Tuesday, April 14, 2009

Discount pressure risky for tourism

The Dominion Post
13 April 2009

Increasing pressure for cut-price accommodation is putting the tourism sector at risk of being run down and unprepared for the Rugby World Cup.

Statistics New Zealand figures for February showed occupancy rates were the lowest for 10 years in a February month, typically the strongest month for travellers' accommodation.

That combined with lower numbers of paid guest nights was putting extreme pressure on operators to agree to customers demanding discounted prices.

February guest nights increased year on year from 2006 to 2008 but dropped this year by nearly 8 per cent.

International guest nights were down 13 per cent while domestic travellers were only buying 2 per cent less.

Hotel Council chairwoman Jennie Langley said the pressure to discount was fierce, led by overseas wholesalers and a public expectation that they could get away with it.
"Last-minute booking trends are extraordinary. Even some of the long-haul travellers are booking only seven to 10 days out. They are obviously thinking the longer they leave it the better deal they will get."

With the low season starting, the pressure to fill beds was strong but the long-term cost of discounting was dire. Ms Langley said discounting threatened hotels' profits and limited their opportunity to reinvest in maintenance and refurbishment.

"That is absolutely essential to some of these properties around the country. We have the Rugby World Cup coming [in 2011] and we have to deliver to the quality of the brand or the star rating."

Hotels should add value such as free meals or activities instead of lowering their room rates, which were already low internationally.

The Hotel Council's 2008 annual operating survey showed Wellington had the highest average room rate in New Zealand at $147, significantly less than the A$170 (NZ$209) average room rate across Australia's three main cities, Sydney, Melbourne and Brisbane.

"It really does take a long time to recover those room rates [after they have been discounted]," Ms Langley said.

Holiday Inn Wellington general manager Heather Idoine-Riley said a healthy corporate market and a well-recognised brand meant they had not had to discount heavily, but with more cheap flights more people were arriving in Wellington without booked accommodation.

"They are walking around asking for discounts and after three or four hotels they get it," she said.

Millenium Hotels managing director BK Chiu said the market was supply and demand driven and his hotels had the autonomy to cut prices to fill rooms.

"If we have one room left, you will pay rack rate, but if we have to fill 100 rooms, you'll get a good deal."

He said it was the nature of the market and they needed certain occupancy rates to keep the hotels ticking over. With dropping tourist numbers they had to compete.

"It always hurts, but it is a free market. There are no price controls here."

Motel Association of New Zealand chief executive Michael Baines said moteliers were not under the same pressure, with profitability holding up better than occupancy, and room rates reasonably stable.

"I think some of the hotels are being extremely silly. You'd wonder if they are throwing a dart at the price board. I don't see a lot of rationality in what they are doing," Mr Baines said.

Ms Langley said some hotels were prepared to stand their ground on prices and that had to become the norm.

"It takes both policy and courage to say this is our bottom line and we're sticking to that. That is starting to happen in some areas."

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