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Hospitality & Travel
Hotels in Nigeria are on the verge of collapse
Hotels in Nigeria are on the verge of collapsing following rising operating costs
Big hotels in Nigeria are facing an existential crisis that could force some of them to collapse on the weight of rising operating expenses, without any revenue to absorb.
Reports from four of the major listed hotels on the Nigerian Stock Exchange, reveals a revenue decline of nearly 90%, due to a fall out of the COVID-19 induced lockdowns. The dire state of their financials has forced some of the hotels to consider massive job cuts, and cost reduction measures in a bid to survive. For most of them, it is either they take drastic actions, or face the consequences associated with piling losses and unpaid debts.
Since the breakout of COVID-19 in March 2020; the FG approved lockdown in Abuja and Lagos State, forced all the major hotels to shut down, a bitter sacrifice by the hospitality sector, as the government sought to contain the spread of the virus.
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The lockdown effect on the results of these companies is reflective in the Q2 results of the main listed companies. According to the data, Ikeja Hotels (Sheraton), Tourist Company of Nigeria (Federal Palace), Capital Hotels (Abuja Sheraton), and Transcorp Hilton Hotel Plc have all lost 90% of their revenue in the three months preceding June 2020.
The hotels earned a combined revenue of N1 billion in the quarter, compared to N10.2 billion in the corresponding period of 2019. They are all wallowing in losses of over N4.7 billion for the quarter alone. Combined, they have about 3,502 employees as of 2019.
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The situation in the hospitality sector is not only restricted to these four hotels. The same can be said for tens of other major hotels in Nigeria. In the latest Q2 GDP report published by the Bureau of Statistics; the Accommodation and food services business, which hotels belong to, recorded a GDP contraction of over 40%. Except for transportation and storage, which posted a 49% contraction, it is by far the worst in the country.
The Managing Director, Transcorp Hotels Plc, Mrs. Dupe Olusola, disclosed this during a Press Conference on Thursday, “The impact of COVID-19 on the business is like nothing the company has ever witnessed. The hotel and hospitality industry in Nigeria has never faced a crisis that brought travel to a standstill, including the Ebola Virus outbreak of 2014 or the recession of 2016. The slow pick up of international travels, restriction on large gatherings, the switch to virtual meetings, and fear of the virus, has drastically reduced demand for our hotels and occupancy levels to its lowest – less than 5%.”
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Hotels across Africa also face a similar fate, but could likely fair better when the dust settles. Unlike in Nigeria, hotels in Kenya, Egypt, and even South Africa can rely on local tourism to drive occupancy rates. But in Nigeria, locals prefer smaller mushrooms hotels that are cheaper, and often well-furnished to meet their needs. Nigerian hotels, on the other hand, rely on commercial room sales, driven by the influx of business and leisure travels into the country.
With several airlines yet to fully operate due to reciprocal bans, it is highly unlikely that things will improve anytime soon.
How to avoid a collapse
To avoid an imminent collapse, the hotels need to do what is required in times like these. Explore new sources of revenues, and drastically reduce overheads. For starters, furloughing headcount will be top on the table, as services of employees who have no one to serve won’t be currently required.
It is a tough decision to make for these hotels, considering that the employees that will be affected, face an even worse outlook due to the economic crunch, which is likely to remain for years to come. Mrs. Olusola of Transcorp provides a first-hand insight.
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“Despite the losses incurred, we have fulfilled our obligations to staff. At the inception of the pandemic, we maintained a 100% salary payment to our over 900 employees in March and April. We also activated various cost-saving initiatives, such as renegotiations of service contracts and restructuring of our loans. We suspended further commitment to buy fixed assets and operating equipment, as well as reduced our energy consumption and maintenance costs. Despite undertaking these, it has become apparent that more fundamental changes need to be made, for the business to survive. To this end, our workforce headcount will be reduced by at least 40%, and our reward system will be optimized.”
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Hotels also need to cut down on other overheads. Food costs would have to be reined in, while also renegotiating inefficient pricing on purchase orders. Hotels will also have to renegotiate bank loans and explore capital raising efforts, to avoid further damage to their balance sheets. Lobbying a cash strapped government may seem futile, but hotel owners should push for intervention loans from the central bank, giving them enough buffer and financial stability to weather the storm.
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With hotels reopening gradually, there is likely going to be stiff competition among the big brands, tempting them to undercut each other through pricing. Rather than cut prices, the prices should be adjusted on the naira side, to cater to the effect of the recent devaluation. This means foreign visitors will not witness a dollar increase in room rates, whilst the hotels will earn more on the naira side to deal with inflation.
Explore the Nairametrics Research Website for Economic and Financial Data
These are the plausible and painful options available to branded hotel operators, if they are to avoid a collapse. Without bailouts and government support, management of these hotels needs to take urgent action, to reduce the impairments of shareholder valuations.
Hospitality & Travel
Air Passengers to United States must test negative for Covid-19 before boarding flight
The United States Government wants all international passengers must provide a negative Covid-19 test before they board a flight into the country.
The United States Government wants all international passengers to provide a negative Covid-19 test before they board a flight into the country. This is according to a report from the Wall Street Journal and confirmed by the Centers for Disease Control Prevention in the US.
The new rule will also affect United States citizens in the country.
According to the U.S. Centers for Disease Control Prevention (CDC) “Before departure to the United States, a required test, combined with the CDC recommendations to get tested again 3-5 days after arrival and stay home for 7 days post-travel, will help slow the spread of COVID-19 within US communities from travel-related infections. Pre-departure testing with results known and acted upon before travel begins will help identify infected travelers before they board airplanes.”
Based on this, all Air Passengers are required to conduct a test within 3 days before their flight to the US. departs.
“Air passengers are required to get a viral test (a test for current infection) within the 3 days before their flight to the U.S. departs, and provide written documentation of their laboratory test result (paper or electronic copy) to the airline or provide documentation of having recovered from COVID-19. Airlines must confirm the negative test result for all passengers or documentation of recovery before they board. If a passenger does not provide documentation of a negative test or recovery or chooses not to take a test, the airline must deny boarding to the passenger.”
The order was signed by the CDC Director on January 12, 2021, and will become effective on January 26, 2021.
Last week the US imposed a testing requirement for travelers from the United Kingdom over cases of a new strain of the virus which has also been reported in the US.
What this means: New travel requirements for the negative Covid-19 test will negatively affect the global aviation sector which attracts over 340 million arrivals annually according to 2019 data seen by Nairametrics.
- For third-world countries like Nigeria, travellers into the US will need to conduct the Covid-19 test before they depart from the United States piling pressure on testing centers across the country.
- Though a requirement that most Nigerians are already familiar with, there will likely be pressure to avoid testing positive a few days before departure to the US.
- Nigerians who travelled to Dubai during the Christmas holiday were also required to undertake covid-19 tests
- Nigeria also requires visitors into the country to take the Covid-19 test before departing for Nigeria.
The global Covid-19 caseloads topped 90 million with the United States leading the pack with 22.7 million cases and over 379,000 deaths
Just last week, the United Kingdom said that all passengers arriving in the country will be required to show negative Covid-19 test results taken within 72 hours of the commencement of their journey to prove they do not have the disease. Ireland also announced new travel rules which require visitors into the country to provide evidence of a negative Covid-19 test taken within 72 hours before arriving in the country.
Going further, the United Kingdom said on Thursday that it would extend a ban to international passengers from Southern African countries coming into the country, as part of the measures aimed at preventing the spread of a new strain of Covid-19 variant identified in South Africa.
Nigeria also requires travellers into the country to carry out a second Covid-19 test after arrival into the country or face consequences. Last week the Nigerian immigration service announced the suspension of 100 passports belonging to Nigerian passengers who refused to undergo second Covid-19 tests within 7 days of arrival into Nigeria from overseas travel.
This article was updated following new information.
Exclusives
Nigerian Aviation: Exchange rate, 7.5% VAT suspension and other factors to determine survival – Experts
Stakeholders share their expectations and factors that must be addressed by the FG to aid the rebound of the sector in 2021.
The aviation sector suffered setbacks due to the emergence of the COVID-19 pandemic in 2020, as the lockdown effected by many countries led to travel restrictions, reduced revenue and mass loss of jobs.
In the case of Nigeria, operators in the sector felt the impact of the pandemic more than their counterparts, as ‘old illness’ suffered by the airlines was exacerbated by the pandemic and left the operators writhing in pains.
READ: COVID-19: Over 70% of jobs lost in aviation, tourism industries in 2020 – AfDB
For the sector to survive in 2021 – in the heat of the second wave of the pandemic, stakeholders shared their expectations and factors that must be addressed by the federal government to aid the rebound of the sector.
They listed stable exchange rate, reduction of cost of operations, waivers on Customs tariffs for aircraft and spares and cost of aircraft insurance, a reversal of 25% remittance of earnings, amongst others.
READ: Nigeria owes foreign airlines $53 million as proceeds from ticket sales – IATA
Unstable exchange rate
In an interview with Nairametrics, the Managing Director, Aero Mainstream Cargo Services, Ajibade Adewale, explained that the unstable exchange rate, especially for aviation stakeholders, has been a clog in the wheel of operations of the airlines, and most of them cannot afford to inflate their charges in line with the unstable rate.
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He said,
“Operations of the airlines are largely dollar-denominated. Operations like aircraft purchase plus maintenance and training of staff amongst others can only be done in dollars. The only thing they do in local currency would be salaries.
“Either airlines are allowed to access stable rates or the federal government creates an enabling environment for aircrafts maintenance or repairs here.
READ: Nigeria @ 60: The Aviation sector and its travails
“The rubber industry should be revived for investors to set up tyre manufacturing factories in Nigeria, in order to stop importing aircrafts tyres from other parts of the world. Most of the aircraft tyres are manufactured and imported from the United Kingdom (Dunlop), France (Michelin), United States of America (Goodyear), and Bridgestone (Japan).”
He insisted that if enabling environment is created by the government, some of these companies will return to Nigeria and this will reduce cost of maintenance for the airlines.
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Lack of skills to execute right policies
On creating an enabling environment, especially for maintenance factory, Capt. David Olubadewo, Managing Director, Starburst Aviation Limited and a Nigerian based in UK, explained that aviation in Nigeria is a very difficult business because the environment is unfriendly.
He said,
“Aside from the role of the government, the industry has always been given a bad name in that light. It is not that we don’t have the people to fix it, but there are different aspects that have been compounded over the years. That is why we are where we are today.
READ: Nigeria generates N424.71 billion VAT in Q3 2020
“We have lots of very qualified people, there are lots of engineers in the United Kingdom and the United States who are Nigerians. We have people that are overqualified, but we lack the skills to execute the right policies to grow the sector.”
Cheaper loans
Olubadewo explained that most of the airlines and other industry stakeholders could not access cheaper loans because banks believe that the sector is too difficult to invest in.
“But that is wrong. It is not different from other sectors. We are all in it to make profit at the end of the day. I don’t obtain loans from Nigerian banks, because I will end up with -25% loss or more, but that is not happening in the UK where I pay far less interest rate.
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“If I take such loan in Nigeria, it means I am -28 per cent (interest rate) in red, and by the time you get to the top, you are owing millions. I cannot approach any of the banks to give me local money to do business in Nigeria. If I can go through that, you can imagine the experiences of the airlines.”
Suspension of 7.5% VAT
Recently, a member of the finance bill drafting committee and West Africa Tax Lead, PwC Nigeria, Taiwo Oyedele, disclosed via a tweet, that the federal government has again suspended the deduction of 7.5% Value Added Tax (VAT) on airfares and other air transport services.
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According to him, the latest suspension order was scheduled to take effect on January 1, 2021, as it is contained in the 2020 finance act recently signed by President Muhammadu Buhari. Operators in the aviation sector are convinced that its implementation would ease the burden on them in 2021.
Effective 1st Jan 2021, commercial flight tickets have been exempted from VAT.
Next time you fly, cross check that you're not wrongly charged VAT (and hopefully air fares should come down). #FinanceAct2020
— Taiwo Oyedele (@taiwoyedele) January 5, 2021
Media and Communications Manager, Dana Air, Kingsley Ezenwa, explained that his airline would be excited to plow back the proceeds of VAT removal to the business and ticket fares subsidy.
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He said,
“But that may not happen soon, the expected gains are subject to the actual implementation of the policy and the review of other multiple charges in the aviation industry.”
READ: COVID-19: The ‘New Normal’ for Nigerian aviation industry
What you should know
- The FG in June 2018 issued an executive order on the suspension of VAT in air transport, but the Federal Inland Revenue Service (FIRS) claimed to be unaware of such a directive, hence it was never implemented.
- Airline operators had complained that Nigeria is the only country that still charges VAT on air transport services. The VAT plus 36 other charges, according to the airlines, account for at least 40% of total revenue and N10 billion in taxes yearly, leaving the airlines heavily indebted and in financial distress or both in most cases.
Hospitality & Travel
Human remains, plane wreckage of Indonesian Sriwijaya Air found at crash site
Wreckage of the missing Indonesian plane, Sriwijaya Air flight 182, a Boeing 737-500 has been found.
Human body parts and parts of the wreckage have been found at the crash site of the Sriwijaya Air flight 182 which was reported missing yesterday, January 9, 2021.
The Sriwijaya Air Boeing 737 was carrying 62 people when it vanished from radar on its journey to Pontianak, crashing 10,000 feet into the ocean.
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Earlier, Indonesia’s National Search and Rescue Agency said it had found several pieces of debris believed to be from the missing plane but bad weather and poor visibility had hampered the search overnight.
Indonesian Navy divers on Sunday found wreckage from flight SJY 182 after locating a signal from the aircraft’s fuselage, CNN reports. The black boxes have also been recovered at the crash site.
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According to the coordinator of the rescue mission, Rasman MS, five body bags containing victims of the crash located by the National Search and Rescue Agency (Basarnas) have so far been handed over to the disaster victim investigation unit in Jakarta for identification.
The National Transportation Safety Committee (KNKT) teams have also begun an investigation into the cause of the crash.
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What you should know
- The Sriwijaya Air passenger plane departed from Jakarta airport at 14:36 local time (07:36 GMT) on Saturday.
- The Sriwijaya Air flight 182 – a Boeing 737-500 – was heading from Jakarta to the city of Pontianak,
- At 14:40, the last contact with the plane was recorded, with the call sign SJY182, according to the transport ministry.
- The plane, registered PK CLC, was a 26-year-old Boeing 737-500, according to Flightradar24.
- Sriwijaya Air is one of Indonesia’s discount carriers, flying to dozens of domestic and international destinations.
READ: Nigerian airlines should patronise Aero MRO facility -AMCON
