Tourism expects bumper year but rising costs bite into profits
More than a quarter of the respondents polled for the second quarter FNB Fenata Tourism Index were highly optimistic about the third quarter expecting it to be very good. But overall revenue expectations were lowered, mainly on the back of increased operational costs and a strong currency.
The second quarter FNB Fenata Tourism Index, released this week, decreased by just over 16% in real terms compared to the second quarter last year. The second quarter covers the period April, May and June, traditionally regarded in Namibia as the low season.
Despite the index moving lower, real economic conditions were considerably different with the majority of establishment reporting higher bed occupancy rates than in the second quarter of 2016. However, higher overheads have diluted earnings and somewhat dampened expectations for the third quarter.
“During the second quarter, the FNB/FENATA Travel Index dipped by 16.2% q/q in real terms as rising costs continue to dampen growth. Despite bed occupancy rates improving from the previous quarter, lower than expected load factor numbers have been recorded causing the overall index to slide” said FNB analyst, Josephat Nambashu explaining the discrepancy between aggregated results and higher number of visitors.
“Over the past three months, the tourism industry performed below expectation but almost doubled when compared to same period last year. The rise in business performance was largely attributed to an increase in the number of tourists (international arrivals) during that period” he stated.
“Overall, respondents feel that given the current performance, the sector will continue to struggle, at least for the next subsequent quarter.Inflation in the sector remains upwardly sticky at 11.4% y/y (June 2017) on the back of a relatively stronger rand. The currency index declined by 13.4% q/q, which could potentially further worsen the performance of the sector” said Nambashu.
Escalating operational costs, particularly the cost of electricity and food, were listed by respondents as impediments to the sector’s growth. 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.
Competition from Botswana and South Africa also featured high as a reason for the lesser local tourist spend. “Externally, South Africa and Botswana poses the biggest competition due to their concerted marketing efforts and aggressively cheaper pricing” according to the conclusions drawn by Nambashu. “Overall performance for the year is therefore expected to remain flat compared to last year unless third quarter numbers surprise on the upside.”