Price crash costs nation's hotels $270m

Author: Bridget Carter

Date: 4/03/2010

Publication: The Australian

AUSTRALIA'S top hotels lost out on an estimated $270 million in revenue last year on the back of falling room rates and lower occupancies.

The room rates of Australia's 500 biggest hotels fell by an average $9 per night, according to hotel research group STR Global.

The slide came as hotels, such as the Mirvac-controlled Cairns Sebel hotel, were quietly offered for sale late last year, while others have been tipped into receivership in the aftermath of the industry downturn. In the past two weeks, listed hotel operators have blamed room rate reductions for the millions of dollars wiped from their bottom lines while reporting half year results.

Industry sources said some hotels slashed rates as a knee-jerk reaction to the economic downturn -- even though Australia already has some of the cheapest five-star hotel room rates in the Western world.

Thakral managing director John Hudson said at the group's half-year profit result that average room rates fell 8 per cent from $185 to $171, causing a fall in revenue of $9m over the period.

"Under normal circumstances, given the high fixed costs associated with hotels, this would have resulted in a fall in profits of some $7m," he said. "This did not occur as Thakral implemented rigorous cost saving and the reduction was reduced to $2m."

According to figures from STR Global, if you took into account an average occupancy rate of between 70 and 75 per cent between 2008 and 2009, and an average $9 room rate reduction over the year, hotel operators in Australian cities would have missed out on an average $739,000 per day, or $270m for the year.

Of that, 65 per cent of the losses could be attributed to a reduction in room rates, while 35 per cent was attributable to a fall in occupancy. The numbers came from 498 of the country's largest hotels.

Hotel analyst Dean Dransfield, of Dransfield Hotels and Resorts, said before the global financial crisis, cost management had not been a focus of the hotel industry.

He said Australia had some of the cheapest room rates in the world because most of the country's developments occurred in the last recession and buyers snapped up the properties for half price as a result.

"Half went broke and it means the capital deployed has only had to earn half the returns. Room rates are low because much of the stock has been brought at a discount . . . we also have high occupancies," he said.

John Smith, managing director of hotel consulting firm Horwath HTL, said the picture going forward for the Australian hotel industry looked brighter.

"We are very optimistic on the outlook for the industry," he said.

He said room rates rocketed in Sydney during last month and this was on the back of numerous events held in the city.

Amalgamated Holdings said growth from owned hotels offset room rate declines of about 11 per cent.

GPT Group's remaining big hotel asset, the Ayers Rock Resort, saw a fall in occupancy to 51 per cent.

Hotel room rates a year ago suffered around the country, particularly in tourist destinations such as Cairns and Port Douglas.

Mirvac's chief executive of hotels and resorts, Andrew Turner, said the Cairns Sebel -- formerly the Cairns International -- was withdrawn from sale after real estate agents tested the market.

More than five years ago, $82m was paid for the recently refurbished five-star property, which is owned by Bob Magid's company TMG in partnership with Mirvac Wholesale Hotel Trust.

Mr Magid said the property was only for sale at the right price.