Who’s winning in the Australian Hotel Market?

07/03/2016 By Georgina Woodley

BVA BDRC's Hotel Guest Surveys provide hotel market insight in 25 countries globally, including Australia.  So which brands are doing well and what are the key concerns for the hotel industry Down Under?

Despite a prevailing sense of geopolitical uncertainty across much of the world, indicators for Australia’s hotel industry are positive

The longer-term depreciation of the Australian dollar and falling oil prices continue to provide favourable tail winds to the inbound traveller market. The economic outlook across key Australian international travel source markets is mixed, but the ever-broadening consumer appetite for international leisure travel experiences is a well-entrenched, long-term global trend. According to Deloitte Access Economics this month, the Chinese will need 10 additional A380 services to Australia per week by 2018!

Moreover, hotels continue to develop as an asset class. CBRE has recently predicted Australian hotel investment sales will surge to more than $4 billion in 2016. Crucially, appetite is spreading beyond its traditional focus of the Sydney and Melbourne CBDs, to the more leisure-orientated destinations in Queensland.

Amidst all of these good news headlines, who is reaping the rewards in the Australian hotel market?

A glance at the market share data from BVA BDRC’s most recent Hotel Guest Survey reinforces the significance of the source of future demand growth for determining the winners and losers in this industry. Among international business travellers coming to Australia, Hilton comfortably leads the field on branded room nights, with direct upscale rivals such as Marriott and Grand Hyatt in the chasing pack. The mix of inbound leisure travel to Australia is not quite so firmly upscale, but the major beneficiaries are still Hilton and Marriott as well as internationally recognised midscale players such as Holiday Inn.

Yet the domestic hotel market in Australia looks quite different. Best Western is the clear leader on share of branded hotel leisure nights with 13%. Local brand, Mantra, is the closest challenger with 8%. Other domestic players such as Rydges and the serviced apartment brand, Quest, both virtually unknown outside of Australia, feature among the top performing brands – although in the case of Quest – more for business than leisure.

So, who is winning overall? While Hilton is named by BVA BDRC as the outright No.1 brand on a composite measure of brand equity, no fewer than four of Australia’s top fifteen hotel brands belong to Accor. It is the French group that bears many of the hallmarks of market leadership, boasting the highest participation in a loyalty scheme (Le Club) and attracting the largest number of visitors and bookers to its website (across all of its brands collectively). To put that in context, however, Australia’s No.1 online travel agent (OTA), booking.com outflanks Accor on both website visits and reservations, underlining the challenge from OTAs.

This throws the spotlight onto a major strategic dilemma for hotel owners.

Is it better to partner with a big, internationally-recognised hotel brand and accept the cost of affiliation as a price worth paying for the benefits that brand awareness and a successful loyalty programme can bring? Or is it better to throw in your lot with an OTA and accept commission payments as a price worth paying for volume (high occupancy rates) and potentially lower ongoing marketing costs?

While there are success stories on either side and among those who choose to partner with both, one benefit of going with a brand is the potential to command a rate premium. BVA BDRC’s first Brand Margin® results for Australia indicate that travellers are willing to pay an additional $19 to stay in a named branded hotel in the economy tier (taken as an average across competing economy brands), relative to an otherwise identical, unbranded alternative in the same location.

Of course, not all brands are equal – indeed some brands even command a negative Brand Margin®. Others perform much better in an urban location than in a resort - or vice versa. In the upper full service tier, for example, Hilton secures a best-in-class overall Brand Margin® of $53, yet the ‘wisdom of the crowd’ suggests that Sheraton may command a higher premium in a resort location. Naturally, the market’s familiarity with each brand in each type of location can come into play here, with Sheraton well known among Australian travellers for its locations in Port Douglas and The Gold Coast.

Ultimately, whether you own the hotel asset or manage the brand, the message has to be that there is no substitute for hard data to support decision-making in this rapidly changing market.

Conducted in 25 countries worldwide, most of the world’s leading hotel companies use BVA BDRC’s Hotel Guest Survey (HGS) to track the health and competitive positioning of their brands as well as their competitors.

Conducted quarterly in each market, comprehensive HGS reports are based upon thousands of interviews with nationally-representative samples of business and leisure travellers. Data records stretch back to the 1980s, offering a long term perspective on hotel market developments.

HGS now features Brand Margin®, our research solution that provides a tangible figure for the perceived financial premium that a brand adds to a product. To find out more about Brand Margin® in the Hotels Market.