Tourism shifts from volume to value as risks mount

Higher visitor spending, resilient hotel occupancy and stronger room pricing are helping the hospitality sector absorb a slowdown in tourist arrivals, according to CareEdge Africa’s latest Industry Pulse, released on 7 August 2026. The ratings agency expects the industry to remain on a broadly positive trajectory, but says its next phase of growth will depend less on visitor volumes and more on premiumisation, connectivity, source-market diversification, and operators’ ability to manage higher financing, labour and investment costs.

Tourism is entering a more demanding phase of its post-pandemic recovery. Arrivals are still growing, but at a slower pace, while earnings, spending per visitor and hotel pricing remain comparatively strong. CareEdge Africa’s assessment points to a sector with considerable underlying resilience — supported by high occupancy, international branding and stronger cash generation — but increasingly exposed to geopolitical shocks, expensive borrowing, climate risks and persistent labour shortages.

The report, Hospitality sector: Next destination, comes as global tourism has effectively completed its recovery from Covid-19. International tourist arrivals reached an estimated 1.5bn in 2025, exceeding the 2019 level, while international tourism export revenues reached approximately USD 2.2tn. The Middle East and Africa recorded the strongest gains relative to pre-pandemic levels, at 39 per cent and 17 per cent respectively.

Tourism is entering a more demanding phase of its post-pandemic recovery.

Spending cushions slower arrivals

At home, tourism’s contribution to gross value added increased 4.8 per cent in 2025, taking its share of overall GVA from 8.6 per cent to 9 per cent. Growth is expected to moderate to around 2.4 per cent in 2026.

The slowdown became visible in June, when arrivals fell 8.4 per cent year on year to 89,098, the weakest monthly performance so far in 2026. Cumulative arrivals for January-June nevertheless remained 1.5 per cent higher at 668,471.

CareEdge linked June’s softer performance to geopolitical uncertainty, higher airfares and weaker consumer confidence in major source markets. Yet receipts have held up considerably better. Gross tourism earnings increased 4.8 per cent year on year to MUR 8.6bn in May, while cumulative receipts rose 19 per cent to MUR 48.1bn during the first five months of the year.

The difference has been visitor spending. Spending per tourist was 11.9 per cent higher in May and 15.1 per cent higher on a cumulative basis, while the average length of stay remained broadly stable at around 11 nights. “Strong visitor spending, high hotel occupancy, and improving employment continue to support Mauritius hospitality sector despite slower growth in tourist arrivals,” the report states.

Source markets begin to shift

France remained the largest source market in the first half of 2026, accounting for 23 per cent of arrivals, although growth was limited to 0.8 per cent. More significant gains came from Germany, up 13.4 per cent, India, up 11.9 per cent, and South Africa, up 7.1 per cent. China recorded the strongest percentage increase at 30.1 per cent, although from a smaller base. By contrast, UK arrivals declined 16 per cent and Réunion fell 0.6 per cent.

The shift provides some diversification from traditional European markets, although the visitor mix remains overwhelmingly leisure oriented. Holidays accounted for 94.8 per cent of arrivals in the first quarter, compared with 2.6 per cent for business and 2.4 per cent for transit. CareEdge sees room to broaden the tourism base further through business travel, events and cruises.

Mauritius recorded a 3.2 per cent year-on-year growth for January-May 2026, while arrivals fell 11.7 per cent in Seychelles, 4.7 per cent in the Maldives and 1.8 per cent in Bali.

Connectivity remains central to that strategy. More than 94 per cent of arrivals from Europe, Africa, Asia and Oceania came by air in the first half of 2026. Dubai, Paris Charles de Gaulle, Istanbul and Frankfurt together accounted for 44 per cent of passenger traffic in 2025.

Cruise tourism is nevertheless gaining ground. The share of sea arrivals from America rose from 0.3 per cent in the first half of 2022 to 13.7 per cent in the corresponding period of 2026, while Europe and Oceania also recorded increases. The cruise terminal opened in 2023 has strengthened the island’s capacity to capture this market.

Occupancy outperforms regional rivals

Hotel occupancy averaged 70 per cent during the first quarter of 2026. January was seven percentage points above its 2025 level and February three points higher, although March moderated to 68 per cent.

Tourism-related employment also continued to recover, rising from 28,217 in 2024 to 28,834 in 2025, with hotels accounting for the largest share of jobs.

Mauritius also compared favourably with rival island destinations. Bali attracted 2.6mn visitors during January-May 2026 and the Maldives 0.9mn, compared with 579,373 for Mauritius and 145,858 for Seychelles. But Mauritius was the only one of the four to record positive year-on-year growth over the period, at 3.2 per cent. Arrivals fell 11.7 per cent in Seychelles, 4.7 per cent in the Maldives and 1.8 per cent in Bali.

Accommodation occupancy was also highest locally at 73.6 per cent, against 68.2 per cent in the Maldives, 61 per cent in Seychelles and 60.6 per cent in Bali. CareEdge attributed the relative resilience partly to the country’s positioning as a safe long-haul destination and its geographical insulation from conflict-affected routes.

Hotels lean increasingly on pricing

Performance differs sharply across hotel categories. Three-star occupancy declined from 79 per cent in 2023 to 67 per cent in 2025, while four-star hotels increased from 76 per cent to 79 per cent. Five-star properties improved more modestly from 69 per cent to 71 per cent.

Pricing has been the more consistent source of growth. Average daily rates increased across all categories between 2023 and 2025, with three-star hotels recording the strongest increase, at about 49 per cent. In 2025, average ADR stood at MUR 7,319 for three-star properties, MUR 8,340 for four-star hotels and MUR 20,167 for five-star establishments.

The four-star segment displayed the most consistent pricing profile, while the wider gap between average and median rates at five-star hotels reflected greater differentiation within the luxury market. “Pricing strength emerges as a key revenue driver,” the report said.

Revenue per available room increased across all three categories. Three-star hotels recorded the strongest RevPAR growth, at 56 per cent, despite declining occupancy — evidence that rate increases rather than additional room volumes drove the improvement. Four-star hotels produced the most balanced performance, combining stronger occupancy and ADR, while five-star properties retained the highest RevPAR levels.

Accommodation remains the principal source of hotel revenue, accounting for roughly 55-65 per cent of turnover, followed by food and beverage. Ancillary income from conferencing, banqueting and other services remains comparatively smaller.

Investment recovers as FDI retreats

Capital spending is expected to regain momentum. Gross fixed capital formation in accommodation and food services is projected to rise from MUR 6.8bn in 2023 to MUR 7.6bn in 2026.

Real investment growth slowed from 10 per cent in 2023 to near stagnation in 2024 before contracting 4.8 per cent in 2025. A rebound of around 3.5 per cent is expected this year as operators continue to refurbish and upgrade their properties.

Foreign direct investment presents a more uneven picture. FDI into accommodation and food services rose from MUR 1.9bn in 2015 to a peak of MUR 5.1bn in 2022 before falling to virtually zero in 2025. CareEdge noted that such flows tend to be volatile because of the project-driven nature of investment in small island economies.

Lower debt, higher financing costs

The sector has made progress in reducing debt, but higher interest rates have limited the benefits.

Resort hotels accounted for MUR 30.2bn, or 77.5 per cent, of bank lending to accommodation and food services in May 2026. Other hotels accounted for another MUR 6.3bn, taking total hotel exposure to 93.6 per cent of lending to the sector.

Foreign-currency borrowing declined sharply, falling 43.1 per cent from MUR 29.7bn in May 2022 to MUR 16.9bn in May 2026. At the same time, rupee-denominated debt increased its share of bank borrowing from 42.4 per cent to 56.7 per cent.

CareEdge sees the shift towards rupee borrowing as reducing currency mismatch risk, even though hotels continue to benefit from a partial natural hedge through receipts in euros, sterling and US dollars.

But debt has become significantly more expensive. Outstanding bank borrowings declined 24.3 per cent between May 2022 and May 2026, while the weighted average interest rate jumped from 4.27 per cent to 7.68 per cent.

CareEdge estimates that the resulting interest-cost proxy stood at MUR 3bn in May 2026, still 36.1 per cent above its May 2022 level despite the reduction in debt. Including non-bank deposit-taking institutions, total lending exposure stood at MUR 39.2bn in May 2026, down from MUR 51.7bn four years earlier. NBDTI lending remains negligible at around 0.5 per cent of combined loans, leaving commercial banks as the industry’s main formal source of finance.

Foreign-currency purchases by banks and FX dealers also softened in the first half of 2026, averaging USD 54.4mn a month and totalling USD 326.4mn, around 29 per cent below the same period of 2025. CareEdge cautioned that the figures are market-wide rather than tourism-specific but said volatile FCY availability could still create timing and liquidity risks for operators with foreign-currency obligations.

Strong credit profile, but risks are building

Brand strength, occupancy, pricing power, diversified source markets, recurring cash flows and foreign-currency earnings are all regarded as positive credit factors. Leverage, seasonality and exchange-rate and input-cost volatility are assessed as neutral.

The negative factors are more structural. Climate change exposes operators to cyclones, coastal erosion and coral reef degradation, while the need to refurbish ageing properties and meet environmental standards creates substantial recurring capital expenditure.

Labour shortages remain another constraint, particularly for specialised operational and managerial positions, increasing wage pressure and dependence on expatriate workers.

Geopolitical risk is the more immediate concern. An escalation of conflict in the Middle East could push up oil prices and airfares, disrupt air routes and weaken travel demand from major source markets. UN Tourism expects international arrivals to increase by 3-4 per cent, although CareEdge estimates that the conflict could reduce that growth by one to two percentage points.

Growth moves from volume to value

The longer-term backdrop remains supportive. Travel and tourism are expected to grow at an average annual rate of 3.5 per cent between 2025 and 2035, compared with projected global economic growth of 2.5 per cent. Air passenger traffic is expected to almost double by 2043, while stronger outbound travel from India, China and African markets could help diversify the visitor base further.

Changing travel preferences could also favour the destination’s premium positioning. The global experience economy is valued at more than USD 1tn, while the wellness tourism market is projected to reach USD 2tn by 2030. Wellness travellers spend around 40 per cent more per person, and about 40 per cent of generative-AI users already use the technology to plan or book travel.

CareEdge argues that this creates an opportunity to focus increasingly on higher-value, experience-led and sustainable tourism rather than simply pursuing more arrivals.

“For Mauritius, the next phase of tourism growth is likely to be driven less by a simple increase in visitor numbers and more by diversification, premiumisation, connectivity, and investments in the tourism offering,” the report said.

The ratings agency expects the sector to maintain a “broadly positive trajectory” but says stronger and more stable credit profiles will ultimately depend on operators’ ability to “sustain pricing power, diversify demand, manage costs, and translate revenue growth into recurring cash flows”.