High rates drive interest in high-cost Zanzibar
High rates drive interest in high-cost Zanzibar
22 FEBRUARY 2017 9:18 AM

Zanzibar might not get as much tourist attention as Indian Ocean destinations such as The Maldives, but sources said it offers much for hoteliers, despite hefty operational costs.

REPORT FROM ZANZIBAR—Zanzibar is enjoying a period of strong performance in terms of both rate and inbound investment. But despite those strong performance numbers and continued interest from European travelers, hoteliers in the archipelago must still cope with high costs.

Sources said robust demand has been enough to keep Zanzibar’s hotels profitable despite high operational costs and onerous legal requirements.

Part of the draw for the locale is that it is unlike other destinations in the region.

Sara Rosso, president and CEO of Planhotel Hospitality, which has three resorts in Zanzibar, said Europeans do not perceive Zanzibar as being African, but rather as an Indian Ocean destination. Tim P. Smith, managing partner of consulting and valuation at HVS, said residents of Zanzibar do not consider themselves Tanzanians.

Zanzibar is an archipelago of islands, the three main ones being Zanzibar itself, Pemba and Mafia.

Smith said more investment is coming to Zanzibar. The latest news on that front is the January announcement that Pennyroyal Gibraltar will develop the $1-billion Zanzibar Amber Resort, including five hotels, on the main island. Anantara Hotels, Resorts & Spas also will develop a property with 100 rooms to open 2020.

“It is a very ambitious program,” Smith added.

The international airport will also see an expansion soon, according to Rosso, who added charter flights are entering Zanzibar from Poland and Israel.

“Airlift has improved,” she said. “That started with charter flights from Italy, but today, for example, Ethiopian Airlines flies daily from Addis Ababa, Qatar, Kenyan Airlines have service, (and) recently Turkish Airlines. Fly Dubai comes four times a week, and twice a week Mango, a low-fare carrier from South Africa.”

Smith said the segmentation of business on the island is 90% leisure, and performance is seasonally stable even in the monsoon season during March and April.

Rosso said her hotels receive 35% of their business from meetings, incentives, conventions and expositions.

“Occupancy is very high, at record highs, and demand is strong,” Rosso said, noting that most tourists come from Europe and visitors from South Africa are declining.

Rosso said Zanzibar’s ADR is similar to Mauritius and is much higher than that of Kenya and Tanzania. Smith agreed.

“At the top end, (Zanzibar has) 65% occupancy at $320 ADR over the full year, but then it is a huge drop down to the next level in terms of ADR,” Smith said.

Smith said some of the island’s hotel statistics need to be put into perspective.

“There are 370 hotels, but most have 20 to 30 rooms, which fits in with historical demand,” he said. “There are few branded hotels.”

Smith said TripAdvisor’s 25 best Africa hotels for 2016 as voted by users were on the main island of Zanzibar. Two of those are branded.

“If it was a little more developed, Zanzibar would compete with Mauritius,” said Borik Vokrinek, regional VP of feasibility and development finance at Hyatt Hotels Corporation, whose Park Hyatt Zanzibar is one of those 25 recognized properties.

Vokrinek said there needs to be some work put into the area to build a strong draw before Zanzibar takes the next step in terms of growing as a tourist destination.

“Its capital Stone Town is UNESCO-listed, but it lacks safaris, which mainland Tanzania obviously has,” Vokrinek said.

Day-to-day dilemmas
There are various issues that making operating a hotel in Zanzibar difficult. Staffing, in particular, can be problematic since it can be extremely difficult to get work permits for anyone who is not a local, restricting available labor to Zanzibaris.

“Every now and then, a new hotel steals labor, as that labor comes from the same pool, but they always seem to come back,” Rosso said.

While hard to come by, staffing is far from the only issue, sources said.

“Salaries are low, and development costs are high,” Smith said. “Provisions for staff have to include medical, housing and schooling, and the cost of utilities is very high.”

Smith said while labor costs usually account for 10% of overall costs, utilities comprise 22% of that number.

“That’s huge, but it is still better to buy from the government, the only utility source, than to generate your own,” Smith said.

Another thing Zanzibar hoteliers would like to also see is the construction of water lines.

“There is no sewage or waste management,” Vokrinek said.

Corporation tax is 30%, while value-added/sales tax is 24%, sources said.

“That is refunded, although most suppliers on the island have no VAT number,” Rosso said.

There are few banks on the island, but getting money out is not a problem, sources said.

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