OBG talks to Marcel von Aulock, CEO, Tsogo Sun Group

Interview: Marcel von Aulock

To what extent, in your opinion, do currency fluctuations affect foreign tourist spending?

MARCEL VON AULOCK: What people tend to forget these days when discussing the rand’s volatility is that 10 years ago, the currency was a slam-dunk to be moving negative and fast. While fluctuations are more rampant than one would hope for, volatility is not the issue it used to be. South Africa, as a long-haul destination, is not competing with low-cost package tour destinations like the Greek islands. For those who decide to visit, the cost of the airfare is a far more important factor than the translated exchange rate of a hotel booking, and our hotel prices are low by international standards, anyway.

How much can an increase in regional and domestic tourism boost the sector?

VON AULOCK: Tourism arrivals are certainly influenced by the wealth of our key market countries. So if Europeans, who have traditionally been our main source market, are not travelling, you have to go out and target other areas where people are actually travelling.

If you look at South Africa’s arrivals by air, numbers were growing until 2008 and have been flat since, which is not bad considering that since 2008 our main source markets have been in trouble. For the hotel industry, foreign arrivals are a nice add-on to the domestic corporate business, but are not the key to our performance. So if and when the European markets do recover, this will be an added bonus.

Can you comment on what sort of scope there is for consolidation in the industry?

VON AULOCK: There are a lot of distressed assets around, and this distress did not always come from badly run hotels but from over-gearing. If you build a hotel mostly on debt, it will fail. The hotel business runs in cycles, and you have to have a stable balance sheet and be in the game for the long term.

Since 1994 and the opening of the economy, average hotel occupancy has been at 68%. To get 70% occupancy in, say, a city-based hotel, you have to be nearly full on the four business nights and half-full on the three weekend nights. So 70% is realistically as good as you are going to get. As soon as the industry goes over 70%, it can be considered short on supply.

From 2008-10, we had new supply coming in for the World Cup, and if you were going to build a new hotel at some point, you wanted to have it ready for this event. Where things went wrong is that there was a contraction in demand as corporate South Africa stopped travelling during the economic crisis. As a result, the hotels without solid balance sheets are being acquired at attractive prices by groups with the cash flow and low debt levels to do so.

What kinds of challenges and obstacles do foreign management outfits and chains face?

VON AULOCK: It is important to start with the understanding that international brands do not invest. They merely offer and sell management services and do well in markets where local expertise is lacking. South Africa has its own well-known local brands that people already trust. With regards to foreign visitors, the idea that you must have international brands to attract them only applies to underdeveloped markets.

What level of potential does South Africa offer in the meetings, incentives, conventions and exhibitions (MICE) segment?

VON AULOCK: If you get business visitors out here once, they will almost certainly come back with their families for leisure. So in my opinion, efforts to bolster the MICE market are at least as, if not more, effective than direct campaigns aimed at attracting leisure visitors. With three first-rate international convention centres and a developed formal hotel market, we are the only country in Africa with the infrastructure to host large conferences. If any conference is to take place in this part of the world, it would be a shame and we would not be doing our jobs if it was not awarded to us.