The pace of change for the Australian hotel and tourism sector as a result of COVID-19 was unlike anything that had been seen before, resulting in a sharp decline in trading during the first four months of 2020.
Colliers analysis of STR Global figures found that performance declines in Australia have been largely due to the contraction in demand with occupancy declines in April, ranging between -14.6% in Perth to -39.5% on the Gold Coast, when comparing the month-on-month 3M rolling average.
Markets such as Sydney and Melbourne have been more significantly impacted however by a fall in Room Rates with replacement quarantine business charged at a significantly discounted room rate when compared to the first quarter average
Karen Wales, Director, Hotels at Colliers believes that Australia’s tourism industry has the potential to rebound strongly from COVID-19, due to ‘revenge spending’.
“Revenge spending is a term which was coined to describe pent-up Chinese consumer demand in the 1980s that was unleashed after the chaos and poverty of the Cultural Revolution.
“The anticipation of revenge travel over the next 6 months to the end of the year prior to the opening up of international borders
“Fast-forward to today’s unique situation and every Australian who’s been stuck in isolation has probably quaran-dreamed about the places they’ll go, when we can finally leave our houses.
“With many investors expecting the domestic leisure segment to lead the recovery, hoteliers are hoping for a swift turnaround when we finally elbow bump goodbye to the coronavirus.”
“NSW and Victoria expected to lead the recovery given border restrictions in other states and being the largest intrastate holiday markets, representing nearly 60% of Australian hotel stays in 2019.”
“Queensland and Western Australia have the potential to benefit most from revenge spending as they are the biggest beneficiaries of net importation of domestic tourism. The continued closure of these state borders has the potential to weigh heavily on the state tourism industries given their net importer status.”
In the meantime, Colliers maintains there are several steps that hotel owners and operators should have already implemented in regards to the demand shock.
“By now each hotel owner, in collaboration with their operator, should have stepped through every market segment and contacted every account within each segment to determine what if any room night demand exists,” said Gus Moors, Head of Hotels at Colliers.
“If those accounts have indicated ongoing demand, you should have determined their stay patterns as well as their food and beverage requirements whilst at the hotel. Owners and operators should also have explored new revenue opportunities, particularly from government channels.”
“Having honestly assessed the likely income expected over the past two months and the coming three months, the next step you should have undertaken is to restructure the cost base to match that revenue outlook.
Nigel Greenaway, National Director, Hotels at Colliers, said that cost assessment is another key component that both parties need to consider.
“Collaboration between owners and operators has never been more vital, and owners have for the first time been involved in the granular assessment of each expense line.”
As the largest expense, payroll has drawn the greatest attention, and this has been the over-riding focus in determining whether to remain open or not.”
“The conclusion we have drawn is that the fixed labour cost required to remain open is not that different to the skeletal staffing needed even when the hotel is closed. It is also important to retain the key management team that will enable you to ramp back up once the lockdown lifts.”
“Once completed, this combination of realistic revenue forecasting coupled with the granular expense review would have allowed you to understand your future cashflow outlook and you should therefore be able to understand if further equity injection is required and when.”
The outcome of this planning and the implementation of saving measures should lead owners to weather the low occupancy storm for 2020.
The industry is starting to show the green shoots of recovery.
Colliers analysis of Site Minder booking data for May shows that Australia, along with New Zealand, is leading the global recovery in hotel bookings. The volume of hotel bookings in Australia has risen throughout the month to be at one third of the level recorded in 2019 as at Saturday 23rd May.
Karen Wales said “The biggest spike in Australian hotel bookings in May was for Canberra, up from 15.07% of 2019 levels at the start of the month to 32.76% by Saturday 23rd May and representing a very strong trajectory. Similarly, Gold Coast and Adelaide both experienced a doubling in hotel bookings over the month. Perth continues to outperform, but Sydney also showed impressive pick up over the past week, far outpacing the growth in Melbourne and Brisbane.“
“Owners and Operators will need to carefully monitor future bookings, whilst maintaining tight control of costs as the recovery gains pace” added Nigel Greenaway.