Cape Town is “booming” and on track to have a very good tourist season, according to Southern Sun CEO Marcel von Aulock, speaking at the release of its half-year results.
Southern Sun, formerly Tsogo Sun Hotels, has experienced high demand for accommodation in the city, driven by events such as the Netball World Cup held at the Cape Town International Convention Centre (CTICC).
Its higher-end hotels such as The Cullinan and the Southern Sun Waterfront benefit from the frequent conferences at the CTICC. The city also benefits from an increase in direct flights to it.
“I think we’re going to have a really good summer season [in Cape Town]. I say that with humility and a great deal of touching wood because tourism is finicky. It can go off the boil very easily. But at the moment, Cape Town is on steroids.”
However, Southern Sun is seeing lower demand in its hotels in Rosebank, Johannesburg, and parts of Gauteng as foreign and local corporate travel has not been back to pre-Covid levels.
“The corporate transient and international travel segment has been the slowest to return to pre-Covid-19 levels. Consequently, Gauteng has lagged behind other provinces in terms of recovery, particularly hotels not located in prime business hubs near OR Tambo International Airport or Sandton Convention Centre,” said the group.
The Hyatt in Rosebank and The Michelangelo and Park Inn hotels in Sandton have been closed since Covid-19, and while not belonging to Southern Sun, point to depressed demand in much of the Gauteng area.
Infrastructure investment
Lower corporate activity is bad for rival City Lodge, 60% of the hotels of which are located in Gauteng and are more focused on business travel than leisure.
Southern Sun reported a fall in interim profit to end-September despite generating greater income as it remains “heavily exposed” to the beleaguered SA economy and higher operating costs because of the “lack of government investment into infrastructure for power generation and rail transport”.
It spent R28m on diesel for generators in the half, which Von Aulock described as “burning money”.
The group has 95 hotels, 80 in SA and 15 abroad, under various brands and properties such as Arabella, Sandton Towers, Sandton Convention Centre, Garden Court and stayeasy.
The company said on Tuesday in its results for the six months to end-September that its occupancy rate improved 10.3 percentage points to 56.3%, the average room rate 11.4% to R1,297 and the number of rooms sold 22.6% to 1.4-million, resulting in the room revenue growing 41% to R1.9bn.
All these metrics were higher than the same period in 2019 before the Covid-19 pandemic hit, except the occupancy rate, which came in 2.8 percentage points lower.
Temporary staff
Part of the double-digit increase in expenses was due to running two new hotels in Mbombela that it recently bought as well as an increase in staff as occupancy increased year on year.
Von Aulock said overall cost control was good and the switch to using more temporary staff instead of permanent also kept fixed costs down.
Given that R389m has been returned to shareholders through share buybacks since March, and that it generates two-thirds of its profits in the second half of the financial year, it decided to withhold an interim dividend. It plans to issue a final one.
Not many new hotels are being built outside Cape Town as the cost of capital to develop them is higher than the initial profit is likely to be. Von Aulock said he hopes occupancy levels in hotels will increase due to the lack of new supply.
“But that does require the economy to get going. And that is not happening.”
Von Aulock said if the economy were growing, “the [Radisson] Park Inn in Sandton would not be closed. I mean, it is a relatively new, 300-room hotel surrounded by barbed wire. It tells you there is a problem in the economy.”
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