Hopes are high for a swift return to pre-pandemic normalcy for the hotel sector, but the slow return of international travellers and an oversupply of rooms may stand in the way
Hoteliers may have a difficult road back for their buildings and brands after much of the past two years hosting isolating and quarantining travellers.
The Minister for the Covid-19 Response, Chris Hipkins, announced 28 of the 32 current facilities would return to being hotels by the end of June.
Opening borders and relaxed isolation requirements mean after two years serving as the front line in New Zealand’s battle with Covid, the majority of the facilities will go back to their former lives as hotels.
“Many staff, who have done an incredible and tireless job over the last two years, have already begun going back to their roles in the health, defence and police workforces,” said Hipkins. “Already over 300 healthcare workers and nurses and over 230 police have returned to frontline duties, and over 600 defence personnel involved in the MIQ response will now return to their units.”
But while opening borders have raised the hopes of some in the sector, other hoteliers foresee a difficult road back to seeing anything like pre-pandemic levels of trade.
Hotel Council Aotearoa strategic director James Doolan said while he was delighted to see borders opening, he expects recovery to be counted in years, rather than months.
“Hotels are stuck in a difficult place,” he said. “They’ve got to rebuild demand from next to zero in a much higher-cost environment - that’s the world that the MIQ hotels come blinking out of the movie theatre into.”
Beginning with Rydges Auckland in mid-May, 28 hotels (or a little over 6000 rooms) are coming back into the market in the next few months. That represents a large injection of supply into a market already glut with empty rooms.
These are rooms that were kept going by international travellers in the days before the pandemic - high-end hotels catering to cash-rich and time-poor people travelling for business and leisure.
Doolan said that’s partially why the attempted shift of focus to domestic tourism didn’t help for many hotels, especially those in Auckland.
Before Covid, 55 percent of all accommodation sector revenue came from international guests. That percentage goes even higher when looking at high-end accommodation like hotels in places like Auckland, which tend towards an overseas clientele.
So while the sector has been accumulating losses, it has been felt more sharply in the city. Places that are both accessible by car and not too far from large population centres have been comparatively safe, with Aucklanders and Wellingtonians choosing to holiday in places like Napier.
But with a gigantic oversupply of rooms and many Kiwis staying away due to perceptions of the city being Covid-19 central, Auckland’s hotels have had it tough.
And now a whole team of MIQ hotels are joining them, putting potential strains on demand already stretched thin.
The hope for hoteliers is that open borders will return the sector to pre-2020 normalcy, but Doolan doesn’t expect things to go back to normal so quickly.
“The unwinding of MIQ is going to be painful,” he said. “Demand isn’t going to come back in just a couple of weeks.”
Auckland in particular has 17 MIQ facilities. A small number of all MIQ facilities are expected to remain in operation in case of quarantine coming back into play in future public health responses. Whether these are in Auckland or not, there will be roughly 3500 rooms back in the market - around a quarter of the total number of hotel rooms in Auckland at the moment.
Doolan said it was a similar problem faced by airlines who suddenly found themselves with plane seats they couldn’t fill. The big difference for hotels is that while an airline can conceivably sell off part of the fleet, hotels have no such option.
Hotels as a business are a blend of property investment and operating business, Doolan said. Hoteliers have to be in it for the long-haul, so when something big like border closures happens, it’s not always possible to be flexible.
While there may be some hard days ahead for the sector, hotel owners are by their very nature long-term optimists, said Doolan. They’ve embarked on a very expensive undertaking, built with the expectation it will last decades.
Doolan said investing in hotels means pinning your hopes on two trends seen in the world.
“You are banking on the emerging middle class around the world in places like India, Indonesia and China,” he said. “And you are banking on the innate human love of travel.”
Owning a hotel is a long-term business, so many owners have seen storms come and go in the past. Doolan pointed out the drop in international travel after the Global Financial Crisis in 2008, and before that in the wake of 9/11.
It suggests Covid-19 may be a trough for the sector in a long line of peaks and valleys - but for hotels stepping back from their roles as MIQ facilities, the question may be just how long this particular trough is set to last.
The upcoming waiving of self-isolation requirements for vaccinated travellers should bring more tourists in, but continued pre-departure testing regimes may put a lid on a massive return.
“The tests are barriers to leisure travel,” Doolan said. “If you were to go on holiday to New Zealand or stay in Australia, you might top up the cost and see at $200 a pop, a family of four needs to spend $800 on top of airfares and everything else.”
It’s a steep price for Australians looking into a long weekend skiing in Queenstown - another area where hotels have been hit hard due to a strong reliance on international trade.
MIQ facilities returning to operation as hotels will go through a 90-day decommissioning process. According to head of MIQ Chris Bunny, this will be a flexible period in which they can begin accommodating guests, but refurbishment may occur inside the hotels.
“The exact range of tasks that will be required for decommissioning will differ accordingly to the facility,” said Bunny.
According to the Hotel Council, life as an MIQ facility has been hard on the rooms themselves, and hotels have seen more wear and tear than they normally would in any given two-year period.
With guests stuck inside 24/7, the rooms have been makeshift gyms, remote offices, kids’ play areas and everything in between.
“The rooms have been used in a totally different way to an ordinary hotel,” Doolan said. He believed the period between the end of MIQ and the true return of the overseas tourist en masse could be a good time to renovate for many in the sector.
But how keen will tourists be to stay in what used to be an MIQ facility?
“The proof will be in the pudding,” Doolan said. “But people’s perceptions of places that have come into contact with the virus has moderated over time.”
Being tagged as a location of interest may have made people wary of visiting their local cafe earlier in the pandemic, but now it does seem that that horse has bolted.
“I don’t see it as being a problem,” he said. “One of the reasons that hotels can charge a premium is because of high cleanliness standards.”
On top of this, he doesn’t expect most international travellers in the future will even be aware that the room they are staying in once housed New Zealand’s border arrivals during the uncertain days of the pandemic.
“I don’t know about you, but if I was going to Sydney a year or two from now, am I going to be researching whether or not the hotel was an MIQ back in 2021? Nah.”
