Paying Top Dollar

Is the high cost of hotel rooms in Addis Justifiable?

According to a recently released report, Addis Ababa is the most expensive African city in which to book a stay in a quality hotel. This finding has generated a debate among hoteliers in the city – about the supply and demand for quality hotels. Some say that the country’s hotel industry is still growing and that its best years are yet to come. Others, however, say that more needs to be done to improve the quality and standards of promising hotels in the country. EBR’s Fasika Tadesse spoke with industry insiders to learn more about the on-going debate.

For the second consecutive year, Addis Ababa hosted the fifth annual African Hotel Investment Forum (AHIF), which was held between September 30 and October 1, 2015. The Forum drew 500 participants, including representatives from internationally branded hotels, consultancy firms and hotel developers, from around the world.
The report of one consultancy group, STR Global, caught the attention of participants, since it identifies Addis Ababa as the most expensive African city in which to book a stay in a quality hotel. The survey, which was released prior to the conference, reveals that in Addis Ababa, a single hotel room costs, on average, USD231.78 per night. Lagos follows Addis Ababa, with an average room rate of USD215.75 per night. Nairobi and Johannesburg, two African cities known for their high tourist flow, had an average room rate per night of USD144.76 and USD72.90, respectively.
“In our sampling, we took [data from] seven hotels that are operating in Addis Ababa that qualify for the assessment and can compete with other hotels in Africa,” says Thomas Emanuel, STR Global’s business development director.
According to Emmanuel, the inflated hotel room rate in Addis Ababa is due to basic economic logic. “A great deal of the reason for the difference in rates across major African cities is simply [an issue of] supply and demand,” explains Emanuel.
David Tarsh, managing director of Tarsh Consulting, a London-based hospitality consultancy company, agrees with Emanuel’s explanation. He says the reason for the demand supply gap is the fact that Addis Ababa has a small number of internationally branded hotels compared to other African cities.
Their assessment of the issues is further complemented by another report by Hotel Partners Africa, entitled “The African Hotel Report,” which was released during the Forum. According to the report, Ethiopia has 9 international brand bedrooms per million people, while Zambia has 122, Mozambique has 79, Tanzania has 63 and Angola has 48 bedrooms.
Following the practice of hotels that provide quality service, other hotels that have relatively lower quality charge higher prices for rooms, according to Tarsh. “Same-standard hotels in Johannesburg or [Nairobi] charge relatively lower rates compared with the hotels in Addis Ababa,” Tarsh told EBR.
The testimonies of hotel clients also support these arguments. Sanjeev Midha, a 54 year-old financial engineer, owns a technology company in the United States and has travelled to 115 countries around the world, 13 of which are in Africa, including Ethiopia. He visited Ethiopia for the second time after he first came with his wife in 2013. During this trip, he was in Ethiopia between September and October 2015 for 10 days in order to acclimate to a new climate before climbing Mount Kilimanjaro, which is located on the border of Kenya and Tanzania.
Midha says his experience in Ethiopia is usually enjoyable, as he likes the environment of Addis Ababa, the traditional food and was excited to meet many friendly people in the city, which he says is difficult in some other countries.
However, Midha says that upon his next trip, he will likely stay in a different hotel, as he was not satisfied with the hotel in which he stayed during his 10-day visit. He booked a room at a hotel around Urael Church in Addis at a daily rate of USD55. He says that his room was not that clean and that there were only a small variety of dishes at the hotel’s restaurant, which is a different experience compared to hotels had which he is stayed in other African countries.
While the money he paid is cheaper than other hotels in Addis Ababa, he says that the amount he paid does not match the poor service and quality that he received there. “If you pay that amount of money you will stay the night at a better place in some others African cities that I visited,” says Midha.
Midha says that searching for alternatives also proved unfruitful: “[In order to seek] a quality room and service, I went to Hilton Addis and Sheraton Addis hotels to check the rates; but I found out that the minimum price is USD150 and USD195 per night at these hotels respectively,” he told EBR.
Tarsh says there are underlying reasons as to why tourists like Midha experience hotels whose services do not reflect the value of money paid for. “Following the increasing number of tourists and diplomats who attend African Union (AU) and United Nations (UN) conferences, the city is increasing the number of internationally branded hotels it has, which is still small. These hotels are charging higher prices, as they are not facing competition in the market,” explains Tarsh.
Despite Tarsh’s economic reasoning, some people disagree with his findings. Biniam Bisrat, board chairperson of the Addis Ababa Hotel Owners Association (AAHOA), and managing director of Jupiter International Hotel, a four-star hotel with two locations in Addis, takes issue with the way in which the report’s research was conducted.
“On normal days, if you visit major booking websites such as booking.com and expedia.com, room rates in Addis Ababa [are not as expensive as] the ones that are stated in the report; on average, the rate does not go beyond USD150 per night,” says Biniam.
Managing director of Calibra Hospitality and Consultancy Business PLC, Neway Berhanu, also disagrees with the findings of the report. He says the sample of the report is too small, making it difficult to draw such a conclusion. He also argues that it is not fair to compare Addis Ababa with Lagos and Johannesburg – cities that have many internationally branded hotels.
Until recently, Addis Ababa had only three internationally chained hotels, which represents only 3Pct of the total tourist class hotels. Two hotels that recently began operations, Golden Tulip Hotel Addis Ababa and Marriott Executive Apartments, which have 90 and 109 rooms, respectively, have increased the group to five. In addition, seven more internationally chained hotels are under development.
The four-star Friendship International Hotel, a member of the Friendship Business Group, is one of the hotels that hosted side events for the third Financing for Development Conference and a number of conference participants. The hotel made a slight price adjustment for the meeting, according to its general manager, Getabicha Dejene.
Friendship, which is located off Africa Avenue, has five types of rooms that range in price from USD120 and USD300 per night. It has 104 rooms and hired 150 permanent workers with a room occupancy rate of 70Pct. For the Financing for Development Conference participants, the hotel had a minimum rate of USD168 per night.
The hotel tendered the room rating prices by taking two major points into consideration, including market assessment and investment that was put towards the hotel, according to the general manager.
“During high seasons, we [place] a maximum 50Pct price rise on our rooms,” Getabicha told EBR. “But this coincidence should not be a measurement to portray the status of the city in terms of [overall] room rates,” he added.
Tadesse Endaylalu, Tourism Services Competence Accreditation director at the Ministry of Culture & Truism (MoCT), also disagrees with the report. “We are labelled on the report based on our previous history, not by the current status of the country,” he told EBR.
According to data from the AAHOA, the sector adds 18 new star-rated hotels each fiscal year, contributing 1,500 rooms to the industry. In addition, according to data from the Association, 100 hotels are in the pipeline to join the sector. At this rate, Addis Ababa will have 15,000 rooms by 2020, twice the amount of rooms it has now.
In order to increase the number of hotels, the government also provides special incentives for new hoteliers that join the sector, such as duty-free import for construction input materials, and hotel interior and exterior equipment. In addition to this, the Addis Ababa City Administration reserved land and designed a master plan for hotels. As a result, during the past five years, 48 business licenses were issued to local and foreign investors to build and set-up star-rated hotels in the capital.
“We have a good number of quality hotels, but that does not mean it is enough, because we expect many hotels to join the industry and the quality still should be improved. [To that end,] we are working with the hotels by proving supervision and assistance, such as training,” says Tadesse.
Additionally, according to Tadesse, the issue of hotel quality is not a point of discussion in Addis Ababa anymore, due to the introduction of a hotel star-rating system. “The MoCT, with the collaboration of the United Nation World Tourism Organisation (UNWTO), classified and rated hotels based on international standards, which gives a chance for most of the hotels that improve their facilities and services to be included in the rating process,” he said.
There were 12 indicators that were designed by the MoCT to classify 400 hotels from the Amhara, Oromia, Tigray, SNNP regions and Addis Ababa. The indicators included in the criteria template are: exterior view; bedroom; bathroom; public area, bar and dining facilities; kitchen; housekeeping and maintenance; general services; additional facilities like swimming pool, gym, and spa; sustainability (research and development); safety and security; and staff and training facilities, including a recreation area.
Based on these indicators, a team from the UNWTO and MoCT began classifying 136 hotels in Addis that they deemed worthy of rating. However, 123 of them were included in the evaluation scheme, as 13 hotels were excluded from the classification due to several reasons, including that two of them were demolished, three of them were changed to other businesses and eight of them were below the evaluation standards.
As a result of the 45-day assessment, of the 123 hotel that were assessed by the team, 95 of them fall under the classification scheme and 28 didn’t manage to gather the minimum score to be included under the classification system. Even of the 95 hotels, only 38 managed to get the certificates, while 57 of them have yet to receive the confirmation certificate, pending submission of mandatory renovations on sanitation and emergency exits.
Among the 38 hotels that are confirmed as star-rated and received classification, three of them managed to earn a five-star rating, while 11 are four-star, 13 are three-star, 10 earned two stars and one hotel received a one-star rating, according to the announcement that was made by Amin Abdulkadir, the then-minister of Culture and Tourism, in August 2015.
“This is not enough to lift up the quality of hotels in Addis Ababa, so we will conduct the assessment every three years, and make the assessments every year for the hotels who want to upgrade their star ratings,’’ said Tadesse.
Despite all this, hotel managers and owners believe that local hotels offer as good a quality of services as internationally chained hotels. “Currently the indigenous hotels are having a head-to-head competition with the internationally chained hotels,” argues Biniam.
Getabicha supports Biniam’s view, “If you go to the hospitality websites, you will find no claim regarding quality issues and inflated prices of indigenous hotels in Addis Ababa from participants of the Financing for Development Conference,” he argues.
In order to improve the quality of services in Ethiopia’s hotel industry, the AAHOA is working to publish a quarterly industry report, which will include the hotel room rates, occupancy rates, and human capital details that are collected from all hotels. According to the Association, the report will provide a realistic depiction of the industry. The first issue of the report will be released in November 2015, according Biniam.
Nevertheless, Tarsh suggests that in order to have upgraded hotel quality services in Ethiopia, local property owners should acquire a franchise model of business with internationally branded hotels to upgrade their quality of services. EBR