Tourism, hospitality businesses struggling to keep doors open

The energy crisis in the country is the greatest challenge for tourism and hospitality businesses. Picture: Andrea Piacquadio/Pexels

The energy crisis in the country is the greatest challenge for tourism and hospitality businesses. Picture: Andrea Piacquadio/Pexels

Published Jul 28, 2023


Businesses in South Africa’s tourism sector are still feeling the effects of the Covid-19 pandemic after being left severely compromised and financially vulnerable.

Hard lockdowns and imposed restrictions resulted in difficult trading conditions that left many businesses in positions where trade was no longer viable, or where additional financing in the form of loans was required to survive.

In addition to this, Rosemary Anderson, national chairperson of FEDHASA (Federated Hospitality Association of South Africa) says their margins are “under severe pressure and being squeezed” as they absorb increased operating costs and overheads.

“Businesses need to remain operational and won’t pass the cost on to the consumer but will take the knock to keep their doors open, which impacts their profits and bottom lines.”

The energy crisis in the country is the greatest challenge for tourism and hospitality businesses as they have to source alternative energy sources at a cost they may not have budgeted for, and at a time when they are already experiencing financial strain. She says FEDHASA is currently conducting a second survey related to increased business costs as a result of diesel usage, and its hope is that the hospitality sector will be included in the diesel rebate currently extended to other industries.

“Results from the first survey conducted showed that many hospitality businesses, in particular smaller hotels and resorts, reported that it was no longer financially viable to continue operating. This demonstrates how critical it is for the hospitality sector to be included in the diesel rebate, so that livelihoods can be preserved, and businesses closures avoided at all costs.”

The country cannot afford to lose business in the sector as this would have a direct impact on employment and the economy.

“The tourism and hospitality industry is the solution to South Africa's high unemployment rates, but we need businesses to operate and be afforded some reprieve from high operating costs, which is inclusive of diesel to keep the lights on.”

StatsSA released its May 2023 preliminary monthly tourism statistics this week, and these show that the hotel sector’s income levels are still not back to pre-Covid lockdown levels. While, on a year-on-year growth rate basis, total hotel sector income was still strong at 16,9%, FNB senior economist John Loos says this is slower than the 23,7% year-on-year growth rate recorded in April. It also represents the fifth consecutive month of slowing year-on-year growth.

He also states that the recently strong growth rates have “limited significance and can be misleading” as they come off a very low base created by the 2020/21 lockdowns.

“Given the abnormalities created in post-lockdown growth makes sense to also view total revenue value, and compare it to the comparable month just prior to the 2020 lockdown measures.

“We then get a better perspective of a hotel sector whose income is still battling relative to the pre-Covid era, and not yet having reached ‘full recovery’.”

Total hotel industry income in May 2023 was still 1,4% below the income for May 2019. In nominal terms, this seems close, but a part of the apparent recovery is merely the impact of price inflation. In real inflation-adjusted terms, Loos says this May 2023 level is still “a very significant” 14,9% below the May 2019 level.

The state of tourism in South Africa is reflective of a typical economic downturn scenario. After a recovery following the lockdown, there was also GDP recovery, but now the economy has started to slow and interest rates have been rising.

All of this is putting pressure on people’s incomes and disposable incomes which is affecting travel and tourism. Businesses are also not performing as well as they were, and this is showing not only in job losses but people’s share option pay-outs and bonuses, he says. Business travel has also been trimmed.

“Businesses have to cut costs so employees are not flying as much and not staying in hotels as much. With Teams and Zoom it is very easy to cut travel costs.

“All these things happen during economic downturns and it is not just a problem for hotels but for the whole tourism sector.”

Most holiday travel is non-essential and if people still go then they take shorter holidays or cheaper holidays, he adds.

While tourism also took a dip in 2009 after the global financial recession, Loos says it is hard to predict what will happen in terms of this new dip as the economic downturn has followed a global pandemic – a situation which did not occur before the 2008 crisis.

Meanwhile, Anderson says FEDHASA launched its incubator programme at Africa’s Travel Indaba in May, and that this will help empower entrepreneurs and support businesses throughout the value chain.

“FEDHASA members may redirect a percentage of their enterprise development or supplier development investment spend to sponsor a set number of beneficiaries every financial year. The model is aimed at developing small, medium, and micro enterprises that are at least 51% black owned, through individual, needs-based programmes.”

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