The current COVID -19 pandemic is likely to have a lasting impact on the size, number, and market position of Australia’s luxury and upscale hotel brands over the next three years. The impact of the pandemic will lead to a consolidation of brands resulting in fewer brands after their rapid growth in recent years. The smaller brands are likely to address redundancy in their operations and make permanent new staffing schedules brought on by furloughed employees. Despite restructurings and increased efficiencies, we believe several smaller brands will fall prey to larger hotel chains that operate across different market segments, such as luxury, upper upscale, midscale, and economy.

The franchising of brands to third-party hotel owners by the major chains has become a successful business model that enables hotel chains to expand without incurring high capital costs. The current crisis is likely to accelerate the process whereby hotel brands shed their real estate ownership and concentrate on an “asset-light” strategy.

The recent performance of Australia’s luxury and upscale hotel brands in 2019 is illustrated in the accompanying graph. The luxury and upscale brands are characterized by hotels that achieved average daily rates (ADR’s) of between $150 and $440 and operated with average occupancies of 70% – 93% in 2019. According to STR, Australia’s Luxury & Upper Upscale Class hotels achieved an average occupancy of 79.2% and an ADR of $259.37 in 2018/19.

The Market Position of Luxury & Upscale Hotel Brands in Australia 2019

Hotel Brand Hotels
Source: Hotel Investment Strategies, LLC. The size of the bubble reflects room night sold in 2019.

AccorHotels is the largest hotel chain in Australia with hotels represented in all segments of the market: luxury, upscale, midscale, and economy. The company’s luxury and upscale brands include Sofitel, Pullman, Grand Mercure, Swissotel, and Peppers. Accor’s purchase of the Mantra Group in 2018, catapulted the company into the #1 position, ahead of the Australian Leisure & Hospitality Group.

The graph above clearly displays the spread of price points (ADR’s) for each of the brands and chains with multiple brands in the luxury/upscale sector. Different factors such as the age of guests, the purpose of travel, and budget for accommodation and related expenses are used by hotel operators to differentiate their brands, thereby capturing a wider range of guests.

Despite the current upheaval in Australia’s tourist industry, we expect the majority of luxury and upscale brands to survive and prosper, but we do expect several mid-tier luxury and upscale brands to be acquired and or merged with other brands in the next few years. Only time will tell if this redirection pays off for Australia’s burgeoning tourism industry, especially for the country’s luxury and upscale hotel brands.

Please feel free to call us if we can help you with your brand positioning and market segmentation and customer acquisition strategies or if you need to identify and negotiate with a hotel brand, franchise, or operator that will maximize the performance of your hotel. Our outcome-focused solutions span research, strategy, creative, engagement and execution. Please call us at: +61 466 017 823 or WhatsApp +1 973 723 0423. We can assist you!

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