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Operating environment

The Covid-19 pandemic, which reached Africa early in 2020, has shaken the hospitality ecosystem to its core. Widespread lockdown regulations halted global travel and resulted in one of the hotel industry's most devastating periods in recent memory. This featured record low occupancy levels and unprecedented hotel closures across the world.

However, hope and optimism are returning. In international markets, including the United States (US) and United Kingdom (UK), the vaccine rollout is resulting in increased business confidence and a greater appetite for travel.

MACROECONOMIC SNAPSHOT

Global overview

The International Monetary Fund (IMF) estimates that global GDP declined by 3.5% in real terms in 2020. The measures taken worldwide to contain the spread of the virus accelerated certain long-term and emerging trends in global production, trade, finance and investment.

The IMF projects 5.5% global economic growth in 2021, followed by 4.2% in 2022. Optimism stemming from the rollout of Covid-19 vaccines supports this improved outlook, although the impact of renewed waves of infection and new variants of the virus have dampened expectations.

South African economy

The already fragile South African economy, which had been experiencing recessionary conditions since late 2019, was hit hard by the Covid-19 pandemic.

Real gross domestic product (GDP) declined by 6.4% in 2020 and household spending also decreased. A steep drop in disposable incomes, massive job losses, high debt levels, reduced appetite for new credit, and low sentiment all contributed to the loss. As the crisis unfolded, the SA Reserve Bank steadily reduced the repo rate by 300 bps to its current 3.50% peg, the lowest in almost 50 years.

Having recovered somewhat in the fourth quarter of 2020 with lockdown restrictions having eased, business confidence fell again in the first quarter of 2021 with the new wave of infections. This third wave, compounded with the rioting, violence and looting that shocked the country in July 2021 further exacerbated the situation. Nevertheless, South Africa expects slightly improved economic growth in 2021.

Beyond South Africa

All economies where CLHG operates were impacted by Covid-19, with hospitality and tourism being the worst affected. Lockdown measures and travel restrictions in all operating territories resulted in decreased occupancies for the year.

Botswana

Our Botswana Town Lodge is situated close to the airport in Gaborone and provides a superb bed and breakfast offering, operated by a local staff complement. The Town Lodge services the domestic corporate market, as well as government employees. Its access to Botswana's corporate market is a strength, resulting in consistent performance from Mondays to Thursdays but weekend occupancy tends to be lower.

As a result of reduced global demand, strict travel restrictions and social distancing measures, Botswana's estimated real GDP contracted by 7.9% in 2020 (its largest drop on record). These factors caused diminished activity in key production and export sectors, such as the diamond industry and tourism.

Town Lodge Gaborone was placed on temporary suspension of services (TSOS) on 1 April 2020. Movement restrictions were eased on 26 May 2020 – we subsequently reopened the Town Lodge Gaborone and have seen a steady improvement in occupancies. However, we experienced a dramatic decline in government business due to the suspension of travel and conferencing. In many instances, virtual meetings have replaced in-person ones due to budget constraints.

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Namibia

Our Town Lodge in Namibia, which opened in 2017, is situated in Windhoek with easy access to the airport, CBD and various entertainment facilities. The hotel primarily services the corporate market during the week and attracts leisure clientele from Namibia's tourism industry over weekends.

Namibia's GDP contracted by 7.4% year-on-year in the first three quarters of 2020, partially due to a massive 46.5% contraction of the hospitality and tourism sectors.

Namibia's trading picture saw a similar trend to South Africa's in terms of the impact of lockdowns and resurgent waves, as South Africa is its main source market.

Mozambique

The launch of City Lodge Hotel Maputo in Mozambique was more challenging than anticipated. After encountering several building and development delays, the hotel opened just as the Covid-19 pandemic spread to southern Africa. Hotel operations were suspended for most of 2021 but are being reopened based on demand and the country's regulations. We foresee its future growth being driven by both domestic and international business travel.

The pandemic disrupted Mozambique's extractive industries and tourism, leading to business closures and deeper unemployment that reduced GDP by 2%. This was amplified by an armed insurgency in the country's northern region, which curtailed major liquefied natural gas (LNG) projects. Development work has slowed down or is being postponed indefinitely. Mozambique's economy is expected to recover gradually, with growth expected to rebound to 4% by 2022.

Kenya

Our Kenyan properties include the Fairview Hotel, City Lodge Hotel at Two Rivers Mall and Town Lodge Upper Hill, all three situated in Nairobi. The Town Lodge is located on the same property as the Fairview Hotel, providing maximum convenience, comfort, safety, and the benefits of shared business and leisure facilities. City Lodge Hotel at Two Rivers Mall is located at Runda, on the outskirts of Nairobi, in the biggest mixed-use development and shopping mall in East and Central Africa. All our Kenyan hotels have easy access to business and leisure destinations in this busy city.

Fairview Hotel operated throughout the various waves of Covid-19 and, under the circumstances, maintained reasonable occupancy. The team attracted new clientele by adding new services, including offering a pathology laboratory the opportunity to conduct PCR testing at the hotel to in-house guests and groups travelling during the pandemic. Furthermore, this four-star hotel with its range of restaurants, venues and accommodation is known for a diversified food and beverage offering and bespoke events. During the pandemic, Fairview Hotel became an events destination of choice, hosting several weddings. Our other Kenyan hotels are temporarily closed and have reopened for short periods during the pandemic to accommodate some groups.

Over and above Covid-19's impact on many economic activities, tourism in particular, a regional locust plague added to the country's economic woes, resulting in a GDP contraction of 0.3% in 2020. While several economic recovery initiatives are currently underway, recovery in the hospitality sector is likely to be slow.

Tanzania

City Lodge Hotel Dar es Salaam in Tanzania is conveniently located in the Ilala area of the city. This modern property is close to both the airport and the city centre and offers upmarket facilities for business and leisure travellers. Tanzania fared relatively well compared with its regional peers, with occupancy rates remaining fairly stable, albeit at low occupancy levels.

Economic growth slowed significantly following the outbreak of Covid-19. The country's GDP growth fell from 5.8% in 2019 to an estimated 2.0% in 2020, with per capita growth turning negative for the first time in more than 25 years. The hospitality sector in this country relies strongly on international business travel, which is anticipated to be slower to recover.

COVID-19 AND ITS IMPACT ON HOTELS

The continuously changing Covid-19 landscape, both in terms of the pandemic itself and governmental responses to it, created a complex operating environment. Lockdown requirements became more stringent as each wave of infections swept through, being relaxed again as case numbers fell. Hotels had to respond flexibly while significantly adjusting their operating procedures to ensure guest safety and compliance with relevant protocols.

Covid-19 in South Africa
27 March 2020 The national lockdown was implemented in South Africa. Alert Level 5 restrictions are particularly stringent, banning inter-provincial travel and alcohol sales.
April to June 2020 Six of CLHG's hotels reopened to host essential workers and repatriated citizens.
1 May 2020 A gradual and phased easing of the lockdown restrictions began, with the country reaching Alert Level 1 on 21 September 2020. CLHG reopened hotels in a phased approach, as demand dictated.
December 2020 South Africa experienced a second wave of Covid-19 infections. The lockdown was tightened to Level 3.
  Number of tourists by month and year of travel, 2019 and 2020 (source: Stats SA)
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As seen from these figures, the hospitality industry experienced an extreme decline in demand during 2020, compared to 2019.
17 February 2021 The national Covid-19 vaccination programme officially commenced.
31 May 2021 South Africa experiences the third wave of infections.
28 June 2021 South Africa moved to Adjusted Level 4, with the Delta variant quickly becoming the dominant strain in the country. As lockdown tightened once again, CLHG temporarily suspended services at some hotels.
October 2021 South Africa has returned to Adjusted Level 1, with daily new infection cases below 1 000. The majority of the international source markets have removed South Africa from their 'no-fly' and 'red' lists. By mid-October 2021, 17% of the population, or 10.2 million people, have been fully vaccinated.

Although lockdown restrictions changed continually in response to infection numbers, the hospitality sector is particularly vulnerable to the restrictions below, which were more or less stringently applied as South Africa moved through lockdown levels:

Impact on guests Impact on travel
  • Guests are required to wear masks at all times in public areas and when interacting with staff. Regular sanitising is encouraged and sanitisers are placed in key locations across the hotel.
  • Fitness, conference and meeting rooms were closed to guests during the strictest lockdown levels when gatherings were not allowed. The same was true for restaurants, bars and patio areas, which also had to be closed to guests during more restrictive levels of lockdown. Alternative ways of providing guests with meals safely was implemented during this time. Alcohol sales in restaurants and bars have been similarly r estricted from time to time, in line with changing government regulations.
  • National curfews restrict the night time movement of guests
  • Limitations on international and interprovincial travel when infection rates spiked
  • Intermittent closure of public and private schools.

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When travel restrictions, alcohol bans and curfews are in place, revenues for hotels and resorts are impacted. In many instances, a temporary closure of the hotel is more viable than running it at a significant loss. To track CLHG's occupancy during the financial year, see key risks and opportunities.

HOSPITALITY AND TRAVEL TRENDS

The pandemic caused significant changes in both the consumer and business environments and will continue impacting hotel business strategies long after the threat of Covid-19 recedes. Recent changes in consumer behaviour and travel habits include large-scale digital adoption. A consumer survey for Skift and Oracle's 2020 Hospitality Recovery report found that more than 68% of travellers expected 'self-service and contactless check-in options' for future hotel stays. Technology can heighten a guest's experience of luxury and convenience while unlocking efficiencies for the hotel.

The way that hotels operate and serve guests has also changed. Many travellers will only book accommodation when they trust that health and hygiene policies are in place, often favouring accommodation with stringent sanitisation and screening procedures. CLHG received the seal of the World Travel and Tourism Council (WTTC) Safe Travels – the first group in South Africa to receive the stamp. The group consequently updated our food, amenities and service offerings in line with new health and safety considerations. Health and safety enhancements are communicated through our website, social media platforms, media outlets and at the hotels. Easy access to sanitisers, mandatory mask wearing and screening on entry encourages safe behaviours at all our hotels.

Consumer work and leisure habits have also shifted. In November 2020, an analysis by McKinsey & Company estimated that as much as 20% of the global workforce may continue to work from home even after the pandemic. This points to a significant adjustment in how those employees plan their vacations and business travel and how they will select accommodations. People may look to book longer trips that combine work and pleasure, more than they ever did before. The trend is also towards localised travel, which is easier, safer and often more sustainable for the guest. CLHG experienced evidence of both these trends. The group is, in particular, accommodating a growing number of guests who live as close as 5km from their CLHG destination and are simply looking for a change of scenery. Durban has grown in popularity because of it being easily accessible by road from much of South Africa. Air travel is perceived as carrying a higher risk of infection than road travel.

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In line with pre-Covid-19 trends, the group expects to see a more eco-conscious mindset in 2021 and beyond. The pandemic sensitised people to their impact on the environment and local communities. These changing attitudes are filtering into the way travellers choose their hotel, guests prioritise those with eco-friendly construction, energy saving and good waste management practices. In response, CLHG continues to advance in its sustainability journey by exploring both minor and major methods of reducing our carbon footprint, while improving operational efficiencies to save resources. The new hydration stations and the all-new amenities range at our hotels limit single-use plastic waste-to-landfill.

These types of strategic operational adjustments are critical at a time when the hospitality industry must do more with less.

THE COMPETITIVE ENVIRONMENT

The African hotel market is fragmented and highly competitive, with the group facing competition on various fronts. However, not all our competitors were fortunate enough to survive the strain of the pandemic. Many private hosts removed their properties from the market and some financially distressed hotels and lodges closed. The competitive benefits for those remaining open have not been immediately visible because of the sharp decline in travel and tourism. Hotel groups like CLHG will no doubt reap the reward once demand returns to full strength.

With that said, a few new hotels opened in and around central business districts, including Sandton in Gauteng and Cape Town in the Western Cape. When demand returns, the competition for guests, labour and revenue is likely to be fierce. Hotels will need to be innovative to remain sustainable.