Australia / Analyst Insights
The tourism boom is driving demand for hotels

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by Karlson Sidhu
Aug 28 2018

The Australian tourism boom is driving growth for the Hotels and Resorts industry. However, increasing competition has forced hotels to innovate to stay profitable.

The Hotels and Resorts industry is booming as more and more people are travelling to and around Australia. Total visitor nights from domestic and international travellers have increased by an annualised 5.2% over the past five years. The weak Australian dollar has made it more affordable for overseas travellers to visit Australia and discouraged locals from travelling abroad. The growing affluence of countries in Asia has made this region the fastest growing source of new tourists to Australia. As a result of these factors, the Hotels and Resorts industry is expected to grow by an annualised 2.4% over the five years through 2018-2019 to $8.4 billion. Despite this revenue growth, industry operators have had a hard time increasing their profitability over the past five years. High labour costs, slow growth in occupancy rates, and growing competition within the industry and from Airbnb and serviced apartments have all threatened profit growth over the period.

Major hotel operators AAPC Limited and Event Hospitality & Entertainment Limited are focusing on delivering high-quality service and luxury facilities to differentiate themselves from alternative accommodation services such as Airbnb. AAPC Limited, a subsidiary of the Accor hotel group, acquired the Mantra Group in May 2018 to consolidate its position as the largest hotel group in Australia. AAPC Limited’s revenue is expected to grow by an annualised 39.9% to $742.2 million in 2018 as a result of this acquisition. Event Hospitality & Entertainment Limited has opened new hotels in Brisbane, Adelaide and Darwin under the Rydges brand, while the company’s QT Hotels brand continues to open boutique hotels across Australia and New Zealand. The hotel group Marriott International, the largest hotel group in the world, is also planning to expand its Australian operations, opening several new luxury hotels in major cities. The addition of these new hotels and rooms are expected to keep occupancy rates rising in line with the tourism boom. However, many of these new projects are at the higher end of the market and average daily rates for rooms are expected to grow by 2.7%.

The Federal Government has reduced penalty rates for their full-time and part-time staff in the hospitality sector, reducing the rate from 175% to 150% on Sundays. Lobbyists have claimed that this could also help hotels extend service hours, offer better services and employ more staff. However, this seems unlikely as growth in new establishments is outpacing growth in new employment. Hotels are also adopting new technology to reduce staff numbers, incorporating more streamlined booking and guest management systems to increase efficiency. Some hotels are going a step further by installing self-serve check-in, and food and beverage kiosks. In an increasingly competitive environment, hotels are succeeding by providing an enhanced experience while limiting costs.

Companies mentioned in this report:

AAPC Limited