2019: The year in review
Foreword
We handle revenue management for 30+ clients all over South Africa. 12 are in Cape Town, from apartments to 5-star hotels, from all parts of the metro. We have deep insight into the performance of our clients, best practices and challenges within the industry which we apply at Leisure Bay. Myself have 24 years hotel experience coupled with MBA
The last growth year for the industry was 2016/2017. 2018 was extremely pressured due to drought. 2019 under performed +/- 20% on 2018 and according to forecasts 2020 will be no better. Us and our cleints remained buoyant due to our ability to stay ahead of change but have caught up with us in 2019.
Whilst there are various tourism reports indicating a marginal increase in visitors, we know that these clients do not stay in the city and surrounds. They might stay on their arrival and departure night but leave for other parts of the Western Cape (Winelands and Franschhoek for example are having very good trading vs CPT city. Other towns with similar reports are Hermanus, Knysna and up the West coast and inland)
We kept customer acquisition costs low as we no longer operate in an over traded market segment such a Tour Operators, Corporate and Government (each has its own challenges and costs which isn’t viable for our size) Instead we focused and done really well with online travel agents (B2C and B2B).
CPT have grown from 8 000 available room nights per day to 16 000 in only 8 years. This was due to the diversification of the standard hotel room into various forms such as Airbnb, Hotels, Apartments, Aparthotels, Single rooms, complete homes, homestays, sharing rooms, hostels and so forth.
With a lack of demand through lower international visitors who accompany a higher selling rate and increase in supply, the whole market was diluted in a matter of 3 years.
Macro Environmental Factors
• Tour Operators contract 2 years in advance. These are usually international based agents that takes current and estimated future prediction of any destination into consideration and decide if they are selling it or not. The drought in 2018 is still having after effects as we almost made international headlines for a city next to an ocean with no fresh water. This have crippled our international image and the message from Government to international trade lacked afterthought and done more damage than good
• Underage children travelling with adults required an unabridged birth certificate. This was a new rule initiated without consultation to the trade and caused widespread damage, not just the country’s ability to consult before implementing legislation but its damaged traveler numbers in that they couldn’t no longer come to South Africa. In a twist of events the Minister took and 360 turn in 2019 scrapping this rule. Some expert’s recon this alone was more damaging than the implementation itself. The scars will linger for family travel
• Thomas Cook bankruptcy caused British airways to be holding a monopoly of flights between Heathrow and CPT skyrocketing the fees and distracting travel to the city
• The general image of the country as a safe destination to have an experience was tarnished almost every month of 2019. Xenophobic attacks, service delivery protests, SAA in business rescue and cancellation of flights, load shedding, Robben island strike and SA ranked as the 2nd most dangerous country globally
• The long-term rental market is under severe pressure and reports mention 10% of all flats and apartments are standing empty. These owners then divert to online agents and the likes of Airbnb to rent out the unit. This floods the constrained market with more availability
These factors result in fewer visitors, when that happens, the city, CTICC, coastal and V&A areas are running lower occupancy at lower rates in an effort to stimulate demand. They attract all the visitors to the city and the outlying area such as Leisure Bay gets leftovers.
Micro Environmental Factors
• We track and benchmark our immediate area multiple times daily in order to offer competitive rate. We benchmark their rate and online offers and ensure we are the same or a notch higher. This have many advantages as we can see their rates and demand at least 6 months out. The competitive set have reduced overall for the past year their rate by 15-20%. We have to mark down to be able sell rooms as we trade in the same space. Aside from (i) guest reviews (ii) expected experience with slight discount, (iii) price is king. If there is a mismatch between these 3 no sale will occur
• Variable cost suppliers increase their price year on year. Whilst we always hunt for better prices our location is just too far us for a better variety of supply. When rates stay the same, costs increase, we have lower profitability which we saw in 2019 despite increase in occupancy
Industry at present
This covers recent trading and short-term outlook
Dec was a poor month compared to previous years. In 2017 for example we could accurately forecast demand and set pricing as we knew for example, we would be busy to full from 14th until 10 Jan. But the past 2 years the trend changed in that we saw more domestic guests which refuses to pay higher than normal rates. We risk to have low occupancy at high rate or vice versa. The demand was also only for actual public holidays and valleys in between.
YTD reports revenues 15-20% behind last year, at the same occupancy but at lower rate.
The outlook is bleak and the industry have 20% less on the books now versus what they had on the books last year this time. Whilst most are hunting after the same market segments, we have opted a for a different route:
Strategy 2020:
Aside from generic business checks and ensuring a lean operation which we have pretty much perfected over the years:
We deployed the latest software which incidentally won numerous awards in the recent hotel tech global awards. Online direct sales are currently the most under utilized market due to the sheer dominance of online travel agents who literally owns our rooms stock. Whilst wide distribution is essential one should also convert direct bookers more efficiently.
Direct sales through Software example
• We moved away from Opera and deployed Mews and the front office system. It is a customer-based system purposely built for e-commerce. It is cloud based, future proof and interfaces with unlimited apps
• We initiated PayGenius as an automated payment collection system to ensure all future business we are holding is guaranteed by payment. The system sidesteps the bank’s ecommerce requirement and pays via direct deposit from any currency to any currency anywhere in the world
• Mews and PayGenius are interfaced through SiteMinder a channel manager that handles our distribution to 20+ channels and gives access to 30 000 agents. (the include our own website, Booking.com, Airbnb, Trip, etc.)
• GDS connectivity is connected to SiteMinder and managed by Chakela who handles our corporate sales representation through Sabre
• We use Pegasus IBE with Traveltripper (internet booking engine) for our own website which offers distribution to our database using the latest OTA tech and sales tactics whilst also advertising on meta searches like Wego, Kaya, Trivago and TripAdvisor. We revamped our website, to be released soon
• Finally, we acted as the pilot property between Mews and Pegasus and got their award winning Hotelier.AI guest relations system. This system interfaces with Mews and downloaded Opera guest history of 12 000 emails of past guests, and adding new daily. It delivers guest history into a usable dashboard to give us precise information who to sell what rate to at what time. It handles mass mails such as sending specials and newsletters and also features a guest satisfaction module.
• We outlined a clear annual marketing plan with specific actions for known low periods as we already know where the soft periods are
Financial
• Revisiting all supplier SLA, prices and renegotiating.
• Reduction of all variable costs through improved management
• Relooking at fixed costs and improving where humanly possibly
Operational
• Re-assessing staffing levels and not sacrificing skill for cost as it more expensive
• Improving efficiency
Quality
• The rooms quality has been improved after the recent soft refurb and we will be able to charge higher rates. We will be reclassifying room types between economy and standard. Economy will be sold at a lower rate and include all the older units
• Our improved guest communication will aim to improve guest satisfaction, relations and scores in turn through aforementioned Pegasus
Closing
Whilst we know the market is in distress, a recession lurking and poor outlook for 2020 we believe the current demand can be maximized locally without a price war. As the saying goes: men accomplished great things in the wake of difficult times
References
• Change in booking trends Dec 2018 and Dec 2019
• Rental market down with empty flats at 8% vs 2% 10 years ago
• SA Tourism in review 2019
• Reduced tour operator bookings in 2019
• 2020 forecasted to be no better than 2019
• Economy growth to be below 1% this year
• Hotel tech report winners 2020
• www.hotel-revenue-manager.com
• Slow property sales in Cape Town
• www.paygenius.co.za
• www.mewssystems.com
• www.pegs.com
Best,
Jaco.
