OBG talks to Arthur Gillis, CEO, Protea Hospitality Group

Interview: Arthur Gillis

How much of an impact does seasonality have on hotel trade in the leisure segment?

ARTHUR GILLIS: Since summer coincides with the festive season in the southern hemisphere, the bulk of domestic leisure travel is over the December-January period with a slightly smaller “season” occurring around Easter. The inbound summer market usually picks up in early November and goes right through to May.

Because we’re fortunate to have such a diversity of climate and scenery, there is really no bad time of year to travel in South Africa. The eastern regions such as KwaZulu-Natal are sub-tropical and, as such, most of the inbound travel in that region occurs during our winter months – similar to travel patterns to Florida in the US. Cape Town is also seen as a year-round destination, with daytime temperatures in winter rarely dropping below 15 C and many warm, sunny days that would rival a central or northern European summer.

What is the outlook for the hotel industry in South Africa? How can potential risks be overcome?

GILLIS: South Africa has close economic ties with Europe and, as such, its growth rate forecast for 2013 is lower than many other countries on the continent. We are, however, currently enjoying our lowest interest rates in more than 30 years and the overall economy is not in bad shape. People are travelling again after a tough 2009/10 period and STR Global’s hotel industry figures show that we have, for the past 15 months, seen year-on-year increases in traveller numbers with no sign of that growth curve changing.

In spite of these positive factors, there is no easy ride in the South African hospitality industry. We are facing large increases in input costs, and municipal services have become the second-largest expense after salaries. Electricity, in particular, is becoming very expensive and 2012 also saw petrol prices reaching record highs.

The key to success is strong brand identity, proven and consistently high brand standards, expert management and sound financial controls. Hotels that do not have these attributes in place are going to find that 2013 is a tough year. There will likely be hotels that do not survive through to the following year.

How robust do you believe expansion plans will be for new hospitality facilities?

GILLIS: Before any decisions are taken about expansion in South Africa, hoteliers should pause to consider the lessons learnt from the manic construction phase that preceded the 2010 World Cup. It is a price we are still paying in many areas of South Africa.

Cape Town is a prime example of where hospitality companies should consider carefully before expanding in the short to medium term. Like other centres, occupancy levels in the city may be showing a slow but progressive recovery curve. However, the lag in average daily rates demonstrates clearly that hotels need greater focus on growing both their rates and occupancy in order to drive revenue. If the industry does not get both parts of the equation right, recovery is not sustainable in the long term.

Is the pace of investment in hospitality facilities in emerging African markets at an appropriate level?

GILLIS: Many international chains are viewing Africa as the final frontier in global hospitality and there are currently some 200 hotels under construction across the continent. What remains to be seen is how many will still be open in five years, because doing business in Africa presents a unique set of challenges.

Infrastructure is often lacking, quality supply chains can be sporadic and methods of conducting business are sometimes far from the international norm. What this means in practice is that, as a company, you may have launched successful hotels in Europe, the US and even the Far East, but unless you understand the lay of the land in Africa you are going to struggle. In our case, we work with local partners in every country where we have representation. We believe that this is the only model for a successful hospitality business in Africa.