High hotel occupancy not matched by room rates

High hotel occupancy not matched by room rates

Large hotels around New Zealand report their highest occupancy rates since 1997 but say that in today’s prices, average room rates are lower than they were eight years ago.

New Zealand Hotel Council (NZHC) Chief Executive Officer, Jennie Langley, says that the organisation’s 2004 Annual Survey of Hotels’ Performance clearly shows that despite the very high occupancy, room rates have not kept up with inflation and are regarded as being low by international standards.

“The statistics show that average occupancy last year for NZHC members in the five main tourism centres – Auckland, Rotorua, Wellington, Christchurch and Queenstown - was 75.55%. That’s up 3.71% on 2003 and has increased from 69.13% in 2001 when we started this survey.

“But the average room rate for the same period across the regions increased by just $0.22 (22 cents) to $124.80, largely due to a drop in rates achieved in Auckland.”

Auckland benchmark

Ms Langley says that as Auckland is regarded as the ‘city of entry’ with around 70% of all international visitors coming through the airport, room rates there tend to be regarded as the benchmark for prices charged in other regions.

“Visitors often remark on how low they find hotel room rates in Auckland compared to other cities around the world they’ve stayed in. It is reinforced by the 2003 international hotel benchmark survey by Deloittes that showed Auckland 17th out of 23 cities with an average room rate of USD81. Our nearest neighbour, Sydney, was at that time on USD112 and even cities such as Santiago and Jerusalem were ahead of us.

“The reality is that real (inflation adjusted) room rates for all regions are lower than they were eight years ago.

“The tourism industry is seen as a star performer and although we are certainly not complaining, the return on investment in the hotel sector is still very low.”

Expansion

Ms Langley says the real challenge for major hotels is to gradually lift room rates to a level that will allow owners and investors to upgrade current stock and either expand or build new hotels to meet the increasing numbers of visitors that are forecast to come.

“This is starting to happen and the next two to three years should see a substantial increase in accommodation at all levels which is why it is important that we work together and share information wherever possible.”

Other trends highlighted in NZHC’s 2004 Annual Hotel Survey are the dominance of the ‘FIT and Leisure’ market (accounting for 33% of all rooms sold by NZHC hotel members in 2004) and the increase in Australian visitors.

Independent travellers

“FIT – Free Independent Travellers – is a group that Tourism New Zealand has targeted as being particularly suited to what this country offers. Increasingly they book directly, travel outside the main centres, stay longer and spend more. Most of these people stay in a hotel at some stage of their trip but they are looking for a variety of experiences which is reflected in the growth of other types of accommodation.

“The rise in visitors from Australia can be almost entirely linked to the introduction of cheaper and more frequent Trans-Tasman air fares. Although many of these visitors stay with friends and family, last year they were second (21.4%) to New Zealanders (38.4%) as the largest consumers of hotel accommodation.”

Escalating costs

Ms Langley says that every sector faces significant challenges, particularly the critical shortage of skilled people and escalating costs.

“Hotels are significant businesses and key long term players in the tourism industry. Their level of investment, employment and contribution to regional development will continue to grow. But with soaring energy prices, major costs associated with the recent changes to employment legislation and seriously under-staffed hotels, sustaining profitability is a never-ending battle.”

Survey results show that salaries and wages, 70.5% of total operating costs for 2004 (up from 67.8% in 2003), reflects the labour-intensive nature of the hotel sector. The next largest expense is sales and marketing (8.6%) followed by utilities (7.8% up from 7% in 2003) and rates (5.1% up from 4.9% in 2003).

“Everyone knows that to ensure growth and deliver New Zealand’s tourism promise, they must continue to build quality - at every level of service, product and experience. But the fundamental challenge for the major hotels is to increase their room rates to a level that will ensure sustainable profitability and ongoing investment,” says Ms Langley.

Ends

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