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 Australian Hotel Performance Goes from Strength to Strength; 
RevPAR Up Almost 8% During the First Nine Months of 2005
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October 26, 2005 - The Australian hotel market seems to be going from strength to strength. Latest figures from the HotelBenchmark™ Survey by Deloitte show that Australian hotels have posted the strongest growth for the first nine months of any year, well with the exception of the Olympic year that is. And, with revenue per available room (revPAR) at AUS$116, this is in fact only AUS$2 behind highs achieved in 2000. 

International arrivals to double in nine years

But Australia doesn’t plan to stop there. Recently the country’s Tourism Forecasting Committee (TFC) announced plans to almost double its number of international arrivals within the next nine years. Growing at an annual rate of 5.6% international arrivals to Australia are expected to reach 9m by 2014, boosting the value of inbound tourism to AUD$32.1 billion. Whilst on the face of things this may seem aggressive, the reality is that this year, growth is forecast at 6.4%.

Japan to Russia and beyond

In order to achieve this tourism target, Tourism Australia (TA) has been busy making preparations to further raise the profile of the country. Over recent months, TA has launched advertising campaigns as far away as North America, Canada, Russia and Japan

After New Zealand, Japan is Australia’s second largest source market, accounting for approximately 13% of all international arrivals year-to-September 2005. However, since its peak in 1997, with 814,000 Japanese people visiting Australia, this number has been gradually falling. In order to try to win back this declining market, in April 2005 TA launched an AUD$8m “Brand Australia” campaign, putting Australia back on Japanese television for the first time in seven years. In addition, a further AUD$7.5m will be spent on joint promotional activities between TA, Qantas Group and Japan Airlines. 

In July, TA and Qantas also embarked upon an AUD$60m three year global destination marketing partnership. With the goal of increasing international demand, TA and Qantas will work together on joint global marketing campaigns in twelve of Australia’s key source markets, namely the UK, USA, Canada, Germany, France, Italy, Hong Kong, China, Singapore, Japan, India and New Zealand.

Access to growing markets

While activity at TA is bustling, the airline industry has also been busy. With the Americas currently accounting for 11% of all international arrivals to Australia Qantas has been trying to tap further into this market. In July 2005, the company launched a new non-stop weekly service between Los Angeles and Brisbane. Qantas also has plans to add further new routes to the US in 2006, including three non-stop weekly flights from Sydney to San Francisco and new services to Vancouver. 

Early next year, Qantas will begin to operate three weekly flights between Sydney and Beijing, with the aim of increasing this to a daily service within two years. These new flights come at an important time for Australian tourism as visitors from China are expected to grow to 9.6m in 2013, an increase of 23% on the levels achieved in 2004.

Not to be left out, Qantas’s low-cost carrier Jetstar is also busy expanding its services too. In December it will start running a direct service from Christchurch, New Zealand to four major Australian destinations - Sydney, Melbourne, Brisbane and the Gold Coast. Jetstar’s entry onto this route will increase the capacity for the Qantas Group by almost 1,500 seats. The combination of tourism marketing campaigns, together the airlines expanding into important markets, has and will continue to have a positive effect on hotel performance across the country.

Domestic market causes concern

Whilst the future of international arrivals continues to look good, domestic tourism over recent years has been causing some concern. This year, domestic visitor nights are expected to drop by 3.3% to 287m, and this in on the back of limited growth in 2004. Domestic travel has been impacted by the strength of the Australian dollar which has increased the price competitiveness and attractiveness of overseas destinations. The solid growth of inbound tourism has also played a part in this decline, as inbound visitors often reduce the availability of discounted accommodation for the domestic market. With these factors in mind, the TFC forecasts the number of domestic visitor nights will only grow at an annual rate of 0.9% until 2014.

Fighting fit

As can be seen in the table below, Australia’s hotels have seen revPAR increase by almost 8% during the first nine months of 2005. Whilst there has been some occupancy growth, performance has mainly been driven by improvements in average room rates. Whilst every city has seen performance improved on 2004, it is Brisbane and Perth that have emerged as the clear winners, each seeing revPAR increase by more than 10%.
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Hotel performance for selected Australian
cities year-to-September 2005 v 2004
Occupancy Sept YTD Occupancy % change Average Room Rate Sept YTD Average Room Rate % change RevPAR Sept YTD RevPAR % change
Australia - all hotels  74.5  1.1  156  6.5  116  7.6
Adelaide   70.7  2.2  123  1.6  87 3.8
Brisbane   82.6  -1.1  150  13.1  124  11.9
Cairns 76.2 -0.2 151 6.5 115 6.2
Canberra 76.6 0.4 135 6.1 103 6.5
Hobart 74.2 4.5 146 3.6 108 8.4
Melbourne Central 78.0 2.7 164 4.4 128 7.2
Perth 78.7 4.4 130 8.3 102 13.0
Sydney Central 76.1 1.2 189 8.0 144 9.3
Source: HotelBenchmark™ Survey by Deloitte

Brisbane leads the pack in terms of the strongest growth in average room rates. Although this increased by 13.1%, at AUD$150 this still remains behind that achieved by Sydney, Melbourne and Cairns. However, with Qantas launching a new service between Los Angeles and Brisbane in July 2005 and Jetstar arriving in December with its daily services from New Zealand to Brisbane, there is plenty of opportunity for the city to grow its average room rates further.

Although occupancy only marginally increased in Sydney year-to-September, average room rates rose 8% to AUD$189. The re-opening of the 577-room Hilton Sydney in June 2005 after a 30-month, AUD£200m rebuild has not yet had a demonstrable impact on the market. And, with no new supply expected to enter the city in the near future, current hotel performance should be sustainable. Looking to the future, Accor has recently announced plans to build an AUD$50m five-star hotel at Sydney Olympic Park. The company will operate the 210-room hotel under the Sofitel brand when it opens in 2008.

Perth hotels have also seen encouraging growth year-to-September 2005. Winner of the UK Guardian Observer and Guardian Unlimited Travel Awards in the category of “Favourite Overseas City”, the city has seen revPAR climb 13% compared to the prior year. Perth pushed its eastern neighbour Sydney into second place at the awards, followed by Hong Kong, Krakow, Tallinn and Cape Town.

Average room rates in Melbourne jumped 4.4% to AUD$164 during the first nine months of the year, while occupancy levels during this period reached their highest levels (78%) since the survey was first launched. These figures are not surprising as passenger arrivals at Melbourne Airport have recently reached an all time high of 20m in 2004/05 financial year. International passenger numbers alone account for 20% of all arrivals, these were up 15% on the previous year. 

To ensure the city can accommodate growing passenger numbers and the arrival of the new Airbus A380 in 2008, Melbourne Airport is currently investing AUD$220m to expand its international terminal. This is scheduled for completion by the start of the Commonwealth Games in March 2006. With no new hotels due to enter the market before the games and with visitor numbers on the rise, the coming year will give Melbourne hoteliers an ideal opportunity to boost hotel performance.

Great expectations

With the exception of 2000, Australian hotels have reported the highest revPAR and the strongest growth during the first nine months of 2005 compared to any other year. As we embark on the final quarter of the year, hotel performance in Australia looks set to finish 2005 on a positive note. However, with visitor number expected to slow slightly during this time, then revPAR growth will come in marginally below the 7.6% it is at today. 

The future for the Australian hotel industry continues to looks very bright. The recent forecasts announced by the TFC provide a good indication of the growth opportunities that exist within the tourism sector. As TA embarks on its new partnership deal with Qantas and new services are added to both domestic and international airline routes, the number of visitors is expected to continue to rise, which clearly is good news for the hotel industry. 

Notes: All analysis in AUD$  

The HotelBenchmark™ Survey contains the largest independent source of hotel performance data outside of North America and tracks the performance of over 6,500 hotels and 1.2 million rooms every month. 

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Contact:

Jessica Jahns
HotelBenchmark
+44 (0) 20 7007 0967
Email: jjahns@deloitte.co.uk
 

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Also See: Comparing the Hotel Industries in Australia, New Zealand and South Africa; All Three Have Similar Performance Trends and Challenges / June 2004
The Top Ten Performing International Hotel Markets - Highest Occupancy, Average Room Rate and RevPAR in 2003 / Deloitte / February 2004


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