The air is getting thin for many of Kenya’s coastal resorts

BAD TOURISM SEASON AT THE KENYA COAST RAISES CONCERNS OF FORECLOSURES

(Posted 12th May 2014)

Poor occupancies in resorts along the Kenya coast over the past year have eroded the financial position of many of these and associated businesses. Curio stalls along the Diani beach road were seen closed, or shop attendants standing idly chatting with their neighbours while waiting for the few foreign tourists presently staying along this prime stretch of Kenya’s white beaches to perhaps stroll up and bargain for some deals. Restaurants and bars were equally showing signs of little business and some of the staff spoken to during a recent visit acknowledged that they were all struggling to stay open and stay financially afloat, all literally fighting to have the few visitors give them their business.

It is now emerging that hotels and resorts along the coast are indeed struggling to meet their financial obligations as a result of lower occupancies and sharply reduced cash flow, and some hoteliers spoken to have, on condition of anonymity, accepted that they are reaching a point where paying utilities, suppliers and staff have become a juggling act with balls starting to drop. ‘There is little cash coming in right now, our reserves are depleted because we had a terrible season and still we have to pay for electricity, water, council fees, staff wages and suppliers. It is almost inevitable that some of us have to defer payments and maybe even default to some extent. Banks are pushing to reduce overdrafts but how that can happen is a mystery now. This is the reason many hotels have closed. They say it is for renovations but we all know there are no renovations taking place in most of those. Some yes, some do but they are the exception. For most it all boiled down to reducing the outflow of cash. Once closed the utility bills are reduced, the wage bill is reduced because some are laying staff of without pay for that time they are closed. The problem now are suppliers because they need cash also and some are getting impatient. Fresh deliveries could be stopped any time or hotels could be put on cash only basis. Once they start to take legal steps to recover money the flood gates are open. Banks with loans and overdrafts are also constantly calling the hotels when they can get paid. There is one of the biggest fears for the coast hotels. When the banks start to call in loans or insist overdrafts are reduced or paid back there is no way we can figure that one out. Banks have choices to make, when they start calling in securities and put first one and then many into receivership, the value will broadly drop of those hotels. Once that happens even receivers can no longer be expected to turn the tide. Everyone right now is watching and waiting but I fear, when the first bank starts to act, when the first suppliers go to court, the card house will fall down’ said one hotelier in a lengthy conversation recently. Feedback from some tourism operators attending the INDABA fair and the Africa Travel Week indicates that they were trying to sell Kenya’s famous beaches in South Africa, where it is the cold winter season now and where many people are trying to seek warmer climes for a holiday. But while Mango, one of South Africa’s low cost carriers, is now operating two scheduled flights a week to Zanzibar, no direct or nonstop air connections exist between Johannesburg and Mombasa.

‘If only we could find an airline to offer direct flights to Mombasa from South Africa, it could be a short term measure to boost occupancies in our resorts. But when people have to fly via Nairobi and change planes there, it is another issue altogether. When 1Time stopped their flights there was hope maybe another airline could step in but instead they have boosted their flights to Zanzibar. Our tariffs right now for beach hotels in Kenya are very very competitive, to the point of actually losing money because the high taxes have to be paid, just to put heads into beds. But even with such special deals, there are few takers. Until a charter or scheduled flight connects Mombasa to Johannesburg it will be tough to succeed’ wrote another source who participated in the INDABA trade fair.

Kenya’s Central Bank last week in their regular market analysis has added tourism, transport and hospitality businesses to the high risk sectors and there are now fears that commercial banks might have to act in order to prevent their non-performing loan portfolios to put pressure on their own bottom lines and ability to make profits and pay dividends. One senior industry stakeholder did say that KAHC, the Kenya Association of Hotel Keepers and Caterers, is watching the situation carefully as the tourism industry is now at cross roads, waiting to see if the government does come up with a major bailout package or else let market forces decide who survives and who does not. Watch this space for breaking and regular news updates from across Eastern Africa.