City Lodge pops the cork after 2022 interim results beat pre-pandemic levels

Hotel groups are certainly rejoicing at the surge in tourism and business and leisure travel, even if locals contending with impassable traffic, scrums of khaki-clad tourists and business conferences might not be so jubilant about it. 

In these grinding times, tourism remains South Africa’s flash of hope: Last week, Stats SA indicated that average occupancy rates in December 2022 in all tourist accommodation types were 41.4% of pre-pandemic levels, with income from accommodation increasing by 43.5% year on year.

Most of the increased income (or 63.3%) emanated from hotels – R3.5-billion – and “other” accommodation (about R2.8-billion).

For City Lodge, it’s time to pop some corks: Its results for the six months ending December not only reflect an improvement on the pandemic years, it has exceeded pre-pandemic levels – even if average room rates have been stagnant, increasing to just 1% of 2019.

City Lodge operates one- to four-star properties in sub-Saharan Africa, has five Courtyard Hotels, 19 City Lodge Hotels, 12 Town Lodges and 23 Road Lodges. The hotel group, which boasts about 7,540 rooms and is one of the world’s 250 largest hotel chains, has seen sustained growth in average occupancies, with December 2022’s monthly occupancies in South Africa closing at 62%, compared with 50% in 2019. 

Group average occupancies for the six months ended 31 December 2022 were 57% (compared with 30% in 2021) and 58% (versus just 32% the previous year) for SA hotels compared with 57% in 2019. Average room rates in SA for the six months were up 10% year on year.

Citing the impact of crippling rolling blackouts in SA, and the knock-on effect of disruptions to water supply and the higher cost of operations, City Lodge says these have steadily affected the supply chain, resulting in longer lead times and higher prices, which contributed to the increase in operational costs, and delays to planned capital investment projects.

The period under review saw a tapering off of pandemic-related impacts to the group’s operations, and gradual recovery of revenue lost during the Covid years through “wide-ranging” innovation, including the introduction of best available rate, which allows hotels to optimise rates during periods of high demand and offering competitive, best-value promotional pricing during low demand periods.  

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This recovery was assisted by the increase in foreign tourist arrivals, as well as an increase in domestic business and leisure travel. 

The group reported total revenue for the six months had increased by 94% to R848-million (up from R436-million in 2021).

It also saw a 132% hike in revenue from its new food and beverage offering at Town Lodge and Road Lodge, as well as service and menu enhancements at City Lodge branded hotels. This now comprises 16% of the group’s total revenue. And then there was the very welcome payout of its R27-million Covid business interruption claim.

Improved occupancies and a return to normal trading conditions have increased operating costs though, with salaries and wages rising by 43% to R230.3-million, because the previous year included 30% salary reductions. Property costs went up by 25%, mainly because of the increase in utility prices. 

Running generators during power outages at its properties cost the group R7.4-million (compared with R900,000 the previous year). Other operating costs rose by 200% to R261.4-million, associated with variable direct cost increases and a resumption of the normalised repairs and maintenance schedule for the hotels, plus renewed investment in advertising and marketing. 

https://twitter.com/CityLodgeHotels/status/1612874013138685968

Operational performance reflects a performance of R303.8-million (up 143%) and an improved Ebitda margin of 35.8%. 

Better trading conditions helped it derive a profit of R97.9-million, after losing R33.8 million in the prior six months.

The proceeds from the sale of the east African operations in July 2022 brought in R467.2 million, and R260.4-million generated from operations helped it pay off R300-million of its R600-million interest-bearing loan and overdraft facilities. 

Refurbishment programmes include a kitchen extension at OR Tambo International Airport’s City Lodge Hotel, which now offers food and beverages 24 hours a day; an extension of the Courtyard Hotel Waterfall City, which now has 68 more Studio Rooms and six Junior Suites; and a refurbishment at Road Lodge Richards Bay, started in January 2023. In April, a massive revamp gets under way at the City Lodge Hotel V&A Waterfront.

City Lodge says despite dismal macroeconomic factors, occupancy growth remains encouraging, with group occupancy for January 2023 at 43%. As at 23 February, occupancy was 59% .

The Federated Hospitality Association of South Africa (Fedhasa) says its  members have reported significantly higher occupancy levels than Stats SA’s figures seem to indicate. Fedhasa’s members have reported an average occupancy rate of 65%, with many hotels close to pre-Covid levels and a number exceeding 2019 room occupancy rates.

Rosemary Anderson, Fedhasa’s chairperson, told Business Maverick that hotel revenues are being consumed by rolling blackouts, with one large hotel in Johannesburg forced to spend about R1-million on diesel in December.

In a Fedhasa press release, Anderson noted that reliable water supply was also becoming a critical issue. 

“One of our members on the south coast spent R1.5-million in December alone, bringing in bulk water to cover for the collapse of water provision from the local municipality. This is financially not sustainable and is putting the hospitality industry in the area at risk.” BM/DM