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.
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.
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%.”
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.
“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.”
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.
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.
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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.
Arik, Dana Airlines to resume flight operations after curfew
Dana Air and Arik airlines to resume flight operations from Lagos airport tomorrow.
Dana Air and Arik airlines are set to resume flight operations from Lagos airport on Saturday, as the Lagos State government relaxed the 72-hour curfew imposed on the state.
The curfew was imposed by the State Governor, Mr Babajide Sanwo-Olu, on Tuesday to forestall further breakdown of law and order, following series of EndSARS protests.
Communications Manager, Arik Air, Adebanji Ola, in a statement issued on Friday, explained that flights across the country would operate as scheduled, and passengers were advised to arrive at the airport early to have ample time to complete boarding formalities.
He said, “Customers who could not use their tickets during the period of the curfew can modify such tickets at no extra cost.
“The management of Arik Air thanks customers for their understanding while the cancellation of flights lasted.”
Also, spokesperson for Dana Air, Mr Kingsley Ezenwa announced that the airline was pleased to inform its passengers that the company would resume full flight operations from Saturday, the 24th of October 2020.
He said, “The tickets purchased for flights within the period of the curfew remains valid and can be rescheduled for free by sending an email to us.”
Back story: Nairametrics reported earlier on Friday that the Lagos State Government had eased the 72-hour curfew which was earlier imposed on Tuesday, October 2020, to run from 6 pm to 8 am.
This was disclosed by Governor Babajide Sanwo-Olu, on Friday, October 23, during a press briefing at State House Marina, after a tour of the state to inspect the level of destruction of public and private infrastructure during the #EndSARS protests that later turned violent.
This means residents can go out between 8 am and 6 pm, with effect from Saturday, October 24, 2020).
Nigeria set to lose on latest Bilateral Air Service Agreements
Experts have explained why Nigeria is at the losing end of yet another Bilateral Air Space Agreement.
It is no longer news that Nigeria signed Bilateral Air Service Agreements (BASA) with the United States, India, Morocco and Rwanda. However, who benefits more from the agreements has been a topical discussion amongst Nigerian stakeholders. Some of them, who spoke with Nairametrics in separate interviews, argued that the development would favour the partner countries more than Nigeria.
They argued that Nigeria has signed this deal with over 80 countries across the world, but has turned out to be disadvantageous to Nigeria. Most of the agreements are only beneficial to the countries and their foreign carriers, without any reciprocal benefits to Nigeria. This is allegedly due to the failure of the Nigerian representatives to put Nigeria’s interest first at the BASA negotiating table.
In most cases, Nigeria does not really benefit from the deal, especially with no National carrier or a domestic airline that has the required equipment to compete with their foreign counterparts.
Managing Director, Starburst Aviation Limited, Capt. David Olubadewo, who was once Nigeria’s youngest pilot, admitted that he has not seen the agreements. However, he told Nairametrics that the nation does not have the capacity/equipment to compete favourably with the countries it signed the deal with.
Capt. Olubadewo said, “In most cases, BASA entails specific agreement between two partners, where parties involved will agree on exchange of flights. It could be 10 flights weekly from Country A and same from the other Country.
“So, if US for instance, has done 10 flights to Nigeria as agreed and Nigeria has not, it will not affect US in anyway.”
In his own case, Muyiwa Lucas, another stakeholder in the industry, claimed that the aim of the international carriers and their countries is to make sure that indigenous carriers do not rise to compete with them on those lucrative routes like Lagos-London, Abuja-London, Lagos-Dubai, Lagos-Paris, Lagos-Amsterdam, and Lagos-Johannesburg.
In an interview with Nairametrics, he said that the partners are always quick to choose a favourable destination in Nigeria (Lagos and Abuja), while they dictate to Nigeria the airport to land its aircrafts in their countries.
Lucas said, “Nigerian flights are only allowed to drop passengers at Gatwick, which handled 46.1 million passengers in 2018. They don’t allow such in Heathrow airport, which is London’s main hub and also one of the world’s busiest airports with 80.1 million passengers in 2018.
“Arik Air was stopped from operating from Abuja to London, unless it paid for slot allocation, which cost a huge amount of money.
“But, while British Airways was and is still flying to Abuja, enjoying grandfather rights; Arik Air was paying for slots and when the Nigerian airline deemed that operation unprofitable, it stopped, leaving only British Airways to be operating to Abuja from London with minimum load factor of 85%.”
Lucas argued that while some of the countries introduced clauses to jeopardise Nigerian airlines operation to their countries, Nigeria rarely retaliated in the spirit of diplomatic principle of reciprocity.
However, Pranjal Pande, an Indian Aviation Expert, sees the development from a different angle.
According to him, Nigeria is home to a substantial Indian expatriate population, and India sees thousands of yearly visitors from Nigeria but noted that the lack of direct flights has meant passengers fly mostly with Middle East carriers.
Pande said, “Popular routes from Delhi and Mumbai to Lagos are over 4,100 nautical miles, putting them out of the range of the current generation of narrowbody aircraft. This means that, from India, only Vistara and Air India, the only airlines with widebodies, could start flights to Nigeria. Neither airline has signalled intentions of doing so soon.
“It’s most likely that Air Peace will be the first to start flights to India. However, the timing remains up in the air due to the current crisis.”
Backstory: On October 6, 2020, Nairametrics reported that the Federal Government announced the signing of Bilateral Air Service Agreements (BASA) with the United States, India, Morocco and Rwanda.
A copy of the agreement showed that it was signed in Abuja by President Muhammadu Buhari on September 30, 2020.
I am glad to announce that Mr President, on behalf of Nigeria, has signed the instruments of ratification of the bilateral air service agreement between Nigeria and USA, India, Morocco as well as Rwanda. 🇳🇬🇳🇬 🇲🇦🇷🇼🇺🇸🇮🇳🇳🇬🇳🇬🤝🤝🤝 pic.twitter.com/UHFx0VbqLW
— Hadi Sirika (@hadisirika) October 6, 2020
The disclosure was made by the Minister for Aviation, Hadi Sirika, through a tweet on his official Twitter handle on Tuesday, October 6, 2020.
What they are saying
The Minister said, “The agreement is the instruments of ratification of the bilateral air service agreement between Nigeria and USA, India, Morocco, as well as Rwanda.”
He added that Nigeria will take advantage of the agreement to strengthen economic, social and cultural ties with the US.
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Transport fare for motorcycle “Okada” more than doubled in 2020
Data from the NBS reveals the average fare paid by commuters for a journey by motorcycle more than doubled year on year.
Data from the National Bureau of Statistics (NBS) reveals the average fare paid by commuters for a journey by motorcycle per drop more than doubled year on year (September 2020 vs 2019 respectively).
This was contained in the recently released data on Transport fare for September 2020 in Nigeria. This covers bus journey within the city per drop, bus journey intercity, state route, charge per person, airfare charge for specified routes single journey, journey by motorcycle (Okada) per drop, and waterway passenger transport.
- According to the report, the average fare paid by commuters for the journey by motorcycle per drop increased by 10.47% MOM and by 111.11% YOY to N255.51 in September 2020 from N231.29 in August 2020.
- The states with the highest journey fare by motorcycle per drop were Niger (N1,467.49), Kogi (N362.47), and Rivers (N345.80); while states with the lowest journey fare by motorcycle per drop were Adamawa (N76.55), Katsina (N100.84), and Kebbi (N125.60).
- Similarly, the average fare paid by commuters for bus journeys within the city increased by 7.92% MOM and by 63.88% YOY to N309.73 in September 2020 from N286.99 in August 2020.
The states with the highest bus journey fare within the city were Zamfara (N579.84), Bauchi (N492.14), and Cross River (N416.32); while states with the lowest bus journey fare within the city were Abia (N188.50), Kebbi (N192.48), and Borno (N200.80).
- The average fare paid by commuters for bus journey intercity increased by 0.36% MOM and by 24.30% YOY to N2,022.70 in September 2020 from N2,015.50 in August 2020.
- The states with the highest bus journey fare intercity were Abuja FCT (N4,315.22), Lagos (N3,073.25), and Sokoto (N3,000.00); while states with the lowest bus journey fare within the city were Kwara (N223.45), Benue (N274.64), and Ondo (N291.07).
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Average fare paid by air passengers for specified routes single journey decreased by -4.59% MOM and increased by 20.60% YOY to N36,884.59 in September 2020 from N38,659.86 in August 2020.
- The states with the highest airfare were Lagos (N39,750.00), Rivers (N39,520.00), and Anambra (N38,950.00); while states with the lowest airfare were Akwa Ibom (N32,500.00), Sokoto (N33,700.00), and Benue (N35,000.00).
- The average fare paid by passengers for waterway passenger transport increased by 7.06% MOM and by 34.13% YOY to N734.26 in September 2020 from N685.82 in August 2020.
- The states with the highest fare by waterway passenger transport were Bayelsa (N2,250.23), Rivers (N2,200.64), and Delta (N2,150.30); while states with the lowest fare by waterway passenger transport were Borno (N200.48), Gombe (N264.29), and Abuja FCT (N294.10).
What this means: According to the NBS, transportation makes up 6.4% of consumption expenditure of millions of naira next only to food at over 50%. Transport is also a key input cost for determining food prices and conducting business in the country contributing to the inflation rate. A combination of bad roads. poor infrastructure, exchange rate devaluation, removal of fuel subsidies, and a general rise in prices of goods and services have impacted transportation costs across the country.