Top-tier hotels have yet to recover after Covid measures were lifted

By JOINT REPORT

East Africa’s hospitality industry is grappling with an operational crisis that has shut down popular global brands and slowed new investment.

The Covid-19 pandemic has wreaked havoc on the industry as governments imposed lockdowns and travel restrictions, but this only compounded the inherent issues that hoteliers were struggling with.

According to an African Economic Research Consortium (AERC) working paper published in September 2021, the hotel sector in East Africa has been devastated by the pandemic following massive cancellations in March. and April 2020, with occupancy plunging through December. of that year.

In Uganda, room occupancy fell to a low of 20% in 2020 from a high of 51.9% in 2019, while in Kenya hotels recorded an average annual occupancy rate of 27.6% during the period, compared to a peak of 65% the previous year.

But East Africa learned that unsustainable pricing models, overreliance on foreign customers and soaring operating costs played a larger role in profit growth, as did reluctance to abandon products and services traditional restaurants and the proliferation of cheaper eateries and eateries in city centres.

In Kenya, global hotel brands such as InterContinental, Fairmont The Norfolk and Radisson Blu have closed and fears are rife that those still standing will struggle.

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The doors of Nairobi’s iconic Fairmont The Norfolk reopened on April 4 after 21 months of closure and the Radisson Blu is set to reopen its Upper Hill Nairobi outlet next month.

A dispute over pay cuts forced the closure of Fairmont The Norfolk by owners, French hotel giant Accor, weeks after Saudi billionaire Prince Al-Waleed bin Talal sold his stake in the hotel and the Fairmont Mara Safari Club to Nepalese tycoon Binod Chaudhary for a reported 2.8 billion Ksh ($24.3 million).

Low bookings prompted the Radisson Blu to halt operations in Upper Hill and send most of its staff home in December 2020 to mitigate the economic impact of Covid-19 on the business.

The 271-room hotel operated primarily for conferences and parties.

Radisson Blu has announced its reopening on May 9.

Serena Hotels management has been forced to temporarily close 10 lodges and camps in Kenya and Tanzania until June 15, 2020 due to the pandemic.

No more quarantine

Most five-star hotels are dependent on tourism, events and conferences, which are slowly resuming normal operations.

Kenya’s Covid-19 positivity rate now stands at 0.3%, and the country has abolished mandatory quarantines and PCR testing for arriving passengers.

The Kenya Hotel and Caterers Association says the operating environment has become bumpy due to the high cost of inputs such as fuel and electricity, which increase the cost of production and end-use prices.

“The problem is Covid-19 and recovery depends on Covid mitigation measures around the world,” said Mike Macharia, president of the association. But he added that “pricing is based on inputs such as the cost of fuel, electricity and production.”

Alex Mugo, manager of the Karmel Resort in Naivasha, told The EastAfrican that there were too many taxes affecting hotel and tourist establishments.

Hoteliers pay statutory Value Added Tax of 14% and an additional 2% Tourism Tax to the Tourism Fund, Business Permits, National Environmental Management Authority and County Level Liquor Licenses as well as health and advertising permits.

“National and county governments should harmonize tax laws and regulations and reduce the burden on investors. Some of these licenses and taxes are punitive,” Mugo said.

Industry players say global brands are struggling largely due to high operational costs, including management fees in the range of Ksh5 million ($43,440) to Ksh10 million ( $86,880), the lack of resources for expansion due to the reluctance of local shareholders to inject new capital, the emergence of cheaper hotels breaking the dominance of large hotels and the over-reliance on international tourists and conferences.

Economists at the Kenya Institute for Policy Research and Analysis (Kippra) argue that the decline in foreign guest numbers due to the Covid-19 pandemic presents an opportunity for the hospitality sector to rethink its business model, including focusing on the domestic market.

Kippra, in a study titled “Resetting the Business Model of the Hospitality Industry in Kenya”, noted that although traditionally star-rated hotels have been considered more resilient and adaptive to shocks compared to small restaurants and urban restaurants, the pandemic has exposed their vulnerability due to overreliance on foreign customers and “unsustainable” pricing models.

“Restaurants and breweries practice a different business model that caters to the needs of financially challenged customers. This includes fair pricing and affordable packages that have continued to survive this difficult time. »

“This strategy attracts more customers and thus increases the turnover of the hotels. The majority of catering outlets offer delivery services which give them a competitive edge, especially during the Covid-19 period,” the study notes.

Hotels have also thrived on varieties and packages designed to meet each customer’s needs by offering the same product in different sizes.

“Adjusting the range of products and services of star hotels to meet the needs of the domestic market can be another breakthrough for the sector,” according to the study.

Sarova Hotels is revamping its business model to reach lower-end customers by opening downtown restaurants aiming to diversify away from branded hotels and lodging businesses.

“The physical environment of star hotels also limits the take-out strategy given that motorbikes are used for delivery services, which may not be attractive for this type of facility. As such, this niche would only be feasible if these hotels adopted the restaurant model, like what Sarova did to tap into this niche market,” the study says.

The Serena Hotel Group is also opening lodges, resorts, hotels and camps in different parts of the country to serve various markets.

Additional reporting by Lynet Igadwah and Bonface Otieno, Business Daily

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