Southern Sun returns to profitability

Southern Sun, the hotel group, has managed to return to profitability after a challenging period marked by the impact of the Delta variant and civil unrest. Marcel von Aulock, CEO of Southern Sun, reported that the group saw an occupancy rate of 46% in the last six months, below the expected 60%. The first half of the year continues to be the toughest, with peak months falling in the latter half. However, despite the challenges, the group has made significant progress compared to a year ago, when they were facing major disruptions in the market. The return to profitability and positive cash flow after two years of losses signals a turning point for Southern Sun. A key factor in their recovery has been the ability to adapt to changing market dynamics and consumer trends. For instance, international tourism remains weak due to expensive flight prices and negative incidents affecting the country's reputation. On the other hand, high-end travel has shown resilience, outperforming the mid-market segment in both leisure and business travel. This shift has been driven by a willingness among high-end consumers to overlook price sensitivity in favor of premium experiences. The pricing strategy of Southern Sun is demand-driven, with higher demand leading to increased prices. While the high-end segment has seen no resistance to price hikes, the mid-market segment continues to face pricing pressures. Despite inflationary pressures on input costs, particularly in food and beverage, Southern Sun has managed to mitigate the impact through cost-saving measures taken during the Covid era. Payroll remains a significant cost for the group, but previous restructuring efforts have positioned them to be more profitable at lower occupancy levels. Another challenge faced by the group is the rising cost of power generation, with increased reliance on generators due to load shedding. Southern Sun is now considering alternative energy sources like solar power to reduce costs and improve sustainability. In terms of capital allocation, the group has been focused on deleveraging and plans to reduce debt significantly by the end of the year. This will open up opportunities for shareholder returns, share buybacks, and potential acquisitions in the future. Despite short-term challenges, Southern Sun remains optimistic about growth prospects, with a focus on market recovery, optimizing rates, and maximizing operational efficiency. Marcel von Aulock emphasized the importance of extracting value from existing assets rather than expanding the portfolio. The group's strategic focus on operational excellence and cost management will be key to sustaining profitability and driving growth in the post-pandemic hospitality market.