Regions bounce back as luxury city hotels sit near empty

It has proved so popular Qantas replaced its small daily turbo prop plane service with a jet during the last September school holidays. Around the same time, the airline also started direct flights from Sydney to another popular south coast destination, Merimbula.

Qantas, which cut thousands of jobs and lost millions from COVID, is also starting to recover. It is flying, or has announced, 13 new routes since border restrictions started to ease in July.

International border closures mean Australians are exploring their own backyard, says QantasLink chief executive John Gissing.

“There’s huge pent-up demand for travel and we’ve seen millions of Australians booking domestic and regional flights since borders started to re-open,” he said. Three of those routes were new direct flights to Hobart from Brisbane, Perth and Canberra.

Ben Targett, chief executive of Hobart’s Old Woolstore Apartment Hotel and the Victorian-era Hadleys Orient, says the pandemic forced the closure of Hadleys last year and dramatically reduced occupancy at the Woolstore.

“When COVID hit at end of February we were flying along at both properties. To then drop from 90 per cent occupancy to 10 per cent was incomprehensible,” he said.

“The first half of year was very heavy going. Without the JobKeeper program, we would have been in a lot of trouble.”

When you lose international and the corporate domestic travellers in the CBD, it’s about 80 per cent of your market.

Now things are picking up. The lure of an Apple Isle getaway is appealing to travel-starved mainlanders. “Putting aside the ever present risk that an outbreak could bring an abrupt change, we’re very positive,” Mr Targett said.

But in Australia’s largest cities it’s a different story. The accommodation sector faces a looming problem exacerbated by the pandemic’s effects – the sheer number of new hotels opening almost every week.

Between mid-November and the end of December last year, 86 new hotels and 13,870 new rooms were slated to open, according to hotel data provider STR.

Melbourne has the country’s largest hotel construction pipeline, a building boom that has been an immense challenge to the industry and property investors.

The number of rooms under construction and about to be finished in the city is equivalent to 17 per cent of existing supply – or one new room for every six older door keys.

Sydney’s new supply will add about 10 per cent to existing stock.

Compounding the difficulties are the type of travellers that CBD hotels usually rely on, corporate and international visitors.

“When you lose international and the corporate domestic travellers in the CBD, it’s about 80 per cent of your market,” says Dean Long chief executive of the Accommodation Association.

The pandemic has slammed the door shut on hotel’s main source of income for the last 10 months. “That’s how tough city hotels are doing. It’s a really challenging environment,” he said.

The federal government must extend the JobKeeker lifeline for the sector, he argues.

Room occupancy in Melbourne’s CBD was around 30 per cent last November, a figure boosted by health workers and the hotel quarantine program. Before the pandemic, roughly eight in ten rooms were full at any given time in Sydney and Melbourne.

Even in Brisbane’s CBD – where the pandemic barely registered in terms of shutdowns – occupancy is low, hovering between 45 and 50 per cent.

The real crunch will come next month when “we can determine what level of corporate business returns,” says Simon McGrath, chief operating officer for Accor, one of the country’s largest hotel operators.

Accor’s 400-strong Pacific venues include the upmarket Pullman and Sofitel brands, mid-market Mercure and Novotel, and the economy Ibis range. “There seems to be an expectation from most companies they will return to workplaces in January and we hope that translates into activation of the cities,” he said.