By Martin Kelly, Editor, Travel Trends

8-hotelAUSTRALIA’S accommodation industry is entrenched in a discounting cycle that will last throughout 2009 and possibly well into 2010, slicing 10% or more from the bottom line of major hotel operators.

Demand, already on a long slow slide in most markets softened markedly during April, signalling what some observers see as significant shift in consumer sentiment.

“The volume of bad news out there is increasing and people are becoming very, very cautious,” says analyst Dean Dransfield (pictured, left).

“The recession has now got very real for them and they are concerned.”

Dransfield says April was an eye-opener for some operators previously insulated from the recession.

“I’ve just spoken with one operator who normally runs an occupancy rate of more than 90% and he said April had been very poor and that there’d been a 20 point drop in occupancy.”

Dransfield thinks overall demand has fallen by up to 10% with business travel hit hardest, off by 20% in some cases.

Rates have followed with discounts of at least 30% per cent available through the Internet.

However Simon McGrath, Vice President Australia for Accor Hospitality, which led the charge down with its ‘3-Day Super Sale’, claims the overall scenario is less dramatic.

“The level of discounting now in place is probably 5% to 10% in real terms,” says McGrath.

The latest figures from STR Global, which focuses on the performance of big hotel groups, shows revenue per available room (revPAR) across Australia during March fell 6% to $130.72 compared with 2008.

Other regional markets performed much worse. For example, during March RevPAR in China was down 35%, India fell 40%, Japan 14.4% and Singapore 28.5%.

In Australia, McGrath doesn’t believe discounting will go much further than present levels because achieving penetration in a market “so cluttered it’s almost unbelievable” will require such massive cuts it would not be worthwhile.

“Instead, we’re trying to achieve cut-through by going direct to clients,” McGrath says, adding that clever packaging with the true price hidden by value-adds such as complimentary breakfast is becoming increasingly important.

Either way, profitability has taken a hit – a trend that will undoubtedly continue.

“I think it will have dropped by 10% as a number, perhaps five points of margin,” says Dransfield.

While Dransfield and others tentatively forecast a demand rebound this year, rates will lag – ensuring that consumers with the confidence to travel will enjoy the best deals they have seen for years.

“Consumers can assume they’ll get great deals for the next 18 months,” says David Perry, CEO of the Windsor Hotel in Melbourne, a market that will be put under pressure with a glut of new rooms through 2009.

Perry acknowledges the challenges ahead but was keen to emphasise that accommodation is a cyclical industry coming off historical highs.

“You could have been Basil Fawlty and still filled in Melbourne over the past three years,” says Perry who has no qualms about cutting rates to drive demand.

“We’re making sure our prices are bloody sharp. You’ve just got to get up and do things every day.”

Of the future he says: “We are prepared for all eventualities. We’ll have to be on our toes and work bloody hard in the next year or two.”

And, he adds, aggressively use the Internet, which has completely changed the accommodation marketplace.

Sebastian Fontanarossa, Director of Strategic Marketing –Pacific, Hyatt Hotels and Resorts International, says: “Now we can go direct to consumers instead of just through wholesalers, which brings a whole new dynamic.

“It means we can put a rate out there and have an impact right away.”

Fontanarossa predicts we will see a continuation of the high-impact, short-term campaigns such as those run by Accor and Rydges during March geared toward advance purchases.

Accor sold rooms from just $US35 while Rydges offered redeemable accommodation vouchers valid at all its properties for A$95 per room per night.

In each case, these deals were only available direct from the supplier’s internet site – locking out traditional distribution partners such as travel agents and online retailers, such as Wotif.com.

As a result, international web heavyweight, Expedia, pulled all relevant Accor and Rydges inventory from its local websites for the duration of the sales.

A point was made by both sides, but at the end of the day the sales were clearly worth it for the hoteliers.

Rydges is believed to have sold 45,000 room vouchers, taking the cash up front.

“This pattern will continue – consumers expect this now and wait for the next wave of offers,” says Fontanarossa.

He thinks “we are probably already close to the bottom” in terms of demand.

“In general terms I believe we will see occupancy start coming back at the end of the year. The rate cycle, sadly, has got further to go.”

Sad, that is, for hoteliers.

Travel Trends: 8 May, 2009

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