Partly driven by changes wrought by the Covid pandemic, some of the travel and leisure sector’s key drivers have shifted significantly over the past five years, with the expansion of the digital economy playing a major role in this.

‘Hotels were placed under severe strain when they were forced to close during the Covid-19 lockdowns, which was followed by a period of operating with varying levels of restrictions,’ writes Allan Gray portfolio manager Varshan Maharaj in an opinion article.

‘These disruptions led to collapses in share prices, creating buying opportunities,’ he says.This was apparent in the share prices of the two hotel groups listed in the travel and leisure segment. City Lodge’s share price plummeted from a high of R34 (in March 2018) to R2.50 at the end of 2020. Over the same period, Southern Sun’s share price fell from R41 to R14.

However, while their share prices fell in tandem, the trajectories of the two shares have subsequently parted ways. In September 2025, City Lodge was still in the doldrums with the counter trading just below R4. Southern Sun, by contrast, had surged to R55 in mid-2024 and R90 in September 2025.

The difference between the two hotel companies is partly explained by the different markets they serve. Southern Sun makes a significant portion of its profits from the leisure segment, which has rebounded strongly, especially in the Western Cape where the group own elite brands such as the Cullinan and Cape Sun in Cape Town and Fancourt in George. Tourism arrivals at Cape Town International Airport in the summer of 2023/24 exceeded those of 2018/19 by 50 000.

But tourism in SA is still generally in recovery mode. International arrivals for January–April 2025 were still only at 88% of pre-Covid figures for the same period. Maharaj notes that ‘increasing occupancy rates and average room rates rely on economic growth which may take a few years to materialise’.

Southern Sun’s integrated annual report for 2024/25 notes that the group has achieved a sold occupancy rate of 60.8% for the 2025 financial year so far. But, looking ahead, it sounds a warning note. ‘Developers should be taking a cautious approach, evaluating whether recent demand growth is sustainable and assessing the availability of affordable financing – especially given that high construction costs continue to weigh on yield expectations,’ it says.

Hotels operating in the leisure sector face increasing competition from digital platforms such as Airbnb. ‘The hotel industry in South Africa remains highly competitive,’ notes the Southern Sun report. ‘Despite the operational complexities, the barriers to entry are still relatively low, which continues to result in new supply entering the market – often without adequate feasibility studies to support long-term viability. Once built, this room stock tends to remain in the market regardless of financial distress experienced by underperforming properties, causing a prolonged imbalance in supply and demand.’

City Lodge, by contrast, is heavily dependent on local business travel, which links its share price to the conditions in SA’s domestic economy. Post-pandemic, the group’s room occupancies have been affected by the private sector’s new-found habit of conducting meetings online.

‘While there are encouraging shoots for growth in the South African economy from interest rates cuts, low inflation and more stable electricity supply, the political noise of the Government of National Unity continues to curb economic prospects,’ said Andrew Widegger, City Lodge CEO, at the company’s results presentation in September.

Maharaj explains that ‘hotels have high fixed costs so, as occupancies and average room rates increase, profits increase in a non-linear fashion’. A 10% increase in these two metrics could see profits rise by as much as 50%.

Widegger points out that City Lodge has positioned itself for growth. The group has focused on modernising and refurbishing eight of its hotels. Thirty percent of its rooms are either newly constructed or have been refurbished within the past eight years. Nearly 50 000 rooms were out of circulation owing to this reconstruction programme, which is ongoing. Widegger says the group spent R282.9 million for capital projects in 2025.

City Lodge is probably doing better than its share price suggests. The company is debt free and was able to report a profit of R213 million for the last year, up 13% on the 2024 figures. It is a tightly run operation focused on a ‘yield system’, which dynamically adjusts room rates based on real-time demand.

Lee-Anne Bac, tourism advisory partner at BDO South Africa, says that ‘while South Africa welcomed 5.85 million international tourists from January to July 2025, a 14% increase over 2024, we remain frustratingly close yet far from our pre-pandemic peak. ‘We’re just 33 000 visitors (1%) short of our 2019 figures, but this apparent success masks deeper structural challenges that demand immediate attention.’

She says international tourism returned to 2019 levels in 2024, experiencing more than 12% growth, while SA’s recovery growth rate is 5.1%.

‘The tourism sector must recognise that it operates within a broader economy,’ says Bac. ‘Challenges require economy-wide solutions supported by all economic sectors. Tourism cannot recover in isolation from manufacturing weakness, energy constraints, or governance challenges.

‘Most critically, we must position tourism at our economy’s centre, recognising its unique capacity to create employment opportunities across skill levels. The sector’s multiplier effect on job creation, foreign exchange earnings and regional development makes it indispensable to South Africa’s economic recovery,’ she says.

‘The statistics paint a clear picture – while competitors surge ahead, South Africa’s tourism recovery remains frustratingly incomplete. The African market’s success and Cape Town’s air access achievements prove that strategic, co-ordinated interventions work.’

The three casino operations in the sub-sector – Grand Parade, Sun International and Tsogo Sun – have also been heavily affected by digital developments. Online betting has pushed traditional casinos aside since the pandemic. According to the National Gambling Board, online betting has grown 550% in the four years to mid-2024.

The turnover for the industry – R1.14 trillion – is equal to 17% of GDP. By some estimates, the online betting market is twice the size of traditional casinos.

Sun International’s ‘land-based operations’ (casinos) reported a decline of 1.4 % for 2025. In its 2025 half-year results, the group described these results as ‘muted’. However, the group’s performance was best of all the listed gaming operations in the segment thanks to the massive growth of its online operation, Sunbet, which reported a 71% increase in revenue for the first six months of 2025.

For the gambling industry, the Covid-19 lockdown changed everything. Horse racing was cancelled and severe limitations were placed on trading times and the numbers of people allowed into casinos. The night-time curfew, which at its most extreme kicked in at 9pm, was particularly damaging.

Sun International, with gross debt of R12 billion in 2020 and virtually no income, faced an existential crisis. It got through the difficulties thanks to a rights issue of R1.2 billion and offloading its lagging Latin American assets for $160 million. Since then it has focused on consolidating its flagship Sun City asset and developing Sunbet.

In mid-2025, the company said it ‘is well-positioned for sustainable growth, supported by the optimisation of urban casinos, strong momentum in digital conversion for Sunbet, selective expansion in Sun Slots, and the usual seasonal rebound in resorts and hotels’.

The other sub-sector listed companies, empowerment vehicle Grand Parade and Tsogo Sun, have also struggled in the face of the digital gambling boom. Both remain tied to the land-based casino sector and have failed to develop big online operations that can compete with the likes of Hollywoodbets, Betway and LottoStar.

Grand Parade was established in 1997 to partner Sun International. It was originally an investment company with interests in the food and gambling sectors. However, since selling Burger King (2021) and its 10% minority stake in Spur Corporation (2019), it has become a pure gaming play. The company’s major asset is the GrandWest Casino in the Western Cape.

Grand Parade’s share price has fallen 27% over 12 months. Tsogo Sun has fallen even further, dropping 35% over the course of 2025. In both cases, the main factor has been a failure to compete with the dominant online platforms.

In a letter to shareholders this year, Johnny Copelyn, chair of Tsogo Sun majority sharehol-der, Hosken Consolidated Investments (HCI) – which owns 50% of the company – states that ‘the decline in profitability at Tsogo Gaming is [a result of] the growth in online betting’. He adds that ‘casinos have barely recovered to pre-Covid 2020 levels and expectations of future growth remain very limited. South Africa now has a ratio of online penetration far higher than both the US and Australia’.

Copelyn gives his shareholders the bad news straight. ‘While Tsogo Sun has been a dominant business in the casino industry for many years, its failure to develop a successful online offering to date has significantly threatened this position,’ he says.

HCI is also the majority owner of another travel and leisure sector-listed company, Frontier Transport, an investment holding com-pany with interests in transport and logistics, especially the commuter bus and luxury coach segments. Its biggest investment is Golden Arrow Bus Services, a company more than 160 years old which operates about 1 000 buses in Cape Town, transporting about 50 million passengers annually.

The two restaurant groups in the sector, Famous Brands and Spur Corporation, are less affected by the booming digital economy. But there has been an impact as the digital takeaway and delivery industries have expanded. In August, Spur, with 700 outlets across 10 restaurant brands, voiced concern about the economic pressures on household budgets. But its biggest threat came from supermarkets offering ready meals and fresh food ranges.

Spur CEO Val Nichas says that ‘as consumers find new channels or lifestyle solutions, supermarkets are competing directly with us on meal occasions’. Nichas argues that ‘the only way we can differentiate is through an experience that you can’t replicate at home or in-store. We provide a place where people can connect with friends and family. That’s where our value lies’.

Famous Brands, which owns the Steers, Debonairs Pizza, Wimpy, Mugg & Bean and Fishaways franchises, has also moved sideways, thanks to the mediocre performance of the South African economy. At its last results presentation, in February, the company said that ‘local and international tourism in South Africa remains subdued. A weaker-than-anticipated Brands’ revenue performance flowed through to both our manufacturing and logistics divisions’ results’.

The travel and leisure sector is closely related to the health of the economy generally. While digital developments have affected specific niches in the sector, especially the profitability of casinos, it is the country’s poor GDP growth rate which is the main headwind affecting competition for the local consumer wallet.

By David Christianson
Image: Gallo/Getty Images