From Luxury to Losses: How High Living Costs Impact Nigeria’s Hotel Industry

The rising inflation in Nigeria is dealing a severe blow to the hotel industry, escalating operational costs and dampening customer demand as many operators are either closing shop or cutting down significantly, writes Festus Akanbi

Like every other sector of the economy, activities in the hotel and hospitality sector in Nigeria have continued to nosedive as the unabated inflationary trends continue to frustrate many operators out of the business. 

Although some operators with enough clouts to attract funding from banks and other strategic investors are breaking even, the success story cannot be replicated in other segments of the industry. 

Reports however say that although some of these industry leaders are still posting impressive profitability, there are several others, especially the mid-sized ones that are battling for survival amid the growing cost of operation and the falling purchasing power of the prospective customers.

An industry source said performance these days depends on the influence of those running the hotels, explaining that while some hotels are battling a fall in patronage, those with connections with government are attracting patronage from government circles.

In January this year, one of the leading operators in Nigeria, Radisson Hotel Group announced a portfolio expansion plan across west and central Africa which was intended to see the hotel chain ramp up its presence in Nigeria to 12 hotels offering 1,700 rooms. On its part, Ikeja Sheraton Hotels is maintaining its hold on its strategic location in the heart of Ikeja and the loyalty of some of its corporate customers. 

Other big names like the Abuja Transcorp Hotels and Abuja Continental Hotel, formerly Abuja Sheraton Hotel are not doing badly too. While the former, which is 11% owned by the federal government and three-quarters owned by Transnational Corporation, declared 133% year-over-year profits for its 2023 operation, the latter, declared a net loss of N0.5 billion in 2023 due to accumulated deferred tax expenses, but the hotel insists that the overall trend remains promising.

Inflation

However, industry sources said the majority of the operators face significant challenges due to rampant inflation and soaring energy costs. These economic pressures have led to increased prices for essential goods and services, forcing hotel operators to absorb costs that they often cannot pass on to customers without risking a decline in occupancy rates. The high cost of energy, primarily driven by fluctuating fuel prices and inadequate infrastructure, further exacerbates the situation, as hotels are required to maintain constant power supply for operations, air conditioning, and other amenities. 

Consequently, many establishments are struggling to maintain profitability, reduce their competitive edge, and provide quality services to guests, leading to a complicated landscape for the hospitality sector amid economic uncertainty.

Investigations showed that with inflation and rising living costs, many customers are opting for budget accommodations or cutting out leisure stays entirely. Business travellers now stay for shorter durations, if at all, preferring virtual meetings or choosing hotels that offer the most economical packages. As a result, the once-steady flow of bookings has dwindled, especially from the middle-income customer base.

Although patronage was going down, nevertheless, the hotel’s overhead costs surged due to frequent electricity outages, which forced it to run diesel generators for extended hours. Diesel prices have skyrocketed, heavily impacting the budget allocated for energy. To cope, some hotels have had to cut down on other services, like free breakfast or extended spa hours, diminishing the customer experience and satisfaction.

Job Rationalisation

A supervisor in one of the hotels in Ikoyi said that due to the rising costs and lower revenues, many hotels have had to lay off part of their workforce. 

“The remaining staff are stretched thin, covering multiple roles and working longer hours, which has begun to impact service quality. Guests are experiencing longer wait times and less personal attention, affecting their experience and making it harder to attract repeat customers,” he said.

He pointed out that the high cost of imported goods has impacted the availability and affordability of key supplies, from high-quality linens to imported wines, saying the hotel has been forced to substitute or even cut out certain amenities, which previously attracted upscale guests.

The negative impact of this development extends beyond the direct staff affected by the layoff as numerous contractors to these hotels like food vendors, drivers and maintenance officers are put out of business too.

The period of uncertainty and harsh operating climate in the Nigerian hotel sector was aptly captured by the President of the Nigeria Hotel Association, Dr. Patrick Anyanwu, who described the situation as “unbearable”.

He stated that hoteliers’ challenges date back to 2020 but have intensified under the current administration. 

He said, “You go to buy fuel, formerly you could manage fuel at N800/litre, but now it has gone up to N1,200/litre. Members are complaining about energy. Many have started closing their establishments. If somebody feels that diesel they bought at over N20,000 only gets them a handful of customers, are they not going to close up?” 

Anyanwu highlighted the high cost of electricity, worsened by an inconsistent power supply from distribution companies, which leaves hoteliers paying inflated bills.

“We are not receiving sufficient electricity. The amount the Discos (power distribution companies) are sending to our members when you assess it against the type of bills they are bringing, you will ask yourself, ‘when did you consume this?” he said. 

His lamentation was corroborated by the President of the Nigeria Hotel and Catering Institute, Gbenga Sumonu, who added the issue of high interest rates, and rising material costs to the list of the woes of industry operators. 

“The economy has greatly been unstable with the hyperinflation we are facing as investors today. This situation has affected all facets of operation, from high interest rates and rising material costs to exorbitant energy expenses,” he added. 

Interestingly, in Abuja where big names in the hotel business have been declaring unprecedented profit margins, members of the Hotel Owners Forum, Abuja (HOFA) have cited the recent increase in electricity tariffs as a key factor behind the rising costs of lodging in the Federal Capital Territory (FCT).

HOFA President Mrs. Funmi Kazeem stated that the higher electricity costs have significantly impacted the operational expenses of hotels, leading to elevated room rates.

Kazeem highlighted that the hospitality sector, which includes hotels, resorts, and other tourist facilities, has been severely affected by these increased operating costs.

She noted a reduction in customer patronage and a decline in investment within the sector, which has subsequently decreased its competitiveness and adversely affected the broader economy. Additionally, the tariff hike has impacted the standard of living for many individuals across the country.

“The hike in electricity tariffs has significantly challenged our hotel business and our customers. Addressing these and other challenges is vital for sustaining progress and promoting economic growth.”

Business Closure

Vice president of the Federation of Tourism Association of Nigeria (FTAN), South-east, and general manager, of Benchmark Hotel, Owerri, Odunayo Ogunyemi Julius, disclosed that already most of the hotels are closing down as a result of their inability to purchase the diesel that they will use to power their hotels because the influx of guests has been reduced and the level of patronage is low,” he said.

Ogunyemi informed that the current economic situation of the country “is affecting the sales performance of hotels and the profit margin,” just as he said also that it is affecting the workforce, causing downsizing in most of the hotels. 

According to him, “You cannot keep the number of staff you cannot pay; it does not portray a good image of the hotel. And you will reduce the staff strength so that the remaining will be able to give optimal service.” 

For a government that cannot employ all the teeming youths in the country at the same time, it is absolutely necessary to wade into the energy and other crises rocking the hotel sector.