Nigerian hotels recorded some of the lowest occupancy rates on record in 2020 data from flagship operators show, as the Covid-19 pandemic had a devastating effect on the industry, while companies have seen their profits go up in flames before their own eyes amid deteriorating cash and working capital positions.
Before the outbreak of the virus from Wuhan City of China, operators in the industry were struggling with the instability or bedlam such as the Niger Delta restiveness, insidious killings by the Boko Haram Sect, and the inherent difficult operating environment.
The Covid-19 crisis forced the government to impose a lockdown policy that led to the shutdown of hotels, restaurants, theme parks, cinemas, and not to mention the disruptive effect of the travel ecosystem as airlines were grounded to a halt.
Hotel Occupancy was down 30 percent, as international travels were restricted, while jobs were lost, and analysts say the current crisis is more menacing than the Ebola outbreak of 2014 and the recession of 2015.
Shareholders and investors will be scratching their heads as the audited financial statements of Transcorp Hotels Plc, Ikeja Hotels Plc, Tourist Corporation of Nigeria Plc, showed they posted a combined loss of N8.28 billion as at December 2020, according to data compiled by MoneyCentral.
That compares with an all-time high cumulative net income of N3.18 billion in 2018, a year after the country exited its first recession in 25 years, thanks to the rebound in crude oil price and the introduction of a foreign exchange policy by the central bank.
A significant slump in revenue and rising costs are making it stressful to service debt in the capital structure of firms, which could trigger default in loan covenants.
The finance costs of Transcorp Hotels, the largest quoted hospitality firm by market capitalization on the NSE, increased by 33.29 percent to N5.73 billion in the period under review as against N4.30 billion the previous year.
This comes even as total debt in the period fell by 35 percent to N20.99 billion as at December 2020, from 2019’s levels of N32.32 billion.
Last year, the company said it planned to reduce its workforce by about 40 per cent as it battled to survive the devastating effects of the pandemic on the hotels and hospitality industry.
Tope Olusola, Chief Executive Officer of Transcorp Hotel said room occupancy had not risen above 17 per of the hotel’s 677 rooms since the outbreak of the pandemic in March 2020.
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 hotels and occupancy levels to its lowest of less than five per cent, according to Olusola.
“There was a time we were down to five per cent occupancy for a hotel that has 677 rooms. We were faced with the dilemma to shut the hotel like other hotels across the globe were doing. We have not even seen above 17 per cent occupancy even at this point. So we are still recording very, very, low revenue. We are struggling and embarked on cost saving measures and renegotiated our contracts,” said Olusola.
Tourist Corporation of Nigeria, whose majority stakeholder Sun International (a South African hotel and casino operator dumped its shares a few years ago), has accumulated losses of N20.60 billion, and it is inches from becoming technically insolvent.
Analysts say they do not see operators in the industry revert to pre pandemic growth given a resurgence of a second wave of the virus and changing lifestyles adopted by people who had been under lockdown for a period of time.
“The change of lifestyles in terms of movement of people across the region will reduce drastically in the post pandemic era,” said Gbolahan Ologunro, equity research analyst at Cordros Capital Securities Limited.
Economic downturn to hit tourism
A few years ago, global accounting firm PWC had wagered that a growing population and burgeoning middle class and political stability would spur consumer tourism needed to attract visitors that crave for the country’s local culture.
The accounting firm had expected Nigeria to be the fastest-growing market with a projected 12 percent compound annual increase, and hotels would spring up as new investments would magnify.
However, the current economic and political dynamics have shattered such optimism as the coronavirus pandemic that disrupted the demand and the supply side of the market tipped the country into its second recession in six years.
The county’s real GDP contracted for the second time by 3.6 percent in the third quarter (Q3) 2020, according to data from the National Bureau of Statistics (NBS).
Inflation rate hit 15.75 percent in December 2020, highest in 3 years, while unemployment rate stood at 27.10 percent.
The continued lack of transformation agenda on the part of policy makers is stifling foreign direct investment, which undermines tourism consumption in a country that is in dire need of a diversified revenue base.