The Taylor Swift-induced hotel boom in Sydney and Melbourne provided a massive sugar hit for the industry, with hotel groups such as Accor claiming their Sydney hotels achieved their best performance since the 2000 Olympics.
However, now that Taylor Swift has departed our shores, CBD hotels will need to address a few structural issues that are casting dark clouds over the industry.
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The hype generated by Swift’s tour disguised the fact that another market that should normally have filled hotels across Australia at this time of year failed to turn up.
The Chinese Lunar Year – the Year of the Dragon – failed to roar for most destinations and hotels, and the reality is that Chinese group travel is delivering less than 50 per cent of pre-Covid numbers. In many cases, the fall is even more dramatic in Australia’s leisure destinations.
Disturbingly, the indications are that Australia is unlikely to recover the lost business for years to come, mirroring the exodus of Japanese group travel in the early 1990s – and, ominously, that market has never completely recovered.
Reviving the China group market is complicated, because of geo-political issues such as visas, the Chinese economy and international airline capacity. While other inbound markets are returning – boosted by extra air capacity from airlines such as Turkish Airlines – the boost to European inbound is unlikely to replace the Chinese losses.
Even more concerning is the slow recovery of business travel. A report in December 2023 estimated that Australian corporate travel was still tracking 34 per cent below 2019 levels.
Australia is not the only country to see a slow return of corporate travel. A recent German survey revealed the overwhelming majority of businesses had failed to return to 2019 levels of travel, while 32 per cent of those surveyed reported reductions of between 50 per cent and 79 per cent when compared to the pre-pandemic period.
The problem with Australia is that the decline in corporate travel could now be structural with recent government/union agreements making work-from-home a right for employees. This is despite Fair Work Australia acknowledging in a decision late last year that workers being in the office could benefit productivity and collaboration.
Recent office occupancy statistics confirm the CBD worker malaise. While some private companies have mandated their workers to return to the office, Melbourne still only recorded an office occupancy rate of 56 per cent in September 2023.
Sydney and Brisbane had recovered to the mid-70s range, but what the figures don’t record is how many days workers are in the office. Generally, Monday and Friday are days when workers opt to work from home, but as observers have noted, those very same stay-at-homers are more than willing to come into the city after hours for entertainment.
The sub-optimal office occupancy rates are having a knock-on effect on office vacancy rates in Australian cities. The January 2024 edition of the JLL Office Market Report revealed CBD vacancy rates rose from 12.8 to 13.5 per cent nationally, and it was higher in Melbourne at 16.4 per cent.
The situation for the hotel sector in Melbourne is exacerbated by the fact that some 9,000 new hotel rooms have been built in the city since 2020, a 25 per cent increase in stock, with more in the pipeline.
Most of these hotels are in the upscale to luxury category with large conference and meeting spaces designed for business travellers.
The question is whether there will be enough delegates to fill the event spaces?
Most companies attending AIME in Melbourne last month were optimistic about the future of business events in Australia. The power of in-person meetings was emphasised, even if that doesn’t appear to translate to regular office hours.
One area that CWT Meetings & Events has identified for growth is incentive travel; “There has been exceptionally strong demand for incentive trips, as companies seek to motivate and reward employees. In fact, CWT has observed these trips becoming longer and more frequent and expects the trend to continue.”
Hotels that once relied on corporate travel and meetings will need to review and respond to the changing business travel landscape urgently if they are to retain, let alone grow, this critical market. The trends include:
- Increasing loyalty recognition for corporate travellers. With the new supply in Sydney and Melbourne, business travellers know they have plenty of options for well-located hotels, so personal, well-targeted recognition could make the difference in sealing the deal;
- Bleisure travel continues to grow, and hotels will need to be able to respond to a guest who may be in work mode for part of the stay and then holiday mode for the rest. A traveller attending a two-day conference could well stay for five, and hotels will need to show enhanced flexibility to win the loyalty of bleisure guests;
- Sustainability is now a core focus for many travellers and hotels that don’t take ESG seriously could lose out on major tenders, particularly for government travel;
- Guests will demand increasing flexibility. Business travel arrangements can change overnight, and hotels that can’t accommodate changes in itineraries or penalise late changes will be side-tracked in favour of hotels that ‘understand’ the needs of corporate travellers;
- Connectivity at all stages of business travel from booking to checkout will be even more important. Being able to manage bookings online, make changes easily, check in automatically and access high-quality internet and no-fuss streaming should all combine in a seamless digital solution. And yet, how often do you see queues at check-in desks when the hotel already has all the guest’s information and credit card details?
Business travel has changed fundamentally since 2019. Unlike the days of casual trips to call into the interstate office, have lunch and ‘feel the vibe’, today corporate travel is geared towards delivering more concrete ROIs, such as closing a deal or negotiating a contract.
The COVID-19 epidemic changed the landscape for travel, and hotel teams need to be nimble in responding to the new travel trends.
Hotels that can deliver personalised services while understanding and meeting the needs for seamless technology, flexibility, sustainability and recognition will be the first to rebuild their corporate travel base to the ‘good old days’ of business travel.
Ross Beardsell has over three decades of experience in the hotel industry in senior management roles in operations and development. Working initially with Southern Pacific Hotels, then IHG and the Carlson Group, Ross worked in GM positions across the Asia Pacific. In 2008, he joined JLL’s Hotels & Hospitality Group, providing asset management services on behalf of hotel owners to maximise profitability and to provide strategic guidance. He has provided hotel advisory services to the owners of luxury, upscale, mid-market, new hotels, limited-service accommodation, resorts, convention hotels, and pubs – both nationally and internationally.