Hoteliers under pressure to hike rates as operating cost rises

With occupancy rate hovering between 30-40 percent due to the economic downturn, major hotel brands in Nigeria are finding it difficult to meet their revenue targets, especially for the first and second quarters of the year.

The situation results in over 30 percent revenue loss and is pushing hotels to hike their rates (already adjudged overpriced by guests) in order to meet rising operational costs.

“We used to deliver around N25 million weekly, at present we barely make N2 million revenue daily after subtracting necessary costs”, Mudi Oguma, sales manager of an international brand, said.

If the situation persists, Oguma said, the hotel will be forced to further increase its $300 per room rates, which guests are already complaining is too high.

With effect from April 1, 2016, another top international brand stopped all complementary rates and partnership in event sponsorships, among others, in a bid to cut cost.

“We were doing between 70-90 percent occupancy until late 2014. Then, we even exceeded our N15 million weekly revenue target. From the Ebola Virus saga, the 2015 general election to the current economic downturn, we have not recovered. It is getting worse now and that is why our parent company advised us to cut down on frivolity”, the hotel’s rooms division manager said.

Uche Ogbu, marketing manager, Federal Palace Hotel, Victoria Island Lagos, noted that the growing cost of operations and dwindling revenue now force hotels to contend with the challenge of promoting rates that offer a win-win for the hotel and guests, to ensure guests do not bear all of the brunt of the hike. Already, the average room rate hovers between $250-$350 per night, and if the downturn persists, hotels may sell an average room at $500 in order to stay in business, insiders say.

In view of that, some hotels which once pegged their forex at $200 per room, are responding to the exchange fluctuation by selling rooms according to the day’s rate.

However, while guests are hoping hotels will crash rates in view of the dwindling occupancy, hoteliers are worried that such move would see many closing shop as cost of operation keeps growing.

“We have 150 rooms and you are mandated by professional ethics to maintain the rooms, whether you have guests or not. So, now that we barely fill our rooms with 70-80 guests, we still maintain the vacant rooms at our own cost”, Oguma said.

Stanley Ogada, a real estate expert, who sees hotels as part of real estate, observed that hoteliers can redevelop some floors for residence in order to augment their revenue.

The new direction may be for hospitality investors to shift to middle-range hotels instead of over 100 rooms and hiring big brands to manage them.  “Do the simple mathematics; the fewer the rooms, the cheaper the maintenance and cost of operation. I think running fewer rooms, cutting down on luxury offerings and high management cost, is the way to go in this downturn”, Ogada said.

Paul Lackey, the expatriate general manager of an Abuja-based three-star hotel, however called on government and economy planners to pump more money into the system to empower much more  people with disposable income and boost local patronage, as most of the empty rooms in hotels are those hitherto occupied by foreign guests.

The general manager noted that the action would further spur local event organisers, corporate and individuals to return to hotels enmass once again and boost both occupancy and revenue.

OBINNA EMELIKE