Tourism industry on track - Q2 Tourism Business Index

At the moment the sector is performing in the normal range. However, it must be acknowledged that there seems to be some uncertainty on the horizon. Last quarter marked three consecutive quarters of performance topping normal, with Q1 2013 being the most positive, whereas Q2 has now reversed that trend slightly by dropping to 98,2.

"98,2 is close enough to 100 for comfort so it is important to stress that performance remains in the range. That said, we are keeping a watching brief that there isn't a negative trend developing," said Gillian Saunders, principal and head: Advisory Services, Grant Thornton Johannesburg.

2013 Q3 expectation at 97,0 is close to Q2 actual performance of 98,2. Although the industry is less optimistic than before, the fact is that operations are close to normal levels.

Accommodation and Other Tourism Businesses

The overall tourism index includes responses from two sub-indices: Accommodation and Other Tourism Businesses (which includes tour and coach operators, vehicle rental, airlines, travel agents, retail outlets, forex traders, conference venues and attractions).

The index for the Accommodation Sector in Q2 2013 was slightly higher than normal at 101,7 but much lower than Q1 2013 when it came in at 120,9. Other Tourism Businesses recorded a Q2 index of 95,1 which is also lower than the Q1 2013 performance of 103,1. Both the Accommodation and Other Tourism Businesses performed worse than expected in Q2: 101,7 compared to 107,8 for Accommodation and 95,4 compared to 98,4 for Other Tourism Businesses.

It is the forward projection to looking at performance for the next year that the difference between the two sub-sectors is most stark. On balance, accommodation respondents have a negative outlook of -12,7%, a significant decrease from the positive 13,1% expected in the last edition. However, this level is still well above the lowest levels experienced throughout 2011. Other Tourism Businesses are - on balance - positive about the outlook for the next year at +15,2% , which is, however, a decline from the previous annual outlook of +29,7% in the last edition.

In the Accommodation Sector there is a negative balance of - 15,6% regarding capacity expansion for Q3 2013. This is the lowest level since the first official TBI in 2011 and indicates a move back to decreasing capacity in the industry.

"There is no real explanation of why this balance is low but it doesn't necessarily indicate a worrying trend," said Saunders. "I suspect the industry is simply levelling out to a comfortable capacity. Any more building of accommodation could result in over-capacity and it's good that the industry is avoiding that."

Other Tourism Businesses contrast with Accommodation in capacity too, showing a strong positive balance of +22,4%. When it comes to employment creation in the sector for the next quarter, the Accommodation Sector is slightly negative on balance in Q2 at -0,2%, a slight decrease from the +0,9% balance statistic expected by them. Other Tourism Businesses have gone from a stronger positive outlook in Q1 of +12,5% to a neutral outlook of 0,0% for Q3 2013, with the majority still indicating that their employment levels will remain unchanged. The outlook for any increases in employment in the sector is therefore bleak for the third quarter.

Improving demand expected

Negative factors that impacted on tourism businesses in Q2 include cost of inputs such as utilities, municipal rates and fuel. Insufficiency in demand was also cited as a negative factor in this quarter, both domestically and internationally and in both the leisure and business markets. It seems that uncertainty has reduced the overall positive outlook and this is not expected to change much in the next quarter.

"With consumers' disposable income under pressure these figures are actually positive," says economist Mike Schussler, founder and owner of Economists.co.za. "Locals are still spending money on tourism and furthermore, the weaker rand should encourage increased foreign visits. The next few surveys should give further positive direction for the tourism industry."

The weak exchange rate is cited as a significant positive contributing factor by both sub-indices. As the currency weakens, so South Africa becomes a cheaper destination for international business and leisure tourists, with the knock-on effect of higher spend by these tourists and/or trading up of accommodation and other services.

The TBI recorded a performance index of 98,2 against 100 for the second quarter of 2013, while the Quarterly RMB/BER Business Confidence Index recorded 48 against a normal of 50 in Q2 2013. This indicates that the tourism industry is largely in line with the business confidence levels generally in the South African marketplace at the moment.

"The weakening confidence in the industry is in line with the prevailing moderating of consumer demand in SA and key foreign source markets. The cost of inputs and weak overseas business travel has affected the tourism industry.

"However, the silver lining is that there's an improving demand in both domestic leisure and corporate travel. Moving forward there are still hurdles that the industry must overcome against the improving but fragile domestic and global environment," concludes Wiza Nyondo, FNB head of Tourism Banking.

The index can be downloaded here.

For more information, email levart.ascbt@smmoc.