Windhoek-During the second quarter, the FNB/Fenata Travel Index dipped by 16.2 percent quarter-on-quarter in real terms as rising costs continue to dampen growth.
Analyst Josephat Nambashu advised that despite bed occupancy rate improving from the previous quarter, lower than expected load factor numbers have been recorded, causing the overall index to slide.
“Inflation in the sector remains upwardly sticky at 11.4 percent y/y (June 2017) on the back of a relatively stronger rand. The currency index declined by 13.4 percent q/q which could potentially further worsen the performance of the sector.”
The FNB/Fenata Travel Index further states that over the past three months, the tourism industry performed below expectations but almost doubled when compared to the same period last year.
Josephat says: “The rise in business performance was largely attributed to an increase in the number of tourists (international arrivals) during that period. Performance is estimated to remain mixed for the next three months with only about 28 percent of the respondents stating in the survey that business will be very good.”
It is also stated in the index that, financially, operators were better off during the quarter compared to other tourist vendors.
Revenue expectations for the next quarter were also lowered, mainly on the back of increased operational costs and a strong currency.
Workforce numbers in the sector remained flat according to the survey with nearly 56 percent of the respondents expecting no change in their staff capacity over the next three months.
According to the respondents, increasing operational input costs were the main driver of higher prices in the sector, making it more difficult for the local people – whose income does not increase proportionately – to enjoy the sector’s hospitality. Not only does this make it more difficult for local people – it can also result in dominance by outsiders in the sector, which erodes economic opportunities for locals.
“Overall, respondents feel that given the current performance, the sector will continue to struggle, at least for the next subsequent quarter. Aggregated in the sentiment index, capital expenditure and future employment erred on the lower side, with a combined 21.4 percent of respondents expecting poor performance in the two components,” says Josephat.
Respondents to the survey were also asked about some of the challenges they experienced, and fluctuating economic and political conditions coupled to limited accommodation for larger groups were highlighted as drawbacks to demand in the tourism sector.
“Escalating operational costs, particularly the cost of electricity and food, were also prominent on the agenda with respondents noting these as impediments to the industry’s growth,” says Josephat.
Although on average there were more tourists in the second quarter, they spent a lot less money at tourism establishments, as they opted for self-drive holidays and camping.
While this may be good news for car rental and camp site operators, it disadvantages hotel and lodge operators who have much larger fixed overheads to carry.
Some respondents also felt the industry lacked qualified and well-trained staff to improve service delivery, while a few commented on the dilapidated road infrastructure.
Externally, South Africa and Botswana pose the biggest competition due to their concerted marketing efforts and aggressively cheaper pricing.
In conclusion, Josephat advises that the current economic climate is still affecting the tourism sector, but many businesses expect a mild improvement in business performance for the third quarter.
“The main driver to achieving this is an anticipated increase in tourist numbers, but escalating operational costs coupled to tough competition from neighbouring countries Botswana and South Africa are more likely to hold back the sector. In addition, there is still concern over the falling load factors and possible cost implications thereof over the medium to long term. Overall performance for the year is therefore expected to remain flat compared to last year, unless third quarter numbers surprise on the upside.”