Australia: The hotel sector’s response to COVID-19

The Current Market

The obvious trend affecting the Australian hotel sector is the decline in international as well as interstate tourism as a result of border closures and travel restrictions. Interstate tourism has recovered slightly as some interstate borders have re-opened since the outset of the pandemic, however, inconsistency regarding border policies (particularly with regard to states shutting their borders to other states) has somewhat hampered this recovery. 
Domestic hotel operators have, however, seen an increase in intrastate tourism. This increase has predominately benefited hotels located outside of major city centres. In fact, some hotels in popular regional tourism destinations are now as busy as they have ever been. This increase in demand has led to a consequent increase in prices for some hotel rooms. 

Overall, however, there has been a general decline in demand for Australian hotel services, with occupancy rates falling to less than 60%. As previously noted, however, as a result of COVID-19 the market is constantly fluctuating as border closures and other travel restrictions change. 
Hotel owners are also taking a more cautious approach when negotiating or renewing hotel management agreements with a greater focus placed on early termination rights, force majeure provisions and more stringent performance tests. Operators historically have been reluctant to grant such concessions, however are currently adopting greater flexibility given the climate. 

What Can Hoteliers Do

Ensuring that hotels are COVID safe

In the immediate future, hoteliers may be forced to operate with reduced capacity. Social distancing measures will likely have to be implemented in hotels, particularly in indoor gathering areas such as restaurants and breakfast buffets. Hotels will also need to place an increased focus on cleanliness and hygiene and take extra precautions to ensure that their staff have a safe working environment. Additionally, ‘Room Service’ dining is likely to become more important as social distancing measures reduce the capacity of restaurants, and diners are less willing to congregate in communal spaces.

Other strategies to boost revenue in the wake of the pandemic

As COVID-19 case numbers and restrictions continue to fluctuate, hoteliers may consider:

• Converting underperforming hotel rooms into longer-term rentals;
• Focusing on more COVID-friendly apartment types – such as standalone villas with longer term stays (local Government authorities to date have been friendly and not taken enforcement actions as a result of such changes in use namely converting a short term accommodation into more longer term occupation);
• Placing a greater focus on interstate and intrastate tourists;
• Ensuring hotels are built in a COVID safe manner – common areas should contain large, preferably outdoor spaces instead of small rooms;
• Accepting international arrivals who must quarantine in a hotel for 14 days (as mandated by the Federal Government); and 
• Taking full advantage of any applicable government subsidies and benefits. 

What does the Future Hold?

In the long term, the demand for Australian hotels will eventually return to pre-COVID levels. In the short term, however, there are likely to be significant challenges for hotel owners, many of which are now carefully looking at their performance test and force majeure clauses. 

Corporate travel is likely to remain below pre-COVID levels for an extended period, and large events such as conferences and sports will be difficult to organise for the foreseeable future. Interstate and intrastate tourism is likely to grow as restrictions are eased, and interstate borders are opened, however, international tourism is likely to remain low for an extended period. The fact that COVID-19 vaccines are now being rolled out in many countries across the globe may also provide some hope that the lifting of COVID-19 restrictions, and the consequent recovery of the Australian hotel sector, will come sooner rather than later.