Hospitality & tourism industry set for further growth

But access to finance remains a concern

Businesses in the hospitality & tourism industry are the most bullish globally on the outlook for both revenues and profits. That’s according to the Q2 International Business Report (IBR) results, providing further evidence of strong performance in the industry. But the report also reveals that businesses have major growth concerns centring around access to finance.

 So what does the data say exactly? And what does this mean for the next 12 months?

Net[2] 63% of business leaders in the industry globally expect revenues to climb over the next 12 months. No other industry is as confident. The global average is 48%. A further 53% of business leaders expect to see profits rise over the next 12 months. This is well above the global average (36%) and again the highest of all industries.

This confidence chimes with tourist number estimates which continue to rise in spite of austerity measures – especially in Western Europe – dampening travel spending. The BRIC economies continue to drive global tourism with the burgeoning middle classes in these countries increasingly able and willing to spend their new wealth.

Here in South Africa, our Tourism Business Index registered a slight decline this quarter but this comes after four quarters of steep improvement and businesses are still trading well in the normal range.

The concern in the data for me is the difficulty businesses in the industry are having in accessing finance. More than a third (38%) expect the cost of finance to constrict their growth ambitions over the next 12 months. This has actually risen from 32% in 2010, whereas the majority of other industries have seen a decline from a similar level. The proportion citing a shortage of long-term finance (31%) has also risen over the same period (from 24%).

No other industry is as concerned by these two challenges. Why is this?

Well, much of the hospitality and tourism industry is seen as high risk due to an array of factors such as high fixed costs and specialised assets but, most notably, due to  reliance on discretionary corporate and individual spend. There is also a perceived high susceptibility to exogenous factors – such as war, disease, strikes, volcanic ash, snow and the Arab spring – which seem to be on the increase.

Corporates and individuals are spending again, but banks and investors remain more cautious and risk averse in a world where austerity and uncertainty are still widespread. It seems this is one industry they remain reluctant to invest in.

Gillian Saunders is global leader for hospitality & tourism at Grant Thornton.