Thousands of jobs go as hotels face long road to recovery
Hotel room revenue throughout the country dropped by 84 per cent in April and May, when the sector lost $185 million and thousands of jobs.
The NZ Hotel Owners Association says the economic impact of Covid-19 on the hotel sector has been severe, and the pandemic is expected to have a profound impact on global tourism for up to five years.
The association’s executive director, Amy Robens, says members, many of them Auckland based, have made mass redundancies, with up to 80 per cent of the 10,000 people employed nationwide losing their jobs.
Hotels will continue to trade in a downward cycle for now, with wider tourism demand only beginning to re-emerge in 2021. In spite of some domestic tourism, hotel occupancy is forecast to be only about 25 per cent for the rest of the year.
About 20 per cent of Auckland’s 86 hotels closed completely in April and remained closed the following month.
Those that did stay open did so with skeleton staff and with minimal occupancy.
While the Government expects domestic travel will lead the tourism recovery, it is well known in the industry that smaller accommodation providers such as motels and camping grounds are likely to be the main beneficiaries, with hotels unlikely to gain much benefit at all, said Robens.
The association represents more than 100 hotels and members operate
11,000 rooms with a capital value of $3.8 billion.
Those in Auckland had already been hard-hit by the council’s Accommodation Provider Targeted Rates (APTR), which have now been suspended for a year. The rate was levied to fund promotion of the city.
The association is now pushing for its indefinite removal.
In feedback on Auckland Council’s emergency budget, the association says:
● Despite hotels operating with little to no revenue and unpredictable future bookings, we continue to be burdened by significant fixed costs such as insurance, fire service levies, high electricity fixed line charges and of course local government rates; including the proposed reinstatement of the APTR.
● Hotels require volume to meet operational requirements and fixed charges, as noted above, and are forced to sustain ongoing maintenance and meet high compliance costs. In order to meet those financial costs a hotel must run at above a
70 per cent occupancy and achieve a fair room rate.
● This will not happen under the current climate and we estimate that occupancy throughout New Zealand will remain at around 25 per cent until year end, leaving hotels with severe cashflow issues.
● Horwath HTL reports monthly hotel room revenue in Auckland between March 2020-May 2020 plummeted by around $72 million, down by 55 per cent. The true impact of Covid is slightly hidden in these figures as certain hotels in Auckland were used as part of the Government’s quarantine isolation requirements for returning travellers.
● Should the Government find other fixtures to house people coming into NZ, there will be a large number of hotels who will also face a further decline in revenue.
● The Hotel Data NZ monthly benchmarking programme shows hotel occupancy in the quarter ending May 2020 nosedived to 36 per cent compared with 82 per cent for the same period the year prior, with [revenue available per room] at just $65.29 compared to $159.73 for May 2019.
● Confidence among [hotels] is much bleaker than general business confidence with hotels facing immediate cashflow problems and an uncertain future outlook given the slow recovery of international visitor markets on which the majority of hotels heavily rely.
The association says the APTR is inequitable, increasing rates three-fold in some cases and costing hoteliers hundreds of thousands of dollars. As a fixed operational cost based on a hotel’s capital value, the rate cannot be passed on to the guest.
It says only a quarter (26 per cent) of visitors to Auckland stay in commercial accommodation such as hotels and motels. Commercial accommodation itself accounts for only 9 per cent of total visitor spending.
“The APTR is unreasonable and highly disproportionate to the benefits received.” The Council is has been unable to ensure compliance by Auckland’s 1100 Airbnb operators due to an inability to locate and identify them, thus leaving the hotel industry in an “inequitable and disadvantaged position,” the association says.
It says the APTR must be removed indefinitely to allow the hotel sector a chance to rebuild and continue to significantly benefit the regional economy via flow-on benefits to multiple businesses.
If it is reinstated, Auckland’s hotels face an even more uncertain future.
Grant Bradley