Hotel industry struggles through low occupancy rates

In 2007, ‘Francis Mwebaze’ borrowed money from a bank to build a hotel ahead of the Common Wealth Heads of Government Meeting (CHOGM). As he anticipated accommodating hundreds of guests from the conference, one thing was on his mind. This was to strategically construct the hotel on Ggaba road.
However, he reveals that none of the guests from CHOGM slept in the hotel, a problem that left him counting losses. He was left in debt and as the bank threatened to take it over, he only had two options to either sell or mortgage the hotel.

His predicament rhymes with ‘Martin Onek’s’ who set up his hotel for CHOGM next to Munyonyo Common Wealth Resort. Mr Onek admits that “not even one guest checked into the hotel for lunch.”

When Uganda won the bid to host CHOGM, there was haste to set up accommodation facilities for the big event.
To host the event successfully then, the country at least required 4,000 hotel rooms, built and renovated to international standards to accommodate the 57 heads of states, delegates and journalists.

It has been nine years since Uganda hosted CHOGM. But for those who managed to stay afloat, business is not any better because they are grappling with low room occupancy rates.

In an interview with Prosper Magazine, Ms Jean Byamugisha, executive director Uganda Hotel Owners Association (UHOA), said construction of hotels during CHOGM was rushed because of the need to accommodate all the delegates.
However, she says little research was done on viability of the hotels.
“The research would have helped to assess the long-term viability of the projects. As a result, some of the hotels have had to close down such as the J&M Airport Road Hotel,” Ms Jea Byamugisha said.

Occupancy
Mr Amos Wekesa, managing director Great Lakes Safaris and chairman Tourism Committee of the Presidential Investors’ Round Table (PIRT), lauds the increase in rooms but notes a gap in rural Uganda.
He says: “The number of rooms has increased in urban areas alone and if they demanded up country accommodation, it would be a problem.”

Despite the increase in accommodation facilities from 4,000 to 250,000 rooms and 300,000 beds across the board, all is not well in the hospitality industry.
Ms Byamugisha shares that most of the hotels which survived after CHOGM, had to stand the low prices and this has had an impact on the sector.
There is a hiccup in the occupancy rate, a threat that is likely to see more hotels close shop if nothing is done to increase the number of visitors in both local and international markets.
Ms Byamugisha says: “We registered a fall in occupancy rates this year as at June 2016. This was due to a host of reasons and majorly from the presidential elections where people were afraid of violence.”
For any hotel to break even, it must be operating at 40 per cent occupancy. According to the statistics, only hotels in Kampala are breaking even while the rest are operating in losses.
“Whether a hotel is full or not, the lights must remain on, water must keep running, staff has to be maintained and all this comes at a cost. If say hotels are operating at 12 per cent occupancy, there is no way you can remain in business,” Ms Byamugisha noted.
Indeed, Mr Tom Katsyamira, Proprietor of Embassy Hotel Mbarara, while sharing his ordeal on the low occupancy rate, said: “Ideally for us to break even the occupancy rate has to be between 40 and 45 per cent. But right now we are operating at 12 to 25 per cent.”

Challenges
He attributes this low occupancy to Ugandans who don’t have a culture of staying in hotels saying one would rather stay at a relative’s place than put up in a hotel when they travel up country.
The other challenge Katsyamira blames for the low occupancy rate is that people perceive hotels as places where people who want to commit infidelity or drink alcohol go.
“People don’t want to be seen spending money to stay in a hotel. We are only left at the mercy of foreign tourists or organisations with retreats to support us, and these are not so many,” he lamented.
On taxes, he says hotels have been paying over nine taxes but believes the presidential directive to scrap all the taxes will promote tourism.
General manager, Jinja Nile Resort, Mr James Mbatia, in an interview with Prosper Magazine, also laments the ordeal they go through to maintain the hotel which is about 80 kilometres from Kampala amidst low occupancy rate.
“Because Jinja is far away from Entebbe Airport, visitors or would-be clients don’t want to trek long distances. So they opt to hold their meetings in Kampala or Entebbe. This leaves us low business,” Mr Mbatia said.
Mr Mbatia also shares that the other challenge they encounter is maintaining the hotels when all the bills have to be paid without fail.
“We have overhead costs like the costly electricity bills. Every month, we part with Shs27 million yet for a hotel similar to Nile Resort in Kenya, you would only pay Shs15 million for power,” Mr Mbatia shared.

Reasons
In addition, low occupancy rate is attributed to the expensive hotel rates thus scaring away the customers to low cost apartments and lodges.
Ms Byamugisha shares: “Hotel rates are set at the discretion of the management of each hotel establishment. As a result, some hotels are priced beyond what we feel is the right market price.”
She, however, said all these issues are now being sorted out through the grading and classification of hotel.
“The classification does not set the pricing of hotel rooms but rather sets a base. So for instance a hotel that has been regarded as a two-star hotel cannot charge four- star room rates,” she noted.
According to the classification, the two star hotels charge between $40 and $60 (Shs140,000 and Shs208,000). Three star hotels charge between $60 and $90 (Shs208,000 and Shs320,000), while four- star hotels charge between $120 and$220 (Shs410,000 and Shs765,000) and the five-star hotels cost above $220 (Shs765,000) .
Ms Byamugisha adds that low occupancy rate was worsened by the negative travel advisories against Uganda from the foreign embassies advising their citizens to stay away.
“Most of these embassies are our source markets so when they issue a negative travel advisory against Uganda, it has a very big effect on tourism,” she added.
The other reason responsible for a drop in occupancy was the fragile situation from the Ebola outbreak in West Africa.
Ms Byamugisha says: “All these factors led to a very low season in the first half of the year. The good news is, now that all is well, we are starting to see a rise in the occupancy levels.”

Way forward

In a move to drive more investors and increase hotel occupancy especially in rural Uganda, government, through Uganda Wildlife Authority, has opened up concessions in national parks.
Uganda Tourism Board chief executive officer Stephen Asiimwe, says for one to set up in the national park, they have to make sure the facilities are up to standard, because tourists evaluate everything right from the person who picks them at the gate to the guide in the park.
Citing national parks as the biggest attraction for leisure tourists, Mr Asiimwe notes the need for concerted effort towards ensuring quality accommodation in the country.
“There is need for more rooms but also qualitatively, better quality in accommodation facilities,” he noted.
He, however, says going forward, hotels need to do more product development and highlight times when there is low season. This will enable Ugandans to visit because most foreigners visit during high seasons.
Hotel Africana general manager Harrison Njoroge, says there is need for external marketing strategies that aim at putting Ugandan hotels on international platforms.
Ms Byamugisha recommends a focus on domestic tourism that will drive Ugandans to spend more time outside their homes.