By David Whitehouse www.theafricareport.com
Global hotel group Radisson is pressing ahead with the opening of a hotel and convention centre in Johannesburg by the start of November, Tim Cordon, vice president for the Middle East and Africa, tells The Africa Report.
Hotels need to be seen as investments for one or two decades, says Cordon. He’s confident that existing and new hotels in Africa will be successful over the long term. “We still believe in tourism and hospitality in Africa.” Radisson has 11 hotels in South Africa, only two of which will have negative gross operating profit in 2020, says Cordon. Those were the only two hotels that had to close, he adds. As few as four or five staff can be enough to keep a hotel open at a minimum level, and this can be scaled up if occupancy increases.
“The difference between having a hotel open and closed is insignificant in terms of cost,” he says. Hotels, he adds, have to be kept maintained, clean and secure in any case. “Our strategy is to keep trading and stay open.”
Radisson is owned by a consortium led by China-based Jin Jiang International Holdings. It operates nearly 100 hotels in Africa and aims to increase that to 150 within five years. The key growth markets targeted are Morocco, Egypt, Nigeria and South Africa. READ MORE Radisson Hotel Group betting on African growth as demand picks up Since the start of the COVID-19 pandemic, the firm’s hotel occupancy rates in Africa have been “significant but erratic”, says Cordon.
In South Africa, business has come from batches of oil-rig workers and staff for emergency call centres.
The restart of the South African soccer league has also contributed as teams need to be kept in safe hotel bubbles.
“The business can only go to the hotels that are open.”
The company has to grapple with substantial leverage, volatility in its free cash flow, and uncertainty around the pace of recovery to pre-crisis trading conditions, says Fitch.
Costs are higher than industry peers as a result of expensive staff and leases.
Fitch sees a decline in Radisson’s global revenues of close to 60% in 2020, leading to a negative EBITDA margin.
Any support that Jin Jiang gets as a government-related entity in China is unlikely to flow to Radisson, Fitch added.
Cordon argues that hospitality in emerging markets has weathered the COVID-19 storm “a bit better” than developed markets. This, he says, is because hotels play a “much more integrated role” in the life of emerging markets cities than in the West.
Most Westerners would not usually consider eating out at a local business hotel intended for travellers.
“In the West, a city-centre business hotel is just that. In emerging markets they play a larger role in the community – people go there for a meal.”
In the West, he adds, furlough schemes have the effect of making it easier for hotels to close the doors. But in emerging markets, the need to retain skilled employees is also part of the equation.
Bottom line Hotel chains that are strong enough to keep their doors open may recover faster than expected once the worst of the pandemic is over.