Western Cape Business News

Send  Share  RSS  Twitter  25 Apr 2010

HOSPITALITY: Sol's Revenge At The Table


Recent Western Cape Business News

HAS controversial hotel magnate Sol Kerzner extracted a bit of revenge on Sun International, the company he founded in the seventies, with the recent launch of the One and Only luxury hotel on the Cape Town Waterfront?

Glancing at the latest results from Sun International – covering the six month period ending December 2009 – you might be forgiven for thinking that the opening of the One and Only had a profound effect on Sun International’s plush Table Bay Hotel, which is also situated on the Waterfront.

The One and Only was launched in 2009 with much fanfare, not only bringing a slew of additional luxury accommodation to the market but also the element of novelty that appeals to the well-to-do traveller. Figures released by Sun International showed the Table Bay flagging badly at top line level – and taking awful strain on both its gross and net trading margins.

Revenue generated by the Table Bay dropped around 20% to R81 million for the interim period with Sun International CEO David Coutts-Trotter highlighting an occupancy decline due to weaker demand from the international markets as well as the ‘groups’ and ‘conventions’ sector. He says the Table Bay Hotel achieved occupancy of 54% - which is well below the previous year’s level of 69%.

Coutts-Trotter says the average room rate achieved was in line with the previous year despite both declining demand and new supply in the five star market in Cape Town.

Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) plunged 55% to R15 million. Things were even worse at operating level, where profits dropped by three-quarters to just R4 million.

To put the Table Bay performance in context, Sun International’s newest casino, the Golden Valley in Worcester generated more operating profits (R5 million) during the interim period.

While Coutts-Trotter’s reference to “new supply in the five star market in Cape Town” obviously alludes to the One and Only, tourism sources also point out that the Taj Hotel was also opened in central Cape Town recently.

With additional five star accommodation on the market one wonders why Sun International opted to maintain its average room rates rather than offering ‘specials’ to ensure market share was retained.

Perhaps a top-end ‘rates war’ with Kerzner is the last thing Sun International wants at this delicate juncture – just ahead of the Soccer World Cup.

In the longer term Sun International may well score from their decision to maintain firm rates. The company, which admittedly does know a thing or two about local leisure sector, might be prudent to avert a margin crimping ‘rates war’ and rather bank on a hotel occupancy upturn in the short to medium term. If the upturn is sustainable after the World Cup, then profits could easily be restored to more satisfactory levels at the Table Bay.

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