New Zealand hotel room rates are relatively cheap compared to other international destinations and could justifiably rise further even as new supply comes to market, according to a Lincoln University study.
The research, conducted by senior lecturer in business and hotel management Dr Anthony Brien, said hoteliers should take the focus off price and not be tempted by discounting to capture market share or react to criticism.
“The onus is on the hotel industry to change the consumer’s mindset away from ‘price’ to that of ‘the value of hotel experience’,” said the report.
“If New Zealand wants to hold its reputation as a quality tourism destination and attracting quality high-value visitors, it must provide them with a quality experience that only comes with investment from an appropriate revenue source.”
Analysis of data from accommodation benchmarking company STR Global between 2000 and 2017 showed the average daily rate (ADR) of New Zealand hotel rooms more than doubled from $USD52.63 in 2000 to $USD118.85 in 2017.
However, NZ’s ADR was consistently lower than that recorded in Sydney, Melbourne, Los Angeles, Hong Kong and Singapore over the period. Even in NZ’s tourist hotspots of Auckland and Queenstown, ADRs remained consistently lower than those compared cities.
While the New Zealand hotel room stock had increased significantly since 2000, so had occupancy, from a yearly average of 65% in 2000 to 79% in 2016, said the report. The only interruption to the continual rise in occupancy was for the brief period between 2006 and 2010, arguably due to the Global Finacial Crisis, which saw a temporary 2% dip.
“While New Zealand tourism numbers have increased in recent years, and even if they held at the present rate, until New Zealand reaches an over-supply of hotel rooms, hotel rooms ADR’s have the capacity to increase further,” said the study.
New hotels planned in Queenstown, Auckland, Wellington and Christchurch will bring more rooms to market over the next few years. However, because many of the planned new hotels are luxury or high-end brands with the associated pricing room rates may actually increase.
The influx of new hotels will enable existing hotels to at least maintain their present room rates, or even lift rates as the whole market shifts to a ‘new normal’, said the research.
Despite criticism from some quarters at NZ hotel rooms being expensive, “the most appropriate hotel industry reaction should be to change the conversation and focus on and promote the hotel-experience, not the price”.
“The hotel industry needs to develop, possibly collectively, ways of better telling the story of the hotel experience. Hotels can cooperatively compete in promoting the industry as a whole, which will be to the benefit of the whole hotel industry and NZ.”
The report said discounting to capture market share or to react to public opinion did not achieve increased revenue over the long term and hotels had to focus on selling rooms at an appropriate price for the value and experience that they offered: they must ‘yield’ better returns.
Jim Moore, general manager of Novotel Queenstown Lakeside, said the research re-affirmed the industry view that NZ hotels had undervalued the experience they provided to international visitors.
“This has led in some cases to under-investment by owners in terms of building more hotels and also in maintaining the current stock,” said Moore.
“What the study does show is that New Zealand prices are still below international prices with no real reason that this is the case other than the fact that it has traditionally been this way.”
NZ hoteliers should not apologise for raising prices but should focus on investing back into the market and lifting standards, added Moore.
“While the industry needs to remain competitive we have a role to play in making sure that the experience that our guests will get when they come is fantastic and relaying why that experience is worth more than it was a few years back.”