South African tourism bounces back – with one catch 

Travel in South Africa from both locals and foreigners has picked up in the last year, with hotels noting an uptick in occupancy rates. 

However, these rates remain below pre-pandemic levels as the industry struggles to reach the heights seen in 2019. 

In a preliminary trading update for the six months to the end of September, Southern Sun revealed that its hotel room occupancy rate picked up to 57.1%. 

The increase was relatively small at 1.2% compared to the same period last year. The company estimates a 1% increase in occupancy rates translates into R70 million in additional revenue. 

While this is good news for the tourism industry, Southern Sun pointed out in an investor presentation that this is still over 2% lower than the occupancy rate it had in the 2020 financial year, when its occupancy rate was at 59.3%. 

Southern Sun owns some of South Africa’s most recognisable hotels, including The Cullinan in Cape Town, the Sandton Towers, and the Beverly Hills. 

It also owns the Sandton Convention Centre, which it said struggled compared to the same period last year when it hosted the 15th BRICS Summit. 

The company also began refurbishing some of its most popular hotels, such as The Cullinan, for the entirety of June and the Sandton Towers from April until the end of September. This reduced its available room stop, impacting its occupancy rate. 

However, it also noted that there was a slowdown in demand from the corporate, government, and leisure segments during the buildup to the national elections at the end of May. 

While Corporate and Leisure travel has picked up, Government demand remains subdued. 

There are positive signs that demand will pick up in the coming months as the Department of Home Affairs moves to simplify the visa processes and tourists continue to flock to the Cape.

Southern Sun has been going through a period of cost-cutting since the pandemic hit South Africa in 2020, selling some of its hotels and slashing its debt. 

The company’s net debt levels have declined from R3.3 billion in 2020 to R1 billion in 2024, resulting in significant savings on interest costs and reduced sensitivity to foreign exchange fluctuations as some of this debt was held in US dollars. 

It has also bought back a large chunk of its own shares, boosting earnings per share. Southern Sun expects its earnings to be at least 20% higher than the same period in 2023. 

Southern Sun is the latest hotel group to note its occupancy rate is below that of 2019 levels, costing it millions of rands in revenue. 

Director at BDO South Africa, Lee-Anne Bac, said the failure of the tourism industry to recover to 2019 levels has cost the country billions of rands in lost economic activity. 

From January to May 2024, 3.8 million tourists visited South Africa – nearly 10% higher than the same period a year ago. 

This is a sign of a remarkable comeback since the Covid-19 pandemic, when tourism was effectively shut down. 

However, this number is still 561,000 less than the number of tourists who visited the country in the first five months of 2019. 

With the sector not progressing according to plan, it is at risk of not achieving a full rebound by the end of 2024, Bac said.  

Overseas tourism is the crown jewel when it comes to economic impact due to the high average spend per visitor, and is an easy way to earn foreign currency. 

In South Africa, the number of tourists visiting the country is lagging significantly behind 2018 and 2019 numbers. 

With 930,000 overseas arrivals between January and May 2024, the lag behind 2019 overseas arrivals for the same period is at 15% and 17% behind 2018 numbers.

Compared to 2023, when YTD growth over 2022 overseas numbers was 80%, growth for the first five months of 2024 compared to 2023 has been disappointing at only 8%, Bac said. 

The growth should be at least 30% or more if we are to reach 2019 numbers by the end of 2024. 

This means South Africa has failed to regain 194,000 overseas tourists resulting in a loss to date of R4.8 billion in direct revenue, excluding the multiplier effect of this direct spend in the economy.