Hospitality Magazine

Do we need more 5-star hotels?

Rob Fyfe, Chief Executive of Air New Zealand, has called for more 5-star hotels to be built in New Zealand. This is a simple request. The answer unfortunately is not as easy. New Zealand will not get more 5-star hotels until yield levels are lifted sufficiently to justify the investment. In essence, what this means is that there isn’t currently enough demand for our 5-star hotels to enable them to push their prices to genuine 5-star pricing levels. That would be a fantastic outcome as our top hotels lead the way in setting the prices for the other accommodation providers at different star levels.

The importance of 5-star hotels is that they do lead the market. They set the rates at which 4, 3, 2 & 1-star operators can charge. However they only cater for a small proportion of the total visitor market. While a small proportion, they are important because those that stay in 5-star hotels tend to be big spenders. Those staying in backpacker accommodation are equally important and at that end of the market often stay longer and also provide a useful labour supply to the hospitality tourism market.

The market will determine when it is appropriate for new investment in additional 5-star hotels and Rob Fyfe from Air New Zealand, rather than deploring the lack of 5-star hotels should be endeavouring to bring more 5-star guests to New Zealand to create genuine shortages which will lift the room rates and in turn ultimately give him the additional 5-star hotels he is looking for. New Zealand’s accommodation rates and yields are still too low and are limiting the ability to invest in refurbishment, staff and new development. Before rushing into too many more hotels, let’s see if we can get a reasonable return on what we already have.

While on Air New Zealand, the hospitality sector will also be watching very closely the proposed code-share arrangements between Air New Zealand and Qantas. There is no doubt that the code-share will reduce capacity and traditionally when capacity is reduced, so too is the volume of traffic. If there is oversupply on the Trans Tasman then perhaps again it should be the market which determines capacity being reduced rather than it being dictated by what will effectively be monopoly control.

Bruce H Robertson
Chief Executive
Hospitality Association of NZ

9 June 2006 Ref: h:hr6r6064.doc