Under The Covers - What's Up with Hotels?

If you’ve been on a business trip this year and checked into a hotel, you’ll know first-hand that things are a little different compared to what they used to be. High prices? Check. Low availability? Check. Inconsistent service? Check, check, check.

So, why does everything feel so out of whack? And what does the future hold for this bedrock of the business travel industry? First, let’s take a look at some of the key factors putting rocks in the pillows of the sector.

Prices plummeted when COVID hit, and hotels were left empty. Pent up demand for both leisure and business travel meant that prices bounced back with a vengeance when restrictions eased. Hotels are playing catchup, with the effects of this still being felt today.

COVID also created a shortage of skilled labour in the hospitality industry, according to Carmen Nunn, Key Account Manager at Flight Centre Business Travel.

“Fewer international workers were available, and many locals shifted into other lines of work, so it became more expensive for hotels to hire staff,” said Carmen. “That of course meant higher prices, not to mention the dip in skills. Also, even something as straightforward as cleaning a room now takes longer due to the COVID cleaning protocols in place, which means more staff required to get it done.

After a few sleepy years, business travel demand has skyrocketed in 2023, adding further pressure on pricing.

“Corporate meetings, client catchups, team building, and events are all popular, as businesses remember and recognise the incredible value and power of meeting face to face,” said Carmen.

The official inflation rate for the March quarter 2023 is at 7%, which is technically lower than the previous December quarter. However, anyone living in the real world knows that everything is a lot dearer these days – especially energy and food.

“Electricity prices are up by 20 to 30%, and food and grocery prices are up by an annualised 10% according to some reports. All that means you’re paying more for your hotel stay,” said Carmen.

"One of the great perks of booking with Flight Centre Business Travel means you can leverage our HotelsPlus program to secure value-adds like complimentary breakfast in your rate to help ease those additional costs that travellers incur."

It’s not just food and energy costs that are higher - maintenance, renovations, utilities, safety and hygiene and technology costs for example have all skyrocketed.

With the industry currently booming, the demand for hotel rooms has outpaced the construction of new hotels in Australia, leading to limited availability and higher prices.

As business travellers find themselves fighting against inflation and insatiable hordes of photo snapping travellers, what does the future hold? Is there any hope for a dip in prices?

Carmen says that in the short term, most are expecting hotel prices to remain at current levels in 2023.

“We can’t see any immediate change, because currently demand for the peak business travel days remains high, and occupancy in popular hotels is exceeding 100%,” she explained.

"In fact, we have seen an increase in price in all regions globally in the first quarter of 2023 compared to the last quarter in 2022. Booking your trips in advance is the best way to secure a better price."

It’s not all bad news though. Carmen suggests some softening in hotel prices is a possibility in the future.

“As financial experts debate whether Australia will or won’t slip into a recession, one thing is for sure - consumer sentiment is cautionary. A slip in demand could lead to an easing in hotel prices. For example, some hotels are currently noticing a decrease in weekend bookings due to inflationary pressures and the winter season colliding.”

“We’re also eagerly anticipating more hotels and new brands to open this year, particularly in key locations such as Sydney, which alongside the governments’ increase for immigration, will help meet and service the supply and demand for beds within the market."