Hotels hike rates amid high operation cost

…measure last resort to stay afloat

As hotels struggle to remain solvent in the face of tough economic headwinds, the high operation costs are now being pushed to the guests, who are equally impacted.

From an average room rate of between N100, 000-N150, 000, this time last year, guests are now paying almost N300,000 for the same room category and some suites go from half a million per night now.

The hike, according to observers, is worse among international brands, which maintain the same standards and pricing across all markets they operate, hence guests are expected to pay for value delivered not minding the economic realities of their respective countries.

Sadly, the situation is further impacting the Nigerian hotel market, which most guests, especially foreigners, regard as being overpriced.

According to industry experts, room rates have gone up by 40 percent, and food and drinks by 50 percent when compared to their rates this time last year.

The hike in rates has also declined average room occupancy rate, which stood at 40 percent in February last year and 55 percent this year’s February, but still less than 75 percent average before the economic situation worsened about two years ago.

Explaining the rationale for the hike, Yusuf Sesay, sales and marketing director, Radisson Blu Anchorage Hotel, Victoria Island, Lagos, blamed the situation partly on the foreign exchange challenge being experienced in the country.

He decried that 50 percent of input of most hotels in Nigeria, especially the internationally branded ones, are imported, hence compelling hotels to source for scarce forex from their declining profit.

In line with the dynamics of business, hotels are forced to increase rates to cover the cost of sourcing forex, the cost of importation and will also need to breakeven in order to stay afloat, Sesay noted.

In his view, hospitality expert, noted that guests are paying more in hotels now because of the impact of the exchange rate and general inflation.

“Most of our inputs are denominated in foreign currency. Food and power inflation is massive, and there is a lack of power, which results in high run time for generators at the horrendous diesel and spare parts,” he said.

For him, there are many knocks everywhere for hotel business in Nigeria as diesel prices top among the escalating costs.

“Hotel operation cost is hugely affected by not only the increased cost of diesel but also the extra running hours. I think the minimum any of the branded hotels will spend a day depending on the size of their operation is 5,000 litres of diesel at N1,610 per litre. That is N8 million per day if they run diesel generators full day, which happens a lot.

“Maintaining the generators at the current cost of spare parts is another matter, the hospitality expert said.

The reason for the 24-hour power supply, according to him, is that hotels are not like other businesses that can shut down at the end of the day. “They run 24 hours, incurring costs while everyone else rests or goes home from work. Apart from the high unit cost, each guest needs to be served and provided for,” he further said.

A source from Eko Hotels and Suites Lagos, which parades some of the most expensive room rates, noted that the hotel is responding to the economic realities of the country as costs of inputs both locally sourced and imported have tripled in the last eight months.

“We spend almost N10 million daily to run our generators because the guests paid to be served 24 hours, cost of maintenance is excluded, the chillers must work 24 hours as well as other facilities, we import most of our items and source a few from the best around, there are many taxes to pay, salaries are not left out, shareholders are always knocking on our doors. So, the rate reviews are in order, except if you want us to close the shop. Again, we are the best around and our rates should reflect that,” the source noted.

Also x-raying the situation, Fatima Salami, a senior manager with Primal Hotel, an indigenous hotel group, said that the hotel business does not exist in a vacuum and is not exempted from the ongoing inflation in the country.

“The impact of the exchange rate is a nightmare, especially for hotel brands who offer internationally competitive experiences to guests. Diesel is over 40 percent of gross operating profit (GOP) and hotels are running operation costs of between 70 to 80 percent,” she lamented.

Apart from high energy cost, forex challenge and inflation, Emmanuel Ele, managing director, Six Regions Hotels, a hotel management company, noted that taxes and regulatory fees have been increased by the authorities, despite the fact that hoteliers have been decrying multiple taxation.

Struggling under the huge burden of increasing cost of operation, Ele noted that hotels in Nigeria have no option but to also pass the increment on to guests.

Jonas Momah, an Abuja-based hotelier, noted that expatriate fees and security are also part of the cost, as insecurity worsens and international brands keep renegotiating their agreement, and reviewing management and franchise fees as well.

“I disengaged a South African hotel management company last October because their fees are going high every year, while my profit is declining. I cannot keep paying them in Dollars, while my hotel earns in Naira. At least, I have saved something, but the cost of operation is still unbearable now,” Momah decried.

While the economic situation is biting harder, some hotels seem exempted, considering their impressive outing in recent times. It would be recalled that Transcorp Hotels Plc reported a revenue growth of 55 percent year-on-year in its financial results for the nine months ended September 30, 2022, and announced a 31.8 percent revenue growth in the third quarter of 2023 result.

Dupe Olusola, managing director/CEO of Transcorp Hotels, Abuja, attributed the feats to excellent services, and delivery of value to guests and all stakeholders through innovation.

The same is the case with Radisson Blu and Marriot Hotel, both in Ikeja, Lagos, where the hotel executives celebrate impressive results across the year.

But while some celebrate impressive business, observers in the industry argue such feats, regarding them as exceptional cases as domestic demand has dropped due to low purchasing power and the number of international visitors declined due to the harsh economy and insecurity.

Offering solutions, Salami urged the government to curb the ongoing inflation in the country and the forex challenge because market determinants, according to her, are dangerously unstable to maintain a forecast.

Momah asked for incentives such as tax holidays and the provision of the needed infrastructure to aid hospitality and other businesses across the country.

“If electricity power is available for 24 hours, hotel rates will come down. While that may not be possible now, let the government reduce taxes hotels are paying, they are many and often duplicated and paid severally to different government agents. Government should help us to help the guests,” he concluded.