By John Loos
THE StatsSA release of January 2022 preliminary monthly tourism statistics show the Hotel Sector to be making very slow progress in climbing back out of big dip created by Covid-19-related lockdowns and the accompanying recessionary impact back in 2020. This is despite seemingly impressive year-on-year growth rates.
On a year-on-year growth rate basis, total Hotel Sector income was a very strong 179.8%, not surprising given that this income was coming off a very low base compared with 2020/early-2021 “lockdown” levels. Lockdown restrictions over the 2020/21 summer holiday season had still been quite severe during the “2nd wave” of Covid-19, creating a very low base of which the January 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 battling to recover following the easing of lockdowns. Total Hotel Industry Income in January 2022 was still -36.7% below the income for January 2020.
Interesting, though, is that hotel income has recently outpaced 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 had already recovered far earlier during the post-lockdown phase.
Going further to view occupancy rates, in January 2022, the national occupancy rate was 27.2%, still well-below the 46% rate for January 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 January 2022 was still -19.6% down on the January 2020 level.
These January hotel income numbers continue to show a Hotel Sector that is far from “fully-recovered” back to 2019/early-2020 levels, after a weak December/January summer holiday season. The December 2021 total hotel income figure was -39.8% below the December of 2 years prior (2019), while the January figure was down on January 2 years prior (2020) by a similar magnitude of -36.7%.
Nevertheless, 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 5% as at January 2022, supportive of a rise in average income per stay night following a major 2020 lockdown dip.
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. 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, business travel has similar financial constraints, much travel not being a priority while businesses revive their finances following the 2020 recession impact. In addition, the Business Sector has successfully “Zoomified” much of its interaction during forced lockdowns. One great success of the forced lockdown has been in forcing late adopters to move onto more time and cost-effective communication platforms, and 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.
Finally, there have been the severe restrictions on foreign visitors during the Covid-19 period.
We would expect hotel occupancy and income improvements to continue in 2022. The assumption is that foreign visitors will be freer to visit as vaccine rollouts progress, across the world as well as in SA, and the virus threat recedes.
As the economy recovers, so too should the finances of domestic households and businesses somewhat.
But we may not see 2019/early-2020 levels of hotel revenues returning just yet, especially not in real (inflation adjusted) terms, with not all foreigners happy to travel, and not all business travel coming back at all.
These still very weak revenue figures, while expected to improve 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.
John Loos is Property Sector Strategist at FNB Commercial Property Finance.