Big hotels in Nigeria risk collapse following the weight of rising operating expenses without any revenue to absorb.
Nairametrics reports that from four of the major listed hotels on the Nigerian Stock Exchange, a revenue decline of nearly 90% was revealed, due to a fall out of the COVID-19 induced lockdowns.
The sorry state of their financials has forced some of the hotels to consider massive job cuts, and cost reduction measures in a bid to survive. For most of them, it is either they take drastic actions, or face the consequences associated with piling losses and unpaid debts.
Federal Government , since the outbreak of COVID-19 in March 2020; locked down Abuja and Lagos State, forced all the major hotels to shut down, a bitter sacrifice by the hospitality sector, as the government sought to contain the spread of the virus.
The lockdown effect on the results of these companies is reflective in the Q2 results of the main listed companies. According to the data, Ikeja Hotels (Sheraton), Tourist Company of Nigeria (Federal Palace), Capital Hotels (Abuja Sheraton), and Transcorp Hilton Hotel Plc have all lost 90% of their revenue in the three months preceding June 2020.
The hotels earned a combined revenue of N1 billion in the quarter, compared to N10.2 billion in the corresponding period of 2019. They are all wallowing in losses of over N4.7 billion for the quarter alone. Combined, they have about 3,502 employees as of 2019.
The situation in the hospitality sector is not only restricted to these four hotels as this can be said for tens of other major hotels in Nigeria. In the latest Q2 GDP report published by the Bureau of Statistics; the Accommodation and food services business, which hotels belong to, recorded a GDP contraction of over 40%. Except for transportation and storage, which posted a 49% contraction, it is by far the worst in the country.
The Managing Director, Transcorp Hotels Plc, Mrs. Dupe Olusola, disclosed this during a Press Conference on Thursday, “The impact of COVID-19 on the business is like nothing the company has ever witnessed. The hotel and hospitality industry in Nigeria has never faced a crisis that brought travel to a standstill, including the Ebola Virus outbreak of 2014 or the recession of 2016. The slow pick up of international travel, restriction on large gatherings, the switch to virtual meetings, and fear of the virus, has drastically reduced demand for our hotels and occupancy levels to its lowest – less than 5%.”
Unlike in Nigeria, hotels across Africa like Kenya, Egypt, and even South Africa can rely on local tourism to drive occupancy rates. Locals prefer smaller mushrooms hotels that are cheaper, and often well-furnished to meet their needs. Nigerian hotels on the other hand rely on commercial room sales, driven by the influx of business and leisure travels into the country.
With several airlines yet to fully operate due to reciprocal bans, it is highly unlikely that things will improve anytime soon.
Below are plausible and painful options available to hotel operators to avert a collapse.
Hotels are required to explore new sources of revenues, and drastically reduce overheads., to avoid imminent collapse. For beginners, furloughing should be considered, as services of employees who have no one to serve won’t be currently required.
It is a tough decision to make for these hotels, considering that the employees that will be affected, face an even worse outlook due to the economic crunch, which is likely to remain for years to come. Mrs. Olusola of Transcorp provides a first-hand insight,
“Despite the losses incurred, we have fulfilled our obligations to staff. At the inception of the pandemic, we maintained a 100% salary payment to our over 900 employees in March and April. We also activated various cost-saving initiatives, such as renegotiations of service contracts and restructuring of our loans. We suspended further commitment to buy fixed assets and operating equipment, as well as reduced our energy consumption and maintenance costs. Despite undertaking these, it has become apparent that more fundamental changes need to be made, for the business to survive. To this end, our workforce headcount will be reduced by at least 40%, and our reward system will be optimized.”
Hotels also need to cut down on other overheads like food costs would have to be reined in, while also renegotiating inefficient pricing on purchase orders. Hotels will also have to renegotiate bank loans and explore capital raising efforts, to avoid further damage to their balance sheets. Hotel owners should push for intervention loans from the central bank, giving them enough buffer and financial stability to weather the storm, even though lobbying a cash strapped government may seem unrealistic.
With the gradual reopening of hotels, there is likely going to be stiff competition among the big brands, which may push them to undercut each other through pricing. Rather than cut prices, the prices should be adjusted on the naira side, to cater to the effect of the recent devaluation. This means foreign visitors will not witness a dollar increase in room rates, whilst the hotels will earn more on the naira side to deal with inflation.
