Top-end hotel room rates fall as Government departments’ cost-cutting hits demand

Room revenue for the main New Zealand hotels reached a five-year high last month, but competition has pushed down prices for travellers in some cities, according to Hotel Data New Zealand (HDNZ) figures.

While still below the 2018 peak, revenue per available room (RevPar) was up 8 per cent on the previous year and 2 per cent on February 2019.

However, growth continues to lag post-Covid cost increases in most markets, the data released by Horwath HTL says.

Arrivals from the United States continued to drive the recovery, with Auckland the Australasian city most connected to the North American market.

Tourist arrivals are starting to bounce back after the international market was all but wiped out by the pandemic during more than two years of border closures.

The report says arrivals have reached 88 per cent of 2019 levels, continuing a steady increase over the summer period as air capacity increased.

Arrivals from China reached 83 per cent of 2019 levels, with the Lunar New Year holiday stimulating the number of visitors during both years.

However, daily arrival statistics indicate arrivals during the Lunar New Year period were about 20 per cent lower than in 2019. China had been New Zealand’s fastest-growing market before Covid-19, and has been sluggish to recover.

Data from China shows a 90 per cent recovery in border entry-exit trips from Chinese nationals, and suggests Chinese travellers are still preferring nearby destinations over long-haul journeys.

Arrivals from Australia remain steady near 80 per cent. A complete recovery in visitors from Australia will require a sustained rise from this market, the report says.

Jetstar’s expansion of its transtasman services starting next week could contribute to this, although one big carrier pre-pandemic, Virgin Australia, remains off the Tasman apart from flights into Queenstown.

The addition of 790 extra hotel rooms in Auckland in the past year has further heightened competition in both the CBD and airport areas, and there are some pre-Covid prices on offer for guests.

Without a significant number of special events leading to more compression nights, and with domestic guest sensitivity regarding hotel room pricing, average daily room rates (ADR) for hotels dropped to $243, the same level as reported in February 2019.

Compared with February last year, ADR dropped 5 per cent in 5-star Auckland hotels, while 4-4.5-star hotels saw an 8.3 per cent decrease.

Only budget-oriented 3-3.5-star hotels were able to maintain rates from the previous year.

February 2023 results for Auckland hotels had been influenced by additional demand following the Auckland anniversary floods and Cyclone Gabrielle.

In Wellington, hotel ADR dropped 14 per cent on last year, even though occupancies edged up 1.5 points to reach 78 per cent. All hotel categories experienced significant decreases in rate.

Operators experienced a notable decrease in Government-related demand following the new Government’s emphasis on substantial spending reductions. The fall in travel by Government departments is also hitting Air New Zealand.

The Horwath HTL report also says alternative demand from the free independent traveller (FIT) segment experienced a 22 per cent decrease in ADR in Wellington compared with the same period last year.

Queenstown reconfirmed its status as a highly sought-after destination, experiencing a resurgence in occupancies to 88 per cent following a 13 per cent year-on-year rise in the number of room nights sold. The robust demand resulted in a 17 per cent increase in ADR across all hotel categories compared with the previous year.

Christchurch hotels continue to benefit from the additional seasonal inbound air capacity provided by United Airlines, Cathay Pacific and China Southern.

Hotel owners in Rotorua continue to feel the occupancy impact of the delayed recovery from China, but have benefited from higher-yielding markets, including notably the US, says Horwath HTL.

Grant Bradley has been working at the Herald since 1993. He is the Business Herald’s deputy editor and covers aviation and tourism.