The biggest challenge the hospitality sector is facing – even pre-COVID – is that the Average Daily Rates (ADRs) for hotels are too low.
And if this is not addressed urgently, the sector will face an uphill battle for growth and recovery.
This was the message from Arthur Gillis, CEO of Platinum Hospitality Holdings, delivering the keynote address at last month’s Independent Hospitality Optimisation Forum hosted by Providence Hospitality in Stellenbosch.
“It is also very expensive to buy new hotels at the current ADR,” he cautioned.
Gillis noted that hotels, particularly the big global brands, had taken this route to stay competitive as increasingly more brands entered the market and had also lowered rates for loyalty programmes, direct bookings, OTA channels etc.
And the advent of COVID-19 added additional pressure on hotels who lowered their rates even further.
“What does it tell you if hotels are operating at 80% occupancy? Especially during an economic crisis? In short, their rates are too low,” said Gillis.
He said the market would bounce back and that demand for bums in beds was there. “But it has to be offered at a realistic rate. Hotels invest a lot of money in upgrades and in service levels and they deserve the higher rates.”
Gillis said Platinum was going to increase ADRs by 20% at all independent hotels that fell under its banner. And he issued a challenge other properties and hotel brands to do the same.
MD of Providence Hospitality, Neil Hughes, agreed that it was vitally important that hospitality ADRs should be raised to bring the industry back to profitability. Most of the Providence Hospitality South African portfolio is in the Western Cape and Hughes confirmed that the group’s ADR in this region was showing strong growth for the 2022 financial year.
“While increasing ADRs as we move out of COVID operating conditions is vitally important, it does not come without risk. Booking lead times remain much shorter than during pre-COVID times, which means that occupancy levels can stay very low until the last minute, leaving independent hotels scrambling and feeling forced to discount their rates,” explained Hughes.
He added that low booking lead times had also been paired with a sharp increase in reopened supply. “Many hotels remained closed during winter last year but have now reopened as restrictions lifted, flooding the industry with additional rooms we weren’t competing against last year, and we are all now competing for the same clients,” Hughes pointed out.
Martin Jansen van Vuuren, MD of Futureneer Advisors, noted that, of the nine provinces in South Africa, the Western Cape had always maintained higher ADRs pre-COVID and they still got the desired occupancies.
He agreed with Gillis that the market would rebound and projected that while the rest of SA would see a return to pre-COVID numbers for hotels by 2024, the Western Cape would reach these numbers by the end of 2022 or early 2023.
