third quarter of 2014.

SA Stay Night - Nights Sold (Hotels)

SA Stay Night – Nights Sold (Hotels)

No doubt the currency has played an important role in this recovery, especially in the context of a weak domestic economy and reduced demand for business travel. The weaker currency is encouraging inbound tourism growth and also discouraging outbound travel. As taking a holiday becomes more expensive abroad, many South Africans will have to settle with taking their vacation within the country or region. Improved demand coupled with a general slowdown in new capacity additions to the industry since the World Cup in 2010 has helped lift overall occupancy rates back towards levels that are likely consistent with renewed pricing power in the sector.

SA Hotel Capacity (Stay Nights Avail 000)

SA Hotel Capacity (Stay Nights Avail 000)

Pricing Power

The SA Hotel occupancy rate reported for February 2016 was 62.2%, the highest rate for the month of February (data is very seasonal) since 2014 and in fact the fourth highest for the month of February based on data going back to 2007.

SA Hotel Occupancy Rate

SA Hotel Occupancy Rate

This has enabled some pricing power to return to the sector. This is important, as the hospitality industry like other sectors of the economy has had to grapple with sharply rising electricity costs since 2008. As such and despite the weak economic backdrop in 2015, the y/y growth in overall revenue per stay night sold was positive. The recent months of December and January, in fact, recorded the highest rate of growth since 2007 and 2008 (outside of the temporary World Cup-induced spike in 2010).

SA Revenue per Stay Night - Nights Sold (Hotels)

SA Revenue per Stay Night – Nights Sold (Hotels)

These dynamics, in general, suggest the outlook for the sector in 2016 remains positive and perhaps one of the few or only bright spots in the otherwise gloomy economic outlook for 2016.

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