Mitigating Losses

How Hotels Manage the Recent Business Slowdown

The hotel industry is highly dependent on a complex web of socio-economic, political and environmental factors. Peace and stability are chief among the major factors that affect the performance of hotels since the business highly relies on the flow of tourists. Last year’s political instability in some states of Ethiopia has brought huge challenge to the industry. EBR’s Tamirat Astatkie spoke to stakeholders to understand the extent of the slow down and find out what alternative marketing strategies hoteliers used to cope up with the hard time.

At the time of growing political instability, the tourism industry faces tremendous challenges as political stability and safety are prerequisites for the sector. The political unrest existed in the country last year, especially in the states of Oromia and Amhara affected various development endeavours. However, according to industry insiders, the pressure has been more pronounced in the hospitality industry especially in the hotel business.
During his first press conference he held with journalists on January 12, 2017 for the first time after the declaration of the State of Emergency Prime Minister Hailemariam Desalegn did not deny that the hospitality and service sectors remained in a state of shock for some time. However, he said that the influence of the unrest on the overall economic performance of the country is minimal.
Data obtained from the Ministry of Culture and Tourism (MoCT) supports the premier claims in that there is only insignificant difference between the number of tourists that visited the country in the first quarter of the previous fiscal year vis-à-vis the current fiscal year, accounting for 235,011 and 233,032, respectively. This, of course, manifests the decline of foreign tourists by 0.85Pct, which is negligible. The money generated during the same period also shows little reduction.
“We haven’t done any analysis to reach a conclusion yet on the economic loss of the hotel industry except assessing the damages inflicted during the riot to lodges,” explains Fasil Endale, Tourism Services Competency and Accreditation senior expert at MoCT. “The finding of the assessment indicates that there are six lodges inflicted damages.”
According to Fasil, Bishangari and Shalla lodges were completely damaged while African Vacation, Mamo Katcha, Sara and Simbo experienced only some damage. “The government has decided to compensate them, but it is not yet effective,” says Fasil. “A detailed assessment and analysis on the lose of the hospitality industry, especially hotels and tour operators are being undertaken by the Catering and Tourism Training Institute.”
On the other hand, owners and managers of hotels reflected their frustration on their loss due to the political instability. For instance, Sileshi Debebe, general manager of Harmony Hotel, a four-star hotel, explains a devastating blow the instability caused to the sector specifying the amount of lose his hotel experience. “We targeted to make ETB80 million revenue in the first six months of the current fiscal year, but we could only make around ETB60 million,” Sileshi underscores.
The business activity of Monarch Hotel, which joined the hotel industry four years ago, also suffers the downturn. “There was a lot of cancelation although it is difficult to put the exact loss in figures,” Yayirad Yemwedew, marketing manager of Monarch Hotel stressed.
Due to such losses, according to Fasil, hotels requested support from the government. “Granting grace period to settle bank loans, getting financial support in a form of loan to sustain in the business and maintain employees and tax reduction are among the requests proposed by participants in a consultative meetings that the Ministry organised to cope with the downturn,” Fasil explains.
Of more than 150 star-rated hotels in Ethiopia, nearly 60Pct are located in the capital. Just like in any country, a hotel business can be affected by a number of factors such as macroeconomic cycles, consumer trends, parallel sectors such as airlines and travel companies and seasonality of demand, according to a report published by Deloitte entitled ‘Adapting to Uncertainty.’
Since the hotel industry is highly dependent on a complex web of socio-economic, political and environmental drivers, the report suggests identifying and quantifying the principal threats helps hotels to develop a comprehensive risk profile specific to their business. This is the first phase of developing a risk management strategy.
The same source also recommends the hotel industry to adapt living with uncertainty. Preparation is a key to survive shocks, minimise fallout and maintain hotel performance. To succeed in this environment, companies will need to identify and understand the entire risk picture, to prepare for the unforeseeable and to be agile enough to respond to new opportunities.
In this regard, despite encountering a downturn in their businesses, Harmony and Monarch hotels claim that putting in place a new marketing strategy help them remarkably to sustain in the business as well as perform better than most of their competitors.
Sileshi, who most often prefers to use a ‘crisis management approach’ instead of introducing and executing the ‘plan B’ of his marketing strategy, lists a number of measures he has taken to rescue the business from further downturn and to enhance efficiency. “We optimise our services by capitalising on the seven meeting rooms we have at hand that host local and international meetings as well as big wedding ceremonies,” Sileshi explains. “In doing so, we increased our sales of foods and beverages as well as pastry. We have also reduced the price of our online room sales up to 50Pct.”
Furthermore, Sileshi implemented cost reduction strategies such as giving forced leave to his employees and delaying employment when there is resignation. “Cost reduction has a huge positive impact on net profit when sales are weak,” he says.
On the other hand, Yayirad says that even if the situation was dire and very difficult to restore the businesses, turning the attention to the local market as an alternative strategy is helping Monarch Hotel not only to managing its sustainability but also to be successful. “Unlike most of our competitors, we have been good at selling our foods and beverages. Hence we capitalise our benefits by optimising our service in this area,” Yayirad explains. “We also offer flexible price for our room service.”
Yayirad further explains that Monarch has also weekly entertainment nights with live music bands on Thursdays and Fridays. “The entertainment nights also boost our sales of foods and beverages,” he says. “What’s more, we bring international singers for big festivities such as the New Year Celebration. “Bringing international artist has a multiplying effect on the other services such as rental of rooms as well as sales of foods and beverages.”
As evidence for Monarch’s good performance during the slowdown [of hotel businesses], Yayirad refers to a survey they conducted on the Hotel Occupancy Rate (HOR) of their own and the competitors. “We exceeded our competitors on average by 10Pct in terms of HOR,” he claims.
One sales manager at an international hotel chain operating in Addis Ababa, who spoke to EBR on the condition of anonymity, agrees that the volatile situation during the riot affects the hospitality industry. “During the four weeks of last November our business suffered due to cancellation of bookings and also lost businesses in the pipeline.”
The sales manager prefers to focus on the distinct feature of his hotel. “First, our hotel is neither leisure nor a luxury hotel; rather it is purely business hotel where business people who come from abroad meet and stay for business purposes. Besides, for being an international hotel many of such people prefer to stay in our hotel.” He adds that due to high prices, hotels cannot generate much local demand.
Though he was not willing to disclose the marketing strategy they used, he pointed out that his hotel has optimised the already existing various means in which businesses are secured. “Although we were affected by the political instability, we are still successful and lead the market of both the luxury as well as business hotels in the city.”
Managing director of Ozzie Business and Hospitality Group, a consultant firm on hotel projects, tourism and hospitality, Kumneger Teketel, wonders whether hotel managers and owners disclose openly about their business performance: “Most of the information/data one may get from hotels tend to be counterfeit. Hence it is difficult to make sound analysis and reache to a certain conclusion.”
Exemplifying his line of argument, Kumneger has been adamant that room price rate of hotels in Addis Ababa is not known. “This is because a rack rate is totally different from what they actually offer. Therefore, the rates are informal,” he said. “On the other hand, price flexibility for room service existed. The price is hidden and they don’t give confidence on part of the customer, however.”
For Kumneger, the factors that influence the substandard operation of hotels in the country is mainly attributed to the absence of system-based operation and partly lack of professional leadership of the hotel industry.
Still, Silesh is confident about the bright future of the hotel industry if the government is able to ensure peace and stability throughout the country, lift the State of Emergency and restore the image of the country all over the world.
However, for Kumneger a lasting solution the hotel industry requires a paradigm shift to business tourism rather than leisure tourism. According to international experience the later is proved to generate meager foreign exchange income. EBR