East Africa’s hotel industry is battling an operational crisis that has seen the closure of popular global brands and the slowdown of new investments.

The Covid-19 pandemic has taken a heavy toll on the sector as governments imposed containment measures and travel restrictions but this only helped to aggravate inherent problems that hoteliers had been grappling with.

According to a working paper by the African Economic Research Consortium (AERC) released in September 2021, the East African hotels sector was devastatingly impacted by the pandemic as a result of massive cancellations that occurred in March and April 2020, with occupancy dipping through to December of that year.

In Uganda, room occupancy dropped to a low of 20 percent in 2020 from a high of 51.9 percent in 2019, while in Kenya hotels recorded an average annual occupancy rate of 27.6 percent in the period compared with a high of 65 percent the year before.

But The EastAfrican has learnt that unsustainable pricing models, overreliance on foreign clients and soaring operational costs have played a bigger role in hampering earnings growth as has unwillingness to shift from traditional products and services and proliferation of cheaper eateries and restaurants in city centres.

In Kenya, global hotel brands such as the InterContinental, Fairmont The Norfolk and Radisson Blu closed down and fears are rife that those still standing have been struggling.

The doors of Nairobi’s iconic Fairmont The Norfolk reopened on April 4 after 21 months of closure and the Radisson Blu is set to reopen its Upper Hill Nairobi outlet next month.

A dispute over salary cuts forced the shut down of Fairmont The Norfolk by the owners, French hospitality giant Accor, weeks after Saudi billionaire Prince Al-Waleed bin Talal sold his stake in the hotel and Fairmont Mara Safari Club to Nepalese tycoon Binod Chaudhary for a reported Ksh2.8 billion ($24.3 million).

Low bookings pushed the Radisson Blu to halt operations in Upper Hill and send most of its staff home in December 2020 to mitigate the economic impact of Covid-19 on the business.

The 271-room hotel was mainly running on conferences and parties.

Radisson Blu has said it will reopen on May 9.

The Serena Hotels management was forced to temporarily shut down 10 lodges and camps in Kenya and Tanzania until June 15, 2020 due to the pandemic.

No more quarantine

Most five-star hotels rely on tourism, events and conferences, which are slowly resuming normal operations.

Kenya’s Covid-19 positivity rate now stands at 0.3 percent, and the country has abolished mandatory quarantines and PCR tests for arriving passengers.

The Kenya Association of Hotelkeepers and Caterers says the operating environment has become bumpy due to a high cost of inputs such as fuel and electricity, which increase the cost of production and the final consumer prices.

“The problem is Covid-19 and the recovery depends on Covid mitigation measures the world over,” said Mike Macharia, the association’s chairman. But he added that “pricing is based on inputs such as cost of fuel, electricity and production.”

Alex Mugo, a director at Karmel Resort in Naivasha told The EastAfrican that there are too many taxes affecting hospitality and tourism establishments.

Hoteliers are paying the statutory 14 percent value added tax and an extra two percent tourism levy to the Tourism Fund, business permits, National Environment Management Authority and liquor licences at the county level as well as health and advertising permits.’’

“National and county governments should harmonise the tax laws and regulations and reduce the burden on investors. Some of these licenses and taxes are punitive,” said Mr Mugo.

Industry players say global brands are struggling largely due to high operational costs, including management fees in the range of Ksh5 million ($43,440) to Ksh10 million ($86,880), lack of resources for expansion due to unwillingness of local shareholders to inject new capital, emergence of cheaper hotels breaking the dominance of big hotels and over-reliance on international tourists and conferencing.

Economists at the Kenya Institute of Public Policy Research and Analysis (Kippra) argue that the decline in the number of foreign clients due the Covid-19 pandemic presents an opportunity for the hotel sector to rethink its business model, including a focus on the domestic market.

Kippra, in a study titled “Resetting the Business Model for Hotel Industry in Kenya” noted that although traditionally star-rated hotels have been viewed to be more resilient and adaptive to shocks compared with small urban eateries and restaurants, the pandemic exposed their vulnerability due to overdependence on foreign clients and ‘unsustainable’ pricing models.

“The restaurants and eateries practice a different business model that meets the needs of financially strained clients. This includes fair pricing and affordable packages that have seen their continued survival during this tough period.”

“This strategies attract more clients thus increasing the hotels’ sales turnover. Majority of the restaurant outlets offer delivery services that give them a competitive edge, especially during the Covid-19 period,” the study noted.

The hotels have also thrived through varieties and packages designed to meet the needs of every customer by offering the same product in different sizes.

“Adjusting the product and service mix by star-rated hotels to serve the needs of the domestic market can be another breakthrough for the sector,” according to the study.

Sarova Hotels are re-engineering their business model to reach out to the low-end customers by opening restaurants downtown aimed at diversifying from the trademark hotels and accommodation business.

“The physical setting of starred hotels also limits the takeaway strategy given that motorbikes are used for delivery services, which may not be appealing for this kind of setup. As such, this niche would be feasible only if these hotels adopt the restaurant model, such as what Sarova has done to tap into this niche market,” said the study.

The Serena Hotel Group is also opening lodges, resorts, hotels and camps in different parts of the country to serve various markets.

Additional reporting by Lynet Igadwah and Bonface Otieno, Business Daily