New results: Africa Tourism Business Index

Notwithstanding the rising inflation and slow economic growth, overall business performance levels in South Africa’s travel and tourism sector have remained steady in the first quarter of 2016.

This is highlighted in the latest results of the TBCSA Tourism Business Index (“TBI”), published today by the Tourism Business Council of South Africa (“TBCSA”).

The report shows that businesses in the sector experienced almost normal business performance levels in Q1, recording an index score of 97.8, slightly below the score of 100, which would indicate normal performance levels. It is important to note that this result is very close to the anticipated index score of 94.6, which was forecasted in the last quarter. Although there was a small decline in performance compared to Q4 2015, businesses in the sector performed closer to normal levels in this quarter, buoyed by strong performance in the accommodation sector.
Delving deeper into the two main components that make up the TBI, the report shows that Q1 performance levels came in higher than expected in the accommodation segment at 119.3, compared to the anticipated index score of 100.8. This is one of the strongest performances for this segment, only surpassed previously in Q1 2013. In contrast, the other tourism businesses segment, recorded lower than normal business performance levels, at 81.2, an index score that is below the forecasted score of 89.9.

Commenting on the outcomes of the report, TBCSA CEO, Mmatšatši Ramawela, says it is clear from the results that businesses, particularly in other tourism sectors are facing pressures in the operating environment. However, she emphasised that overall the travel and tourism still faired far better than other economic sectors in the first quarter of the year. “This is the second lowest Q1 TBI score recorded since 2011, but when we compare our results with other recognised economic indices in the country, it is quite apparent that travel and tourism remains far more resilient which is very comforting and encouraging”.

The first quarter results of the RMB/BER Business Confidence Index remained unchanged from the previous quarter at a score of 36, which is well below normal levels (where a score of 50 indicates normal levels of confidence) and the SACCI Business Confidence Index (“BCI”) shows a drop in the quarterly average (from 83,6 to 80.4) in Q1 2016, more or less in line with the small decline seen in the TBI.

Sharing specific views on the performance of the car rental sector, President of the Southern African Vehicle Rental and Leasing Association (“SAVRALA”), Marc Corcoran said that despite the emergence of above-inflation vehicle prices, his members remained optimistic. “With general inflation hovering around 8%, our members are optimistic that the necessary price increases will be absorbed by customers who are aware of the inflationary impacts on car rental costs”.

Looking at the key contributing factors on performance levels, the cost of inputs was highlighted by both the accommodation segment (56%) and other tourism businesses (63%) as the greatest negative contributing factor to business performance in this quarter.

“The rising cost of electricity is one of the factors pushing up the overall cost of inputs” says Gillian Saunders, Head of Advisory Services at Grant Thornton. “Businesses in the sector are mindful of this and many have indicated that extensive plans are being implemented to become more energy efficient. With the latest 9.4% electricity tariff coming into effect from the beginning of April, the timing couldn’t have been better”, she said.

The accommodation segment, also cited the cost of labour (40%) and insufficient domestic leisure demand (32%) as other key factors contributing negatively to performance; meanwhile other tourism businesses segment cited the impact of competitor market behaviour (58%) and the cost of finance (44%) as contributing factors.

From an inbound tourism perspective, strong overseas leisure demand and the weak exchange rate remain the most prominent positive contributing factors. “We welcome the positive results seen in the accommodation sector, as also highlighted in Stats SA’s Tourist Accommodation report for January”, says Tshifhiwa Tshivhengwa, CEO of the Federated Hospitality Association of South Africa (FEDHASA). “We believe there is still scope for travel and tourism to grow and for occupancies to increase going forward. However, given the rise in food inflation and adjustments in corporate and Government travel spend amongst other issues, we remain cautious going into the next quarter”.

Ramawela said business is understandably not so bullish in its overall outlook for Q2. “At a domestic level the combination of various factors such the emergence of above-inflation food and vehicle price increases, the impact of the drought, uncertainty ahead of the local government elections, upcoming rating agency results and the tumultuous political and socio-economic environment, are all likely to continue weighing heavily on the economy and business sentiment. Business performance will be affected somehow but, we are a resilient sector. We will continue to do all we can to boost tourism arrivals to drive growth in our sector and the overall economy”.