Tourism in the Cape: is it up, or is it down?!

Reports about the status of the tourism industry in Cape Town and the Western Cape in the last few days are enough to confuse anyone, as the view on how the industry is doing this summer, two months into the season, appear contradictory, some saying that it is better, and others saying that it is the worst ever!

Reports about a FEDHASA Cape media review held last week contradict each other.  The Cape Argus, using the headline ‘Hotels catch the scent of recovery’, reported that a ‘fair’ season is expected this summer. It stated that the industry had come through a ‘pretty bad year’.   Gotravel24 had a more realistic headline ‘Worst year yet for Cape Town tourism’, quoting FEDHASA Cape Chairman Dirk Elzinga admitting for the first time that the past year has been ‘one of the worst the Cape Town tourism industry has ever seen’.  When we wrote about the tourism crisis in winter, which was subsequently picked up by the Cape Argus, Elzinga did not seem perturbed, and said that Cape Town was just experiencing its annual seasonal dip!

In its review FEDHASA Cape indicated that average revenue per available room decreased by 10% this year, due to the ‘double dip recession’ in Europe as well as the 20% increase in accommodation rooms for the World Cup. The past winter was particularly tough, with four hotels and 10 restaurants that were FEDHASA Cape members closing their doors (many more non-FEDHASA restaurants closed their doors too). Elzinga is hopeful of a recovery, based on average revenue per available room increasing by 5 % in October, relative to the same month a year ago.  Occupancy was estimated to reach 60 – 80 % this summer, Elzinga said, and events such as the J&B Met, the Two Oceans Marathon, and Cape Town International Jazz Festival would attract more local tourists, the type of tourist Elzinga said Cape Town tourism businesses should encourage.  However, Eye Witness News’ report on the FEDHASA Cape  meeting was that ’70-80 percent hotel occupancy (could not be referred) ‘as a standard anymore’.  Elzinga sees positive spin-off from Cape Town being named the World Design Capital 2014, and a provisional New7Wonders of Nature. We have written before that none of the accolades that were heaped upon Cape Town so far this year have led to any significant increase in tourism to Cape Town, probably because tourism from the United Kingdom has all but dried up.

FEDHASA Cape also used the opportunity to share results of a 30-week pricing survey conducted not only for Cape Town hotels, but also for hotels in Barcelona, Melbourne, Vancouver, Boston, Nice, Hong Kong and Munich, chosen to be comparable to Cape Town in that they are not capital cities, and attract convention business.  The survey was instituted due to feedback levelled against the local accommodation industry for its high prices, which FEDHASA Cape wished to dispute.  Predictably it did so, stating that ‘….the Mother City is not out of line with its peers around the world’.  No hard statistics, such as average hotel prices, are provided from the survey. The FEDHASA Cape survey had found that Cape Town’s price and room offering is wider than that of the comparative cities, with the exception of Barcelona.  Five star hotel rates generally are on a par with the comparative international hotels.  Room rates for 4-star hotels were up to 20 % lower than the international hotels, the report states.  We too have checked Cape Town rates at the top-end hotels, and conducted three telephonic surveys, in May, August and November this year, finding a wide range of 5-star hotel rates, and that rates had been lowered in the harsh winter months.

Moneyweb also reported on the hotel pricing survey of FEDHASA Cape, writing that the finding about Cape Town’s hotel prices being on a par with those in other international cities was a ‘surprising result’.  The description about the worst winter is far more explicit, as being ‘one of the most dismal in recent memory”! Elzinga is quoted as saying that Cape Town is ‘not cheaper, but also not more expensive. People think that prices in Africa should be lower than in Munich or Singapore. But luxury costs the same; it doesn’t matter where you are’. An interesting observation by FEDHASA Cape was that those hotels that did not drop rates recovered more quickly than those hotels that cut rates. Our Whale Cottage hotel surveys demonstrated that all hotels decreased rates in winter, contradicting FEDHASA Cape’s observation!  What Elzinga did not appear to consider was that given the lower operational costs of running an accommodation establishment in Cape Town relative to the comparative cities, on labour costs alone, combined with the 20 % increase in accommodation supply since last year, accommodation prices should have decreased, based on the law of supply and demand.  A further negative impact on rates should be the cost of long haul air travel and airport taxes to Cape Town. Therefore there can be no justification for Cape Town’s hotel prices to be the same as those of its international counterparts.

FEDHASA Cape sees a positive impact of direct flights to Cape Town by Air France and Swiss-based Edelweiss, but which could be countered by the cancellation of Malaysian Airlines flights to Cape Town next year.  Elzinga has called for more marketing by Cape Town Tourism and Cape Town Routes Unlimited in India and China, given the problems with the USA and European economies.

At Whale Cottage we have compared Occupancy over the past five years, and we have seen a steady decline over this period, halving over the five year period.  Occupancy at Whale Cottage Camps Bay this month will be the second best this year after the record 88% in February, and an improvement on last November, but is far below the 88 – 96% occupancy experienced in November between 2007 -2009.

FEDHASA Cape only predicts a recovery for the Cape Town accommodation industry in 2013, with occupancy and room rates returning to a ‘normal level’.   The European and USA economies are in such disarray that one wonders how any tourism body can make any prediction about the future of tourism, especially given FEDHASA Cape’s poor interpretation of the industry in winter!  FEDHASA Cape also indicates that bookings are increasingly last-minute, which makes it even more difficult to predict future tourism performance. We urge FEDHASA Cape to be conservative in its estimates, and to not create hopes about the season for the industry, which led to disastrous results when Grant Thornton did the same about the soccer World Cup last year.

The Protea Hospitality Group has seen similar cause for optimism, its Danny Bryer, Director of Sales, Marketing and Revenue, writing a letter to the editor of Southern African Tourism Update that it saw occupancy increase by 3-4% in August and September. Against the background of the unstable USA and European economies, Bryer says that it is hard to make predictions for the hospitality industry, especially with the heavy discounting taking place (contradicting Elzinga too).  Bryer pleads for an end to discounting, even though his hotel group probably is the one to slash rates most severely, quoting day by day rates, and generally is at the bottom end of the rates scale in the comparative hotel rate surveys we have conducted: “Continued discounting devalues every hotel in South Africa, as the battle is fought on price rather than value”. Bryer says the proof of this is that the average daily rate has decreased and the costs are increasing, meaning a declining profit.  This can only be turned around with an increase in rates, he argues.  He deplores that developers, investors and owners added on new rooms, the accommodation oversupply resulting in hotel closures and local companies taking over the management of international hotel groups. Bryer warned against reducing one’s offering to justify a lower price.  Offering value for money is vital.  He also warned that 3, 4 and 5 star hotels are marketing their rooms at similar price points, which he believes to be ‘foolhardy and unnecessary‘.  The Protea Hospitality Group is focusing on offering value-added packages for the domestic market this summer.

Bryer was also quoted in Business Report, saying that their December bookings are up on a year ago, that 5-star guests are travelling again, but that ‘inbound business to South Africa is still quite tight and long haul flights are losing out to short haul’.  The South African Tourism Services Association (SATSA) CEO Michael Tatalias predicts a better ‘holiday’ season than last year, but says that the rates charged will be more realistic than in the past.

Western Cape Provincial Minister of Tourism Alan Winde warned that he will present a ‘bare-bones’ 2012 budget in March, and about ‘emptier’ provincial government coffers and budget cuts, which could impact on its funding of tourism too, reported the Cape Argus last week.  Winde said that the local economy had to be ‘buffered against current shocks in traditional markets’, and urged exporters in the province to find ‘high-growth emerging markets’.  The European growth outlook is poor too, the fourth quarter prediction being one of slipping back into recession, reports Business Report.

What is certain is that it is impossible to predict the summer season until Easter, given the continued economic woes of our tourism source markets, the UK market being sorely missed, and the forecast of Europe slipping back into recession.  Bookings for the summer ahead for Whale Cottage Camps Bay look good until 10 January. Domestic tourism will be the major source market for the medium term, until the global economy recovers.

Chris von Ulmenstein, Whale Cottage Portoflio: www.whalecottage.com Twitter:@WhaleCottage

6 replies on “Tourism in the Cape: is it up, or is it down?!”

  1. Nick Jones says:

    Hi Chris,
    The B&B in Camps Bay where we’ll be staying in March is fully booked for Nov & Dec & the first half of Jan, very much in line with WC.
    Nick

  2. Thanks for your confirmation Nick.

    Chris

  3. Rose says:

    it was with a slight hint of relief that I read about the ‘confusion’ since that was exactly how I had been feeling, with such conflicting reports filtering through the media. But then I guess that ‘ volatility’ is the name of the game in global economics in this period of time. We all long for the pendulum to stop swinging backwards and forwards, but rather to come to some sort of balanced momentum, which just leaves one feeling less vulnerable.
    I appreciate all the input around the comments and opinions of Danny Bryer. What he says sounds right to me – value added services are still necessary.
    Furthermore, I would just like to wish all those in the hospitality business the best for the forthcoming season.

  4. In my hasty reading of Twitter today it would seem that there is further bad news out of the Eurozone.

    I agree about the need for stability.

    Thank you for your good wishes – we will all do well until mid-January, but thereafter there are still very few bookings.

    Chris

  5. Whilst the Cape Town hotels may be struggling to fill beds, we have found 2010 to be our best year yet, after 8 years of trading, in spite of the recession. Perhaps visitors who can find good value for money will continue to visit one of the most beautiful cities in the world.

  6. Thank you for your feedback Dennis.

    Are you based in Cape Town? In which suburb?

    Chris

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