Although hoteliers in Brazil are capturing the lion’s share of the tourism sector in 2014, they need to brace themselves and prepare for a challenging 2015, warns PwC. “Demand levels for hotels rooms are likely to fall to a more regular basis after the hosting of the 2014 FIFA World Cup Soccer”, says Nikki Forster, PwC South African Hospitality & Gaming Sector Leader.
The focus is currently on South America for a flurry of activity as Brazil takes center stage for the 2014 FIFA World Cup Soccer, with the stakes high for the hospitality sector.
However, tourists must be prepared to fork out hefty hotel bills and other costs for accommodation. ‘The demand leading up to a mega-event, such as the World Soccer Cup, always leads to a significant increase in hotel costs. But since costs were already high to begin with, tourists should prepare to dig deep into their pockets and not expect superior quality,” says Forster.
According to an analysis conducted by TripAdvisor, which looked at data from early May 2014, lodging in Brazil during the World Cup is up on average 120% over the same time last year. Despite an undertaking by hoteliers in Rio de Janeiro during January 2014 to place a limit on hotel costs during the World Cup, prices have increased by an average of 7 per cent since January, according to recent media reports. A study issued by Brazilian Tourism Board, Embratur in 2013 says that soccer fans hoping to watch the final on 13 July in Rio de Janeiro’s Maracana stadium will face prices more than double the average $200 per night demanded in Johannesburg in 2010.
Unlike South Africa’s hospitality industry which catered sufficiently for tourist numbers in 2010, finding affordable and suitable accommodation poses a serious challenge for visitors to each of the 12 Brazilian host cities, especially in Rio de Janeiro – cited as tourists’ favourite destination. “The Latin American hotel industry can look to South Africa for lessons learnt from hosting the 2010 Soccer World Cup,” adds Forster.
According to ‘PwC’s South African Hospitality Outlook, 2013-2017’ survey, South Africa’s hotel and accommodation market, in terms of capacity and room revenue, expanded rapidly between 2006 and 2008, slowed in 2009 reflecting the global recession, and then picked up in 2010, boosted by visitors to the FIFA World Cup. Hotels and other providers of accommodation in South Africa were able to charge higher rates during the 2010 FIFA World Cup period, in what was an otherwise off-season period.
The number of visitors from overseas rose 15.1% to 8.07 million, according to the study. Likewise, there was a 14.3% increase in domestic visitors to 5.13 million. The overall number of visitors rose 14.8% to 13.2 million in 2010. “However, the industry did not expect the drop-off after the World Cup to be so severe,” she says. Occupancies in the industry reached a low of 53% in 2011, compared with 73% in 2007.
“The hosting and preparation of the 2010 FIFA World Cup led to an oversupply in hotel and guest-house accommodation, which is usually the case for a country hosting a mega-event, such as the FIFA World Cup or the Olympic Games. “But the difficulty for South Africa was that the country was also hit by the hovering effect of the global recession. Brazil will also have to contend with the current global economic uncertainty.”
Brazil has undergone mediocre economic growth for the third consecutive year in a row (2% annual average between 2011 and 2013). Some commentators have suggested that the hosting of the FIFA World Cup event may boost the country’s economy. PwC global economists say that the direct economic effect of the World Cup is likely to be “small”, but Brazil could win elsewhere: A short-term “feel good” factor similar to that seen from the hosting of the Olympic Games in London in 2012 and other recent “mega events” could reverse the decline in domestic confidence which has lasted for over two years. Furthermore, the show-casing that key host cities usually enjoy could also pave the way for Foreign Direct Investment into Brazil.
The hotel industry in Brazil has also not escaped the recent economic turmoil. For the second year running, the sector experienced another decline in occupancies (falling 3% to 65%) with average daily rates falling 0.5% versus 7.7% growth in 2012, according to consultancy HVS Global Consulting Services.
The consultancy predicts that the FIFA World Cup 2014 will have a limited effect on the hotel sector in the main Brazilian hotel markets, and that demands for hotel occupancy will be similar to that of 2013. “Just as in South Africa with the 2010 FIFA World Cup, it is expected that there will be spikes on some days and in some cities, in particular when premier matches are played. “Hotels should avoid competing with each other in terms of prices and raising their occupancy rates. Instead they should concentrate on containing costs issues,” adds Forster.
In the long-term Brazil’s hotel industry – just like South Africa – can look forward to a boost in the sector. “For the medium to long-term, it is expected that the hotel industry will evolve resulting in more and better hotels across all cities.”
PwC will be releasing its fourth edition of the ‘South African Hospitality Outlook’ survey, including an analysis of the hotel industry in Mauritius, Kenya and Nigeria, next week, which includes a forecast for the 2014-2018 period. “The outlook looks promising as is reflected by the number of overseas tourists and business travel in and out of South Africa, and across the African continent,” concludes Forster.