Outlook cloudy for hotel room rate growth

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Australian Financial Review, 22 August 2011


City hotels might be full but hoteliers are downgrading forecasts for room rate rises, citing tougher economic conditions.

Softening global markets are hampering the accommodation sector, which until now had been showing signs of good rate growth, according to the Deloitte Hotel Market Outlook  for the third quarter of 2011, released yesterday.

“Hoteliers are not as bullish as we had expected, with actual year-to-June-2011 room-rate growth slightly below our expectations,” said Deloitte tourism executive Rutger Smits. “Leisure destinations are fighting to maintain occupancy levels, though often at the expense of growth in room rates.’’

Deloitte has downgraded its national average revenue per available room forecasts for 2012 from $100 to $99, saying it expects lower room rates. It also blames the floods and cyclone Yasi, which hit Queensland early this year, softening inbound arrivals, and the grounding of Tiger Airlines in July.

In Sydney, Deloitte says, average room rates are not growing as fast as thought and it has revised its 2011 year-end forecast down by $4 to $191. In Melbourne, demand growth was not as strong as Sydney. The general manager of the Hotel Windsor in Melbourne, David Perry, attributed the softening sentiment to the grounding of Tiger in July. Melbourne had lost about 10 per cent of its inbound arrivals because of the Tiger decision. “I would not overreact to that blip,” he said.

Canberra hotels averaged 72.3 per cent occupancies during the June quarter, down 2.5 per cent on 2010.

In Cairns, natural disasters and diminishing domestic and international tourist numbers have contributed to grim forecasts for the region, with average rates down 2 per cent to $113. The general manager of the Shangri-La Hotel, The Marina, Cairns, George Wee, said: “In any tough economic times like we are in now, hoteliers need to be more mindful that we are not always pushing rates when the demand is not there. [But] if the demand is there, we will be holding rates.’’

Deloitte has cut back its forecasts for Perth, reducing its predicted revenue per available room in 2012 from 23 per cent to 20 per cent, citing “slower occupancy growth, with rate forecasts maintaining at $206 and occupancy forecasts down from 89 per cent to 87 per cent”.

But not everyone believes hotel rates will decrease. CWT Solutions Group senior director Mike Orchard expects rate growth in Sydney, Perth and Brisbane over the next year.

“So far in 2011, CWT has seen a strong growth in hotel reservations,’’ Mr Orchard said. “Across the industry, average daily rates in key Australian cities are generally up over 5 per cent, year on year. In discussions with the leading hotel chains, expectations for rate increases in the fast-approaching negotiation season are well above 10 per cent for Sydney, Perth and Brisbane, with more moderate increases in other cities.’’

Rutger Smits was the National Leader for Tourism, Hospitality and Leisure at Deloitte until October 2011. He now manages his own hotel consulting business, AHS Advisory

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