Heritage Hotel’s Dylan Rushbrook on fronting up to hotel price increases, beating the boom-bust cycle and whether regional dispersal is actually working on the ground.
My role is General Manager Sales and Marketing for the Heritage Hotel group, which has 19 hotels across 15 destinations in New Zealand.
Our key segments are international and domestic leisure comprising 50% of total group business, business events/conference & incentives on 15% and the corporate segment with 23%. This is followed by smaller segments such as film, aircrew, and sporting and show groups. As a group our guests are split roughly 50/50 between international and domestic.
Each destination has a different mix, however, and we also work to different schedules depending on the target market. In Queenstown and Auckland which have an international focus, we are looking 18 months to 24 months out, whereas in domestic leisure destinations we are looking at what is happening in the next one to three months.
My goal is for every single one of our hotels to meet budget, or ideally exceed budget. We need to ensure we get the segment mix right by property and not expose ourselves to undue risk, while also finding the optimal level of operation – and that does not mean having every room booked out every night. If you’re running a hotel at 100% occupancy I would say you’ve undersold yourself in terms of rate. What we look to do is run at 92%-94% occupancy.
It has been an interesting time in the hotel world recently – we have certainly copped a reasonable amount of flack in the last few years over price increases.
With the growth in tourism, i.e., demand, hotels – and I include the Heritage in this – were issuing rates in advance to trade buyers. However, when the busy period arrived they would close out those low rates and go to dynamic rates. This would allow them to make the most of the supply and demand market forces, however, it meant inbound tour operators (ITOs) did not have any certainty in terms of rates and access to inventory.
We at Heritage decided that it is actually easier for everyone if rooms are available even if at a higher rate, so when we contracted in 2016 we put our rates up significantly across the board. This meant that we could ensure that we had a room for the ITOs, who were otherwise just being told ‘no’. So, yes, our rates are much higher, but we can ensure access to rooms year round. The strategy is working for us so far, I believe it has been a great success and is reflected in our positive results and strong forward bookings.
It was one of the reasons I wanted to get onto the Tourism Export Council (TEC) board actually, I wanted to front up to those rate increases we had applied.
We don’t know exactly what other hotels are doing, but I understand contract rates are still being closed out in favour of dynamic pricing, so the issues that creates for the international visitor market are still there.
As more properties come on stream, especially in Wellington and Auckland, and demand is met, hotels won’t be able to be so bolshie with rate increases going forward.
And from what we are hearing from offshore partners, Tourism New Zealand and the airports, we are expecting the growth in demand we have seen in recent years to start flattening out. This will also serve to moderate hotel pricing strategies going forward.
What we don’t want to see is that in areas where, all of a sudden there is an oversupply of rooms, hotels are dumping rate – though there is evidence already this is happening in Christchurch now. We need to be better than this boom/bust cycle we are stuck on and value our products and our destination and think long-term.
Working in hotels you’ve got to have a good instinct for what is coming. Group series operators are always quite a good indicator of forward business because they have such long lead times. In the traditional markets of Australia, North America, UK and Europe, bookings are made two to three years in advance, so when you start to see them dropping off you know there is an issue.
We haven’t experienced that yet so we are still reasonably confident that demand will still be there, just not at the same growth rate we have seen in the last few years, which has been like nothing we have never experienced before.
It has been interesting to witness this growth at play across our different locations, and makes me wonder how much regional dispersal is actually happening. If I look at our properties in regional centres, such as New Plymouth in Taranaki, it is a very strong domestic destination, but it really hasn’t seen pick up from international visitors over the last few years.
Nelson again is another centre where international growth has been slow, although our property there is very conference-focused and has seen good growth in this segment, no doubt this is due in part to displacement caused by internationals visiting Auckland and Queenstown. The theory of regional dispersal is excellent, it is something we want to see more of going forward as wider industry strategies come into play.
Aside from pricing, there are some other big issues for the sector. We are not yet sure what the change of government will mean for the hotel industry, or tourism in general. It’s a waiting game at the moment. One thing I would like to see is leadership taken in respect of protecting and preserving our industry’s biggest asset – the environment.
Locally in Auckland, the targeted rate issue is still bubbling away and the concerns of accommodation providers haven’t changed – we think it is extremely unfair for one part of the sector to be expected to pay for promotional costs that should be shared across the industry. And, of course, there is concern over Auckland setting a precedent for the rest of the country.
Encouraging and promoting tourism as a career to New Zealanders is also an ongoing issue, especially the hotel sector where we have enormous trouble attracting and retaining talent, especially front-line staff. I can only see that getting worse unless we as an industry start to act.
During my time with YoungTEC (sadly a while ago now) we recognised that one of the challenges is that for school career counsellors and for both students and parents, tourism and hospitality is seen as something you do if you didn’t qualify for university, or what you do if you didn’t qualify for anything else.
YoungTEC sees it as a 10-15 year plan to try and change this perception – you can’t change mum and dad’s opinion in a couple of years, so it’s a long-term push on that. But as an organisation they only have very limited resource and can’t do it alone.
As the profile of the industry is raised the public becomes more aware of the career opportunities and positive impacts on communities tourism can have. But it feels like we get stuck talking amongst ourselves about issues, rather than telling the public of the good stuff.
As an industry, we need to tell our story better, and start today.