The domestic tourism sector is currently facing daunting challenges especially with the downturn in our main source markets. Other factors like eroding market share, weakening of the Euro, reduced risk appetite of banks to lend to tourism-based businesses and changing consumer dynamics are hanging like the sword of Damocles over the industry. These market drivers are pinning down even more the recovery scenario. In addition, intrinsic growth parameters of market players are being hindered by toppling margins, debt-servicing burdens and liquidity problems of our tourism-based businesses. These could jeopardise the existence of several hotels and restaurants in the country, even though the sector is known to be robust and resilient. The credit risk associated with these businesses has drastically deteriorated (low mid-2008 before the crisis and moderate to high in 2012). The long-term well-being of the industry is also at stake with an astonishing deceleration of investment in the sector with very few new hotel projects and existing hotels’ renovation in the pipeline. Solutions to these hardships are not readily available, but involve a proper soul-searching for all the stakeholders in the industry with a lengthy timeframe for the necessary reforms to yield results. These changes would have to be across all levels ranging from marketing strategies, communication channels, and air access to the quality of service and is the sine qua non condition for changing the market dynamics. On a long-term perspective, the restructuring must be even carried at a higher echelon involving strategic plans (e.g. mandatory learning of languages like Afrikaans, Mandarin, Hindi, etc in the curriculum of schools) to prepare the new generation to cater for the needs of what might be our driving markets (mainly India, South Africa and China) in the future. Of course, existing clients should not be neglected in the process (Europe accounts for 58% of arrivals and Reunion Island 15% for the period January-July 2012). Re-thinking the existing industry model (which has certainly generated positive results in the past, but alas gradually losing pace and alarmingly starting to lose breath) would be the way for our flagship sector to navigate safely out of the storm!

1. MARKET MONITOR
Tourism
Authors:
Zayd Soobedar – Credit Risk Manager
Vibha Ramdhony – Trainee Underwriter
September 2012
Disclaimer: Information has been collected from sources believed to be reliable and in good faith by the company, but no representation or warranty, expressed or implied, is
made as to their accuracy, completeness or correctness. Information contained therein does not represent the views of Credit Guarantee Insurance Co. Ltd or its executives.
Credit Guarantee Insurance Co. Ltd disclaims all liability as regards to its content.

2. OUTLOOK FOR DOMESTIC TOURISM SECTOR 2012
Dark clouds looming over the horizon…
Table 1: Tourist Arrivals by Country of Residence, January - July of 2011 and
2012
The economic turmoil in Europe has taken its toll on tourist % Growth
Jan-July
arrivals. Statistics for the period of January-July 2012 are portraying Country yoy
2011 2012 2011/2012
a gloomy outlook for the tourism sector for the current year.
EUROPE 340,227 316,213 -7.1
Tourist arrivals rose marginally by only 0.1% yoy for the first 7 France 172,306 153,045 -11.2
months of 2012 driven by the adverse outlook and slowdown in United Kingdom 47,383 45,574 -3.8
our main source destinations and the Central Statistics Office has Italy 30,379 23,058 -24.1
reviewed its forecast of 980,000 tourist arrivals for the year 2012 AFRICA 131,341 146,366 11.4
to 960,000, representing a decrease of 0.5% over the figure of Reunion 68,826 80,574 17.1
964,642 in 2011. Our forecast for the year is close to the CSO South Africa 45,257 45,771 1.1
figure and stands around 959,000 tourists (representing a mild Malagasy Rep. 6,232 7,307 17.2
drop of 0.6% yoy). ASIA 53,094 60,559 14.1
India 33,954 34,199 0.7
… mired with escalating downside risks…
P. Rep. of China 7,647 11,441 49.6
The outlook for the domestic tourism sector 2012 is likely to be United Arab Emirates 1,918 2,696 40.6
adversely affected by the following downside risks: OCEANIA 8,946 9,763 9.1
Australia 8,380 9,265 10.6
 Further economic slowdown in European economies and the Other Oceanian 566 498 -12.0
dependence of our domestic market on this region AMERICA 8,295 10,049 21.1
 The weakening of the Euro vis-à-vis the Mauritian rupee USA 3,889 4,093 5.2
implying lower revenues for the sector Canada 2,431 2,686 10.5
 Increased regional competition especially with Maldives, Other American 1,975 3,270 65.6
Seychelles and Sri Lanka OTHER & N.STATED 735 369 -49.8
 Lower investment in the domestic tourism industry ALL COUNTRIES 542,638 543,319 0.1
 Declining risk appetite of domestic
commercial banks regarding tourism- THE BOX: Economic performance outlook for 2012 in our main tourist generating
sector related projects due to higher countries
credit risk France: For the whole of 2011, GDP rose by 1.7% yoy. However, growth for 2012 is
 Sustainability of the high debt levels for expected to be only by 0.3 % yoy. Despite the fact that inflation is expected to remain contained
for 2012, the rise in unemployment together with the tightening in budget policy and likely
the main hotel groups decrease in purchasing power, consumer confidence remains low. [Outlook: Fair]
 Excess room supply
United Kingdom: The UK economy expanded by only 0.7% yoy in 2011 and the
growth for 2012 is forecasted to be even lower during 2012 at only 0.2% yoy. Economic activity
… especially with a downturn in our has again contracted in the 1Q12 (-0.3% q/q) and the 2Q12 growth could be shrinking again.
main markets… Declining wages, worsening unemployment and heavy debt burden are not helping to build British
household confidence. Inflationary pressures have nonetheless decreased to 3.2 % since January
from the 5.2 % peak in September 2011. With bank lending being more and more restricted and
More alarmingly, tourists from Europe (our rising bankruptcies, the conditions remain gloomy. [Outlook: Gloomy]
main market) have declined by 7.1% yoy to
316,213 for the period under review. India: Economic activity slowed down slightly in India with a hike of 7.1% yoy in 2011
and the trend is expected to linger during 2012 with estimated 2012 growth to be around 6.1%
Further breakdown reveals that arrivals yoy. Inflation is expected to remain high though its fundamentals remain strong such as high savings
from France, UK, Germany and Italy have and investment rates and moderate foreign debt. [Outlook: Good]
plummeted.
South Africa: The South African economy after a growth of 3.1% yoy in 2011 is
projected to experience milder expansion of 2.6% yoy this year. The general trend of low interest
Arrivals from our leading source market rates is driving consumption however its growth is being restricted by the high unemployment rate
(France) experienced a sharp drop of 11.2% of 25% and slow growth in wages. The manufacturing sector of the country is being affected by the
weak demand from the European Union. Its mining sector is also being affected due to a lack of
yoy for the period of January to July 2012 investment and strikes. Moreover, inflation has risen from 5% in 2011 to 6% in 2012. [Outlook: Fair]
and the same negative trend was present in Table 2: Economic outlook in main markets, 2010 to 2013
the number of tourists from Italy falling Country/Region 2010 2011 2012F 2013F
from 30,379 for the same period in 2011 to Advanced Economies 3.2 1.6 1.4 1.9
US 3.0 1.7 2.0 2.3
23,058 in the first 7 months of 2012. The Germany 3.6 3.1 1.0 1.4
UK market, which already shrunk in recent France 1.7 1.7 0.3 0.8
UK 2.1 0.7 0.2 1.4
years, was faced with only a 3.8% yoy drop. Sub Saharan Africa 5.3 5.2 5.4 5.3
The outlook for European markets for the South Africa 2.9 3.1 2.6 3.3
China 10.4 9.2 8.0 8.5
year 2012 is bleak as the statistics are India 10.8 7.1 6.1 6.5
clearly suggesting the persisting impact of World Output 5.3 3.9 3.5 3.9
Source: IMF World Economic Outlook
the recession in Europe. Another adverse
2

3. OUTLOOK FOR DOMESTIC TOURISM SECTOR 2012
factor that could contribute to further decline in tourist arrivals from European countries is the reduction in the number of seats
by Air Mauritius (around 87,000 between 2006 and 2012) on European routes in an attempt to discontinue unprofitable routes
(cessation of flights to Vienna, Rome and Munich) which have led to higher travel costs to our destination.
... but offset by good performance of emerging markets…
Fortunately, the downturn in the European market was Figure 1: Tourist Arrivals, January to July 2011/12
offset by tourists from other regions with the number 400,000
of tourists from non-European countries soaring by Jan-July 2011 Jan-July 2012
12.2% yoy for the period under review. A shift, though 350,000
marginal, from the Eurocentricity of the local tourism 300,000
industry can be noted with the good performance of
non-European regions (Figure 1). Africa and Asia, which
Number of Tourists
250,000
accounted for 27% and 11% of total tourist arrivals 200,000
respectively, displayed favourable results for January-
July 2012. 150,000
100,000
African tourists increased considerably by 11.2% yoy
reaching 146,666, driven by the excellent upsurge in the 50,000
number of tourists from Reunion Island (80,574 for the
period under review against 68,826 in 2011). The EUROPE AFRICA ASIA OCEANIA AMERICA
Region
South African market was less active with a mild
increment (+1.1% yoy) experienced in arrivals.
Figure 2: Room occupancy rate, Quarterly analysis 2010-2012
The Mauritius Tourism Promotion Authority’s (MTPA) Q4
strategy to develop alternative markets like India and 2012 Q3
Q2
China has yielded positive results so far but requires Q1
further development. Tourist arrival from India rose
Large hotels
2011
slightly by 0.7% yoy to hit 34,199 for the period. On the
other hand, Chinese tourists, albeit having a low
contribution to overall tourist arrivals for January-July 2010
2012, grew significantly by 49.6% yoy to 11,441.
Type
2012
Other countries representing a small part of the market
have realised excellent results for the period explained
by the efforts from the government with its past
All hotels
2011
national budgets focussing on diversifying our client
base. Statistics show a significant boost in tourist arrivals
2010
from Russia (+89.4% yoy), Kenya (+47.9% yoy) and
Hong Kong which has more than doubled in size
0 10 20 30 40 50 60 70 80
(+119%). Arrivals from the UAE were also on a rise Room occupancy rate (%)
with a growth of 40.6% yoy. Despite their considerable
expansion, their current market share remains minor. However, these Table 3: Other hotel operational statistics, 2009 to 2012
emerging countries have potential for further growth in the long term Year
Number as at end of period
for the domestic tourism sector. Hotels Rooms Bedplaces
Q1 102 11,444 23,148
Q2 97 10,486 21,362
... yet overall occupancy rates stagnating… 2009
Q3 100 11,102 22,530
Q4 102 11,456 23,235
The average room occupancy rate for “Large hotels” for 1H12 stagnated Q1 105 11,564 23,547
at 64% in line with the figure achieved in the same period last year. A Q2 104 11,362 23,168
2010
Q3 104 11,383 23,296
similar trend was observed in bed occupancy rate which averaged 56% Q4 112 12,075 24,698
during the first semester of 2012. Q1 112 12,082 24,664
Q2 111 11,999 24,493
2011
On the other hand, average occupancy rate for “All hotels” for the first Q3 109 11,816 24,018
semester of 2012 (62%) was lower than the 2011 mid-year Q4 109 11,925 24,242
Q1 110 12,027 24,446
performance of 65%. Bed occupancy rate was also inferior to 1H11 and 2012
Q2 107 11,822 24,089
stood at 55% compared to 57% in the previous year. The presence of
non-hotel accommodation facilities are proving to be strong competitors causing hotels to gradually lose their market share
3

4. OUTLOOK FOR DOMESTIC TOURISM SECTOR 2012
(reflected by the decrease in occupancy rates). With an excess in room supply, hotels are implementing aggressive marketing
strategies by lowering prices and providing special packages to increase demand.
At the end of June 2012, there were 113 registered hotels of which 107 were in operation, with a total room capacity of 11,822
and 24,089 bedplaces. “Large hotels”, i.e. well-established beach hotels with more than 80 rooms, numbered 47 (44% of all
registered hotels in operation). These hotels had a combined room capacity of 8,613 with 17,667 bedplaces, representing 73% of
both total room capacity and total bedplaces respectively.
… leading to macroeconomic forecasts being revised downwards…
In June 2012, the CSO forecasted a growth of around 1.6% based on a forecast of 980,000 tourist arrivals in 2012 compared to
964,642 in 2011. However, factoring the revised tourist arrival figures and gloomy outlook in main markets, we project sectoral
growth of Hotels and Restaurants to be nil or negative.
The Bank of Mauritius has also revised its forecast for tourism receipts for the year 2012 to be around Rs 42,542 million (-0.4 %
yoy) compared to Rs 42,717 million in 2011.
…slowdown also impacting on the financial performance of main hotel groups…
The table below shoes the financial performance of listed hotel groups for 2011 and 2012. Apart from Lux Island Resorts Ltd,
the remaining groups are facing difficulties for a sustainable growth in net profit despite the general growth in revenue. By
considering issues regarding rupee strength, economic turmoil in Europe and shrinkage of air access capacity, our hotels are still
operating in unfavourable market conditions.
Table 4: Financial performance for main hotel groups in Mauritius
Revenue results (Rs Million) Net Profit results (Rs Million)
Hotel Group
30th June 2011 30th June 2012 Growth yoy 30th June 2011 30th June 2012 Growth yoy
New Mauritius Hotels Ltd 5,961.2 6,445.2 8.1% 801.9 754.5 -5.9%
Sun Resorts Ltd 1,746.2 1,789.9 2.5% 56.5 3.7 -93.5%
Constance Hotel Services Ltd 1,011.6 1,032.4 2.1% (82.5) (81.6) 1.1%
31st March 31st March 31st March 31st March
Hotel Group Growth yoy Growth yoy
2011 2012 2011 2012
Lux Island Resorts Ltd 2,865.0 3,259.7 13.8% 303.9 382.7 25.9%
…contributing to higher credit risk associated with market players…
In general, the credit risk level associated with market players is escalating day-by-day and a radical change in the trend is not
expected soon especially with the gloomy outlook for the year. A large number of stakeholders have over recent years
(especially prior to the 2008 financial crisis)
contracted financing for expansion projects.
With drastic declines in profitability, interest-
bearing debt to equity ratio is on the high side Very high
Very high
Very low
Very low
and is close to or greater than 1 time.
On average, this financial leverage ratio is Default Risk Insolvency Risk
deteriorating for most businesses in this High Low
Low
industry causing the general Insolvency Risk of High
this sector to be Moderate (previously Low).
Waning operating profit of these firms and Moderate
soaring debt-servicing pressures, have Moderate
contributed to fuel alarming drops in the
interest cover ratio for many tourism-related
businesses, thus causing upward pressures on the Insolvency Risk parameter. However, the high level of non-current assets
(especially land and buildings) provides some reasonable degree of comfort regarding this financial element.
On the other hand, lower revenues due to a weak Euro and slowdown in tourist arrivals have negatively impacted on the
general Default Risk of the domestic tourism sector actors. Many hotels and other tourism-based businesses like restaurants are
mired in a liquidity trap stemming from sharp drops in margins as well as high finance costs and reduced access to finance with
reduced risk appetite of banks/other financial institutions.
4

5. OUTLOOK FOR DOMESTIC TOURISM SECTOR 2012
Qualitative and quantitative information gathered from several suppliers for
tourism-related businesses confirm a general deterioration in the Payment
Behaviour of some market players (shifting from Normal to nearly Poor). On
average, hotels and restaurants take more time to pay. In 2011, the average
repayment period amounted to around 60 days. For the first half of 2012, the
figure stood around 75 days. There are some specific cases where some hotels
are taking nearly 120 days to pay.
International Tourism in brief
On an international level, according to UNWTO World Tourism
Barometer July 2012, spirits remains high despite the unrelenting
economic uncertainties in the major markets. UNWTO forecasts
international tourism to increase by 3%-4% for the full year 2012.
International tourist arrivals grew by 5.4% for the period of January
to April 2012 with a total of 285 million of tourists travelling
worldwide. The Northern Hemisphere’s summer peak season was
expected to bring 415 million of tourists worldwide in the period of
May-August.
Growth was strongest in North Africa (+11%) followed by South Asia
(+10%) and Central and Eastern Europe (+8) which helped Europe
(+4%) to consolidate its record growth of 2011. Major destinations in
Northern and Western Europe such as United Kingdom, France
(both +6%) and Germany (+10%) posted sound results while growth
in southern Europe has slowed down (0.2%). In general, the outlook
for international tourism remains positive.
SWOT Analysis for the domestic tourism sector
Strengths Weaknesses
 Robust and resilient  High dependence on the European market
 Strong recovery ability  Plummeting turnover and profitability
 High asset base  Debt levels are quite prominent
 Service-oriented – continuously improving quality and standard of service  Waning investment in the sector
 Bilingual and multilingual staffs  Lower risk appetite of financing institutions for this sector
 Adequate infrastructure and facilities for developing MICE segment  Lack of innovation for packages on offer in terms of activities, tours, places
 Proper definition of target market – high net worth tourists of interest
 Sturdy marketing strategies and communication channels  Distance from main tourist-sourcing countries (high air fares and long
 Presence of a captive market (30% of tourists are repeaters) travelling hours can be a deterrent)
 Excellent reputation in main source markets
 Stability and level of security (including sanitary issues)
Opportunities Threats
 Further air access liberalisation  Weakening Euro
 Increasing market diversification with a gradual shift from traditional  Highly volatile industry
markets towards emerging ones like India, China and South Africa  Slowdown in economic activity for main tourist-generating countries
 Adapting to emerging markets’ expectations in terms of innovative offers  Changing tourist psychology
 Enhancing marketing strategies and diversify communication channels  Increased aggressive competition from other similar destinations like
(exploiting digital ways) Maldives, Sri Lanka, Seychelles, Guadelope and Martinique
 Package diversification – moving away from long-established concept of  Diversification of markets might be limited by physiological factors
“sun, sea and beaches” towards new forms of emerging tourism namely  Security issues – recent events adversely impacted on the island’s image as a
ecotourism, cultural, medical and so on “perfectly secure” destination
5

6. OUTLOOK FOR DOMESTIC TOURISM SECTOR 2012
Conclusion
The domestic tourism sector is currently facing daunting challenges especially with the downturn in our main source markets.
Other factors like eroding market share, weakening of the Euro, reduced risk appetite of banks to lend to tourism-based
businesses and changing consumer dynamics are hanging like the sword of Damocles over the industry. These market drivers are
pinning down even more the recovery scenario.
In addition, intrinsic growth parameters of market players are being hindered by toppling margins, debt-servicing burdens and
liquidity problems of our tourism-based businesses. These could jeopardise the existence of several hotels and restaurants in the
country, even though the sector is known to be robust and resilient. The credit risk associated with these businesses has
drastically deteriorated (low mid-2008 before the crisis and moderate to high in 2012). The long-term well-being of the industry
is also at stake with an astonishing deceleration of investment in the sector with very few new hotel projects and existing hotels’
renovation in the pipeline.
Solutions to these hardships are not readily available, but involve a proper soul-searching for all the stakeholders in the industry
with a lengthy timeframe for the necessary reforms to yield results. These changes would have to be across all levels ranging
from marketing strategies, communication channels, and air access to the quality of service and is the sine qua non condition for
changing the market dynamics. On a long-term perspective, the restructuring must be even carried at a higher echelon involving
strategic plans (e.g. mandatory learning of languages like Afrikaans, Mandarin, Hindi, etc in the curriculum of schools) to prepare
the new generation to cater for the needs of what might be our driving markets (mainly India, South Africa and China) in the
future. Of course, existing clients should not be neglected in the process (Europe accounts for 58% of arrivals and Reunion
Island 15% for the period January-July 2012).
Re-thinking the existing industry model (which has certainly generated positive results in the past, but alas gradually losing pace
and alarmingly starting to lose breath) would be the way for our flagship sector to navigate safely out of the storm!
6