Competition and digitalisation are driving hospitality prices down in South Africa
The rise of online travel sites in South Africa might be a boon for tourists, but it is hindering revenue growth for the hospitality sector, according to a new report from Big Four accounting and advisory firm PwC. The ability to compare prices online and find the best deal is putting pressure on per day prices for hotels.
The hospitality sector has been among those best placed in the South African economy. The country is a popular tourist destination, while its position as a regional centre for economic activity has meant a steady stream of business travel as well. PwC’s new report backs up these trends.
According to the firm, South Africa is the most popular destination on the continent for business conventions. Despite the fact that Durban has been rated the best city in South Africa to live in, Cape Town is the leading city for business conventions in the country, and also places in the top 50 across the world.
The city has come to be known as the Events Capital of Africa, although the country is still working on further boosting its profile. PwC reports that the South Africa National Convetion Bureau has established a Bidding Support Programme, which is designed to attract business events to the country.
Between 2017, the country reportedly bid to host nearly 100 business conventions, all with the intentions of giving the country’s tourism sector a boost. Domestic tourism within the country appears to be growing steadily, and the country is looking to draw more international tourists.
PwC also reports that the gradual expansion of South Africa’s tourism profile is driving prices down rather than further up, as the sector grows increasingly competitive. This trend is being further accentuated by the increasingly prominent migration of travel planning to the online domain.
As per the report, online travel websites offer the opportunity to compare prices across the hospitality market, which pushes hotels to drive down their pricing. As a result, the average daily rate (ADR) in South African hotels has taken a significant beating, in contrast to the numbers from just three years ago.
From 2012 to 2016, the ADR across South Africa was growing at a compound annual growth rate (CAGR) of nearly 8%. In 2017, this figure fell to below 4% and the downward trend continued drastically into 2018, with a dip to just over 1%. The firm does not predict any increases to this figure in the near future.
Similar competitiveness is driving down prices for airline companies as well. As the domestic and international tourism market grows, an increasing number of airlines are flooding the country, forcing most companies to offer competitive pricing. Outside of competition, trends have also been driven by other factors.
“Growth in foreign tourism dropped to 1.7% in 2018, down from the 2.4% gain in 2017 and the 12.8% increase in 2016. The slowdown in large part reflected concerns about the drought in Cape Town and the possible approach of Day Zero when Cape Town would run out of water,” explains the report.
“It turned out that citizens of Cape Town did a remarkable job in conserving water, reducing city usage per day to 507 million litres in 2018 from 600 million litres in 2017. That effort, together with the good rains in 2018 helped avert Day Zero, however the drop in tourist numbers was felt throughout the rest of 2018 and early 2019,” it continued.
