Guest Houses Popularity Pose Threat to Hotel Industry

Tourism in Ethiopia is on the rise. Last fiscal year alone, nearly one million tourists visited the country – and the government plans to have that figure increase to 2.5 million by 2020. This growth, however, may not necessarily prove beneficial for Ethiopia’s hotel industry, as an increasing number of tourists prefer to stay in guest houses as opposed to hotels. According to one study, Ethiopia’s hotels average a 60Pct occupancy rate, despite the growth in the number of tourists each year. Many travellers note that their preference for guest houses is rooted in the fact that they offer a cheaper, more intimate alternative to star-rated hotels. Hoteliers in the country charge that these businesses need to be better regulated and managed. Consultants, however, say hotels need to reduce their costs if they don’t want to continually lose customers. EBR’s Fasika Tadesse spoke with tourists, government officials, hoteliers and guest house owners to learn more about the nuances of the debate.

Fred Edelstein and his wife, Barbara Edelstein, were in Ethiopia for three weeks in October 2015. The 70 year-old couple came to Ethiopia for the second time after visiting the Omo Valley in 2009. This year, they came to Ethiopia in order to visit the Danakil Depression and Dallol, a volcanic explosion crater in the Danakil, both of which are located northeast of the Erta Ale Range in the Afar Regional State.
The Edelstein’s are from Florida – located in the southern United States – and retired 25 years ago. Since then, they have been travelling throughout the world for 4 months every year – from September to December. So far, they have been to 12 African countries, including Ethiopia.
During previous trips, the couple stayed in hotels but now prefer to stay in guest houses – a private residence that offers accommodations to paying guests – when they travel. On the morning of October 19, 2015, the Edelstein’s were having breakfast at Kefetew Guest House with Genet Kefetew, owner of the establishment, when EBR spoke with them. They stayed at the guest house, which is located off CMC Boulevard, for four days, renting a room at a cost of USD65 per day.
During their trip six years ago, they stayed at the state-owned Ghion Hotel, but now they prefer to stay at a guest house because of its low price and sociable environment.
“Hotels are expensive and impersonal,” Fred told EBR. “So we decided to stay at Kefetew after I searched and reviewed many guest houses and hotels operating in Addis Ababa online.”
Fred says he visited a trip advisory website to find a guest house in Addis Ababa that has reasonably fair prices and a friendly owner to make their stay more pleasant.
Genet, the owner of the guest house, went to the Addis Ababa Airport to welcome Fred and Barbara, which is something the couple appreciated. “This is what makes a guest house different from hotels,” says Barbara. “When the owner came to the airport to receive us, I [felt] as if I was going to stay at my relative’s place.”
According to industry insiders, after the Ethiopian millennium, which was celebrated in 2008, the number of guest houses in Addis Ababa increased dramatically. “These days one can find guest houses in every corner of the city,” says Kumneger Teketel, Founder and Managing Director of the Ozzie Business & Hospitality Group, a local hospitality consultancy firm.
His analysis is supported by data from the Addis Ababa Trade Bureau, which shows that there are currently 860 guest houses and pensions (a similar establishment) in the capital. Data also demonstrates that during the past four years 65 business licenses were issued for the establishment of guest houses. That figure is more than double the 31 business licenses that were issued to open star-level hotels during same period.
The guest house business is flourishing in Addis Ababa, mainly driven by the increasing number of tourist visiting the country. In addition to this, establishing a guest house is easier for businesspeople, as it has a lower barrier to entry than establishing a hotel, which demands huge investment and a long procedure to begin operations. This process includes licensing, construction costs, undergoing the newly established star-rating system and staffing, among other things.
Still, the lower barrier to entry doesn’t seem to be a hinderance to their ability to get clients. The Ministry of Culture and Tourism’s (MoCT) Stakeholder Relations Directorate selected 53 guest houses, which together have 880 rooms, to provide accommodations for the international participants who came to Addis Ababa for the third United Nations Financing for Development (FFD3) meeting that was held in July 2015. The Directorate also selected 143 hotels that have a combined total of 8,044 rooms.
Kefetew, where Fred and Barbara stayed, is one of the 53 guest houses that were selected by the Ministry to host FFD3 attendants. The guest house has been operational since March 2012, with six rooms in a two-storey apartment. Genet opened the guest house after she returned to Ethiopia after 35 years of living in the United States.
The guest house offers three types of rooms: master, executive and regular, which range in price from USD65 to USD110 per day. The two master bedrooms are reserved for travellers who visit with their children, since it has additional beds to accommodate them. Along with the rooms, guests will be provided free Internet service, pick-up from the airport, taxi services in the city, and a complimentary breakfast.
Guests stay, on average, for four days, according to Genet. She says her guests mainly come from Germany, the United States and the Netherlands.
Genet says that the demand for guest house accommodations exceeded her initial expectations. “Our main goal was to serve researchers and humanitarians who come to Addis Ababa,” she says. “But we started serving travellers, as the demand [for guest house rooms] is increasing.”
Since it become operational, Kefetew has managed to receive three awards from the website Trip Advisor as a result of getting good reviews from guests who stayed there.
Kumneger says the increased demand comes from the benefits afforded to those who choose to stay at a guest house. “These days, travellers prefer guest houses to hotels because of [the cheaper] prices and privacy,” he says. “A few years ago, many travellers from the Middle East came to Addis Ababa during our keremt season (summer) [to escape the heat] in their countries. [They] used to stay at star-rated hotels but currently we do not see them at hotels, as they prefer to stay at guest houses and blocked pensions,” he adds.
In addition to cheaper prices and privacy, travellers say they prefer guest houses because the intimate atmosphere provides an opportunity to meet different people from around the world to share ideas and experiences.
Despite the growth in popularity of guest houses, Tersite Lemma, assistant manager of Sheba Guest House, explains that the business is seasonal. Sheba is located in the gated community known as the Turkish Compound, around the Desalegn Hotel in the Bole District. It began operating in 2011 with two villa houses and service quarters. Guests mostly consist of American and European customers visiting Ethiopia for adoption. They pay, per day, USD50 for the ordinary rooms and USD85 for suites, of which there are six.
High seasons are during holidays, such as Mesqel, the celebration of the finding of the cross on which Jesus Christ was believed to have been crucified; and Timqet (Epiphany), a ceremony to commemorate the baptism of Jesus Christ. January and February are also mentioned as peak seasons. On top of these events, there are international conferences and events organised in Addis Ababa, which usually draw attendants from several countries.
Because of the holidays and international meetings, the number of tourists visiting Ethiopia is increasing every year. According to data from the MoCT, during the 2011/12 fiscal year, 596,000 tourists visited the country. That figure reached nearly to one million during the past fiscal year – representing a nearly twofold growth in the span of three years. Additionally, the European Council on Tourism and Trade named Ethiopia the World’s Best Tourism Destination for 2015.
According to Kumneger, these are the major reasons for the boom in business for guest houses and hotels in Addis Ababa. However, the prospects of growth for guest houses seem more promising, as many of them are using online booking systems to become more accessible to foreign travellers.
Before coming to Ethiopia, many travellers check websites to choose the places where they are going to stay and to book in advance. They visit mainly the individual websites’ of the guest houses or more established websites like expedia.com, booking.com and newer sites like javago.com.
To learn more about prospective places to stay, tourists can view the comments of the people who visited Ethiopia on tripadvisor.com, a leading hospitality website, in order to help make booking decisions. Another website that is dedicated to the booking of guest houses is airbnb.com, which offers rooms with a daily rate starting from USD15.
Tersite says that these websites prove useful for guest house managers looking to sell rooms to travellers: “We sell our rooms mostly online,” he says.
Despite the fact that business is booming for this segment of the tourism industry, there are a number of potentially negative issues resulting from the increased popularity of guest houses in Addis Ababa, according to Kumneger.
The first has to do with the way guest houses are managed. Kumneger explains that most of the guest houses in Addis Ababa are not working in a transparent way, as there is no regulatory framework to govern the ways in which the businesses are managed.
Another potential downfall of the growing popularity of guest houses is that they pose a threat to the nascent hotel industry in the country. Industry insiders say guest houses decrease the occupancy rate of hotels, as they offer lower prices because their operating costs are usually lower than that of hotels.
In fact, in 2014 the hotel market in Addis Ababa registered an annual occupancy of almost 60Pct, according to the Hotel Yearbook 2015, which was published by an international consulting firm Horwath HTL (Hotels, Tourism and Leisure). This means an average of 40Pct of the hotel rooms remain vacant every day.
Hoteliers in Ethiopia say that the lack of a regulatory framework poses a threat to the hotel industry and the country as a whole. “Some of the guest houses are very safe and comfortable for the guests but there are also some in the condominiums and shanty areas, which will affect the image of the country for the foreigners in terms of safety, security and quality services,” says Biniam Bisrat, Board Chairman of the Addis Ababa Hotel Owners Association (AAHOA), which has 70 member hotels.
What’s more, some guest houses in Addis Ababa operate without business licenses. They rent their houses for guests who come from abroad, while the owners may be travelling out of the country, or rent a spare room, even in facilities such as the Gotera Condominium site. They rent their rooms by registering their facilities on online booking websites such as airbnb.com, which attracts travellers from around the globe looking for low-budget lodging.
This decentralised method of operation makes it difficult for the government to regulate some guest houses, as they are not legally registered to operate. In fact, public safety issues may arise, as these guest houses do not have the legal requirement to report those who stay in their facilities, or the duration of their stay, to the police.
In addition to this, the lack of licensing of some guest houses means they do not comply with the tax requirements that many hotels have to. This puts them in a better position to offer cheaper rates than hotels since they’re able to circumvent certain tax obligations and as a result don’t have to factor these costs into their overall pricing mechanism.
The reality of lax regulations is not lost on the federal government, according to officials. “The operational guest houses are functioning without any guidelines and we recognise that,” admits Tadesse Endaylalu, Tourism Licensing Services Director at the MoCT.
According to Tadesse, all of the guest houses throughout the country are operating under the mandate of regional culture and tourism bureaus, which creates a gap in how they’re monitored by the federal government. Now the MoCT is collecting data about the guest houses to monitor them centrally under the Ministry.
Yet, in light of the efforts to monitor these businesses more closely, owners of guest houses claim that they don’t get special treatment or incentives from the federal government. “We are not [treated like] other hotel service providers, so we are not getting incentives from the government and we are not getting solutions to the problems we face,” Genet claims.
Government officials say that Genet’s concerns are also central to their efforts in regulating guest houses at the federal level. “Currently we are working on designing standards and criteria as well as guidelines for the guest houses to rate and classify them as we do for the hotels,” says Tadesse. This will help mitigate the quality irregularities of some guest houses in the city.
Ultimately, however, the high cost of star-level hotels in Ethiopia is something hoteliers need to address, according to industry insiders. Kumneger suggests hotels should lower their prices to overcome the challenges from the guest houses and be competitive. In addition, he says the government should give equal focus to guest houses and govern them by rules and regulations in collaboration with key stakeholders. EBR