Prospects for tourism and travel in a post-Covid South Africa

CIARAN RYAN: Tourism and travel have been devastated by the Covid lockdowns. South Africa had

CIARAN RYAN: Tourism and travel have been devastated by the Covid lockdowns. South Africa had 2.4 million arrivals in the year to March 2020, but arrivals were virtually wiped out when the lockdown commenced in March of last year. With that thousands of hotels, restaurants and tourist resorts went on life support, reaching out for state-funded assistance. As the lockdown has eased and interprovincial travel has been relaxed, there’s some sign of a pickup in domestic tourism.

Joining us to discuss the prospects for tourism and travel in a post-Covid world is Lee-Ann Bac, director in advisory services at BDO. First of all, welcome Lee-Anne. Let’s cut to the chase – when and how will travel and tourism bounce back?

LEE-ANNE BAC: I wish I had a crystal ball so that I could tell you when it’s going to bounce back. It’s not only we in South Africa that don’t have the answer for this. It’s a global issue. Nobody really knows how and when it’s going to bounce back, but there are a number of issues or prerequisites that we need to have in place before we are going to see tourism really bounce back. The one key requirement is herd immunity/vaccinations in source markets and destination markets.

For South Africa we need our source markets to have 60%-odd of the people vaccinated, and we need to have the same in our country because our source markets are not going to feel comfortable coming to South Africa if they don’t feel that they’re going to be safe as well. So unfortunately, it’s a reality. And, as we know, South Africa has been a bit slow off the mark in terms of starting the vaccination process. Fortunately, it has started. But until we’ve got through the bulk of the South African population, we cannot really expect to see a massive jump or rebound of our tourism industry.

In reality we do foresee a sort of U- or W-shaped rebound. We’re going to have these little peaks of demand, if you want to call them that.

Then, as soon as we see the vaccination and we see the herd immunity, and that Covid is largely under control, we will see this massive resurge we’re expecting back to 2019 levels.

Hopefully we can see this starting to happen in the latter part of 2022, and then back to normal maybe from 2023/2024 – fully back on stream in terms of foreign tourism.

CIARAN RYAN: Okay. So, there’s some light at the end of the tunnel. It’s not immediate. That sounds like it’s a year or more away. But in the meantime, how can travel and tourism businesses remain relevant in this post-Covid world?

LEE-ANNE BAC: What we have seen, which is really fantastic, is the growth of our domestic market.

So, we’ve not only seen the domestic market which would normally have gone overseas and have their annual overseas holiday – the very high-net-worth individuals, who’ve been travelling around and exploring different places in our country, but we have seen huge growth in our emerging black middle market. We’re starting to see them really travel. This is something that we’ve been trying to get off the ground for years in our country, which is great.

What that means is we are starting off with a higher base of domestic tourism, which is something that we need to leverage off and grow even further.

CIARAN RYAN: Let’s just pick up on this issue about domestic tourism. You said there’s been a spike in the number of black middle-income families. If I’ve got that right, black middle-class people travelling domestically. Now, is that likely to become a permanent feature of the local market, or is that something that’s going to fade away once international travel resumes?

LEE-ANNE BAC: We are quite confident that it will be a permanent part of our tourism industry going forward.

Basically, once the travel bug has bitten, it’s quite difficult to ignore it. We have a group of people who are now starting to travel.

You must bear in mind that a lot of them probably have been brought up in apartheid South Africa and didn’t actually get to go on holiday. Now that the travel bug has bitten, they are excited and they want to travel and they want to see more of their country, and they are starting to realise what a beautiful country they live in.

So we’re quite confident that this is going to continue, and going to continue to grow. And yes, we probably are going to see more of them travelling overseas in future as it becomes safe to travel. But it also means we get more and more people starting to travel. As their children start to travel, they are going to grow up and travel with their families.

So this is almost as though Covid has been something positive for our domestic tourism market.

And, if you look internationally, successful tourism destinations are those that are built on a successful domestic tourism market.

What is even better about this is that foreign tourists are no longer wanting to come in and sort of do a flip through a country, a quick sort of ‘see the top seven attractions’ and then fly out. They want to come to a country and really experience the authenticity of that country. They want to experience the people, the food, the way you live in a country.

So, when we tailor our product to the domestic markets, we are creating a lot of that authenticity into our product, as we know it, which is even more appealing to the foreign market and the way tourism is evolving globally.

For me, the potential is really significant and really great for our tourism industry, and the opportunities for our current product to pivot and to focus on the domestic market; then seeing the foreign market as the cherry on top, the cream, is definitely the way we should be going and that definitely holds a lot of growth potential for our country.

CIARAN RYAN: Is there any way that we can actually measure what has been happening in the domestic tourism market? How do we get these stats?

LEE-ANNE BAC: We do get the stats, but unfortunately, they are slow off the mark.

We’ve got two sources of stats. We’ve got stats from Statistics South Africa, in which they run an annual survey in terms of number of domestic tourists, and we get similar information from South African Tourism. Unfortunately, both of these surveys are quite delayed in terms of when we get the information.

At the moment we are having to work on anecdotal information based on looking at different bits and bobs of research and feedback from different markets. We can have a look and we can see that, for example, the caravan and camping sector has done quite well. This information we get from Stats SA, and that has seen quite a peak in demand, which is also indicative of the fact that we’re getting more South Africans [to travel].

We know they are South Africans because foreign tourists have not been allowed to really travel around our country.

More South Africans are going out and camping and caravanning. That’s obviously affordable, which is great. Let’s get them into the tourism market and get them starting to experience, to let that travel bug bite. Once the travel bug has bitten, they will keep on travelling and, as they become wealthier, they will start to upgrade their travel experiences.

Even if they stay in caravans and camp that’s great, because they’re out and about and spreading their money around the country.

In terms of stats, we unfortunately at the moment have to rely on bits and bobs of information, but it is there, and we definitely have been seeing a pickup in demand.

CIARAN RYAN: Do we have any stats, for example, on hotel occupancies and how they compare with previous years?

LEE-ANNE BAC: We do. Unfortunately for hotel occupancies in general it has been quite a tragic situation for the past year. Overall, for the year 2020 our open hotels – not all hotels because some hotels actually closed their doors entirely – traded at an average occupancy of 32%.

CIARAN RYAN: And how does that compare with previous years?

LEE-ANNE BAC: It was 62% for the full year in 2019.

CIARAN RYAN: So that’s about half.

LEE-ANNE BAC: It’s about half. It’s tragic. It’s tough. We have to be reminded they had periods of no demand – because they had to be closed – during the course of the year.

CIARAN RYAN: What opportunities are there currently in the tourism sector for businesses? We’ve heard stories from some hotels that they’ve repurposed their restaurants to provide meals for the local community. Some have even outsourced their maintenance teams – for example repairing trucks, that kind of thing. What else is there? How are these businesses surviving?

LEE-ANNE BAC: By being creative, repurposing facilities and restaurants. I do believe that hotels of the future are going to be a little different from hotels as we know them.

Obviously, it’s not always easy to adapt hotels, but we are going to see more use of outdoor space going forward, which is fantastic for South Africa because we’ve largely got fantastic weather. I was talking to a colleague in Ireland, and he was saying they can’t really repurpose their facilities to focus more on the outdoors because of the miserable weather that they’ve got. [But it’s about] refocusing even meeting facilities to be more outside-event facilities, restaurants, and so on.

Also, my suggestion would be to look at how you can reconfigure hotel rooms to create a little bit more space, so that people can dine in their hotel rooms, work in their hotel rooms.

Also look at sweating the assets a bit, making sure that it’s not those open spaces, the meeting rooms, restaurants and lobbies.

You sweat the assets in terms of creating co-working spaces or relooking at your food offering, so encouraging people, local residents, to actually come and participate and share those open spaces in hotels.

Even internationally, there’s quite a lot of talking in terms of subscriptions and membership fees for utilising these types of facilities. So, it’s not dissimilar from how we work in the environment. And then it’s not only hotels, bed-and-breakfasts and guest houses.

I strongly believe that if I was an owner of a bed-and-breakfast or a guest house now, I would be looking quite stringently at my cleaning and my hygiene approaches. Hotels have got that pretty much taped, but a lot of bed-and-breakfasts and guest houses need to make sure that their cleanliness standards are really up there, their hygiene standards are up there, and also be thinking about how they can possibly sell their facilities almost as one unit as opposed to just being an individual unit, because people like to travel in family groups and like to be able to book out facilities as well. That’s also an option.

And then things like we’ve seen the demise of Greyhound recently, which is quite tragic because of the loss of the vehicle infrastructure, which is so needed for our country in terms of big buses to haul people around. But we are also going to see people travelling in smaller groups. Instead of being 70 in a group, they’re going to travel in their bubbles and their family groups.

So, the opportunities are there for those people who own vehicles, trip operators, vehicle wheels operators, to think about offering shuttle services between smaller towns.

But the flights are there. Airfares are pretty cheap at the moment, as we know, between our major centres. The Greyhound bus used to go from Johannesburg to Cape Town. The option to fly is not that much more expensive – to sit on a two-hour flight versus a 20-hour bus ride, or however long it takes.

But it’s those smaller towns along the way that are going to lose out. This I believe is an opportunity for the trip operators to think about offering shuttle services between smaller towns for tourists to move around in comfort so that they don’t have to self-drive. So, there are some more opportunities.

There are also opportunities, once we get through all of this Covid nightmare, of starting to look at rewarding our healthcare workers, frontline workers.

Is there not a way that we can actually get people and businesses to sponsor holidays for our healthcare workers?

This will be a fantastic way of starting to reignite the tourism industry and get things going and getting some cashflow flowing back into the industry so that it benefits a sector that was very hard-hit and also benefits those people that have really put their life on the line to help us through this really, really tough time.

CIARAN RYAN: Final question here. Earlier this year the government launched a R1.2 billion Tourism Equity Fund. When announcing the launch of this fund, President Cyril Ramaphosa said a recovery will happen. Of course, he’s referring to tourism. Our task is not to simply return to business as usual, but to accelerate the pace of achieving our transformation goals. Now, just very briefly explain what this new Tourism Equity Fund is, and how it will benefit tourism businesses in South Africa.

LEE-ANNE BAC: The Tourism Equity Fund is exactly what the president said. It is aimed at bringing black entrepreneurs into what I want to call the mid-sized tourism industry. The tourism industry has been very slow in terms of transforming. We have a couple of very large businesses that are transformed. They’ve come to the party, and the barriers to entry for a micro-business in the tourism sector are not that high. If you want to become a trip operator, a wheel’s operator, a tour guide, or maybe convert your home into a B&B, it’s fairly simple to actually get into the tourism industry.

The biggest challenge we have as an industry is in this mid-sized tourism product, which is still very much in the hands of white people. I’m talking about owning hotels, owning sort of mid-size trip-operating types of businesses, owning attractions and so forth. The biggest challenge has always been the equity needed to enter into the sector; it is a risky sector (as) we can see when tourists have been hit by Covid. It is impacted by external shocks. So, you do battle to get funding, to enter the sector. And the whole objective of the Tourism Equity Fund is to provide an equity grant to worthy black entrepreneurs, to basically fund their equity contribution to get them into a new development or an existing business.

So, for those who are looking to exit the business, there’s an opportunity to sell an existing business to a black entrepreneur; or there’s an opportunity for black entrepreneurs to develop new, or acquire or buy shares in existing businesses. There are some riders around it all – things like it must be 51% black-owned at the end of the day, and it can only be a South African business. Obviously, we don’t want to be funding a business that’s going to happen outside of South Africa. The parties have to be South African. The emphasis is on a preference for black females, as well, and for youth to enter into the sector.

But the fund is not huge. We would love to see a bigger fund. This R1.2 billion is over three years, but it is a starting point and, in my view, long overdue and very much needed in the tourism sector.

CIARAN RYAN: We’re going to leave it there. That’s Lee-Anne Bac, director in advisory services at BDO.

Brought to you by BDO South Africa.