Hoteliers in the region are hopeful the opening of a Trans-Tasman travel bubble between Australia and New Zealand is the first step to reopening international borders, even though they may stay closed to most foreigners throughout 2021.

Not everyone is convinced this development will help the sector in the short term.

Dean Long, CEO of membership organization Accommodation Association, said the increased resumption of flights will be of little benefit to hotels in major gateway cities, as most trips will be family visits.

“Maybe there will be some travel bubbles in October between Southeast Asian countries,” he said.

Meantime, the hotel quarantine scheme will continue to be a life jacket for some hotels, but it’s “far from propping them up,” Long added.

“If you take out JobKeeper, the Australian government’s wage-subsidy program, the financials start to change … to break-even costs. So it’s not a license to print money. It’s been important to the hotels that have participated in the program, providing the ability to maintain a cash flow in an environment where it’s the only market,” he said.

Long estimated 30 hotels have been operating as isolation or emergency accommodation facilities in Sydney and Melbourne.

“In Sydney, we’ve probably got over 20 now participating in the program in some form. That adds up to about 9,000 quarantine stays a fortnight on average,” he said.

Leanne Harwood, managing director for Japan, Australasia and the Pacific IHG Hotels & Resorts, said more federal financial support is needed to address the “catastrophic situation in the Sydney and Melbourne market.”

“The past year has been the most challenging on record for the Australian hotel industry. While we are seeing some promising recovery in regional holiday destinations as people start to get out and explore again, many of our city hotels are experiencing some of their lowest-ever occupancies, especially in Sydney and Melbourne where our properties are so heavily reliant on international guests and business and events travel,” Harwood said.

Jerry Schwartz, director at Schwartz Family Company, which is one of Australia’s largest private hotel ownership firms, said several of his hotels are being used to quarantine guests. His company has a portfolio of 15 hotels, including the Sofitel Sydney Darling Harbour and Four Points by Sheraton Sydney Central Park.

He said while quarantine contracts have helped sustain business, they have been far from lucrative compared to usual tourism revenue.

“Indeed, [quarantine] business has maintained some sort of income in my 4- and 5-star hotels, albeit at a reduced rate and occupancy," he said, noting that the government is paying 3-star rates for 5-star hotel rooms.

"It also has given work to our staff. However, the income over the last year has just been enough to cover our standard costs,” Schwartz said.

With hotel workers all vaccinated, Melbourne’s hotel quarantine scheme started up again on April 8 after a two-month ban on overseas arrivals.

Dozens of hotels missed out on being buoyed along by the quarantine contracts, which the Accommodation Association helped facilitate.

“We were oversubscribed by three or four-fold,” Long said, which left many hotels with “no chance of revenue from any other source” through pandemic lockdowns.

“As we reopen, I expect a number of hotels to withdraw from the program and re-enter normal hotel operations, but not everyone will have that choice, because one jurisdiction (Western Australia) has ordered hotel participation,” Long said.

“A lot of it will come down to the owners of those hotels, and what their objectives are … and what their portfolios are doing. It will be the owners and management companies who make the terminations on those contracts,” he said.

Patrick Pacious, CEO of Choice Hotels International, said quarantine schemes do offer an opportunity “but as a franchisor we leave it up to our hotel owners whether they want to take that kind of business, because it’s their asset.”

The “stigma of the virus at the outset and reluctance to take on that kind of business has faded with knowledge,” he said.

Succesful revenue management, he added, resulted in 30% of his Australian portfolio outperforming the competitive set by 20%, Pacious said.

Long said he predicts branding will be removed from hotels who continue to participate in the quarantine program, which has favored larger hotels where the risk of community spread might be lowest.

“If you have two separate hotels operating as different buildings, you can operate one as a normal hotel and one as for hotel-based isolation,” he added.

Sources said there has been a cost for hotels too, notably a stigma due to failures in the quarantine system linked to coronavirus outbreaks at some properties.

“Interestingly now, I think we would have a much smaller number of hotels willing to participate, when you take into account the reputational damage that has been done by the naming and shaming of hotels and commercial brands,” Long said.

He said he still believes such quarantine contracts will continue into 2022, which still will help offset losses in areas lagging on recovery.

“If you’re a leisure product, particularly within a three-hour drive of a capital city or a major population center, you’re doing really well. So the Sunshine Coast, for example, in Queensland is working very well. It’s got very strong occupancies and forward bookings are very strong. Cairns is another.

“But compare that to Brisbane where occupancies are up, but [average daily rate is] very flat. Sydney and Melbourne are hurting because they are relying on international and corporate, which represents 80%-plus, so when you lose your two major drivers, it’s really tough going,” Long said.

“It [is] really strange to be at a 5-star hotel in the middle of Sydney with just a couple of corporate guests there … that’s it. There wasn’t a single accent to be heard,” Long said of a recent visit to Australia’s largest city.

Schwartz estimated net income from his Central Business District hotels in 2020 will only be a third of usual turnover.

As domestic travel thrives and corporate tourism picks up, he said he believes some quarantine hotels want a piece of that action.

“Travel, particularly regional travel, has recommenced, and we see smaller domestic conferences, even hybrid Zoom conferences, beginning to increase. So, some hotels are now considering opting out of the exclusive quarantine business in favor of ‘normal’ guests,” he said.

That’s not the case for hotel View Melbourne, said Marta Wheeldon, group revenue manager of operator View Hotels Group.

“We hosted the [tennis tournament] Australian Open quarantine players, and we are now contracted for another six months with the government,” she said.

Those contracts, she added, “have been extremely helpful to the industry. … The government pays for the building as a whole regardless of the number of occupied rooms.”

“We’re just waiting for international flights to resume in Melbourne. … We are very thankful to be able to access these government agreements. There isn’t enough domestic market demand to compensate. and interstate borders remain uncertain,” Wheeldon said.

Wheeldon said the group’s Sydney and Brisbane hotels are currently running at more than 65% occupancy.

“Pre-COVID, we used to operate at 85%-plus, meaning demand is down by 20% to 30%. ADR is also down. Mid-week especially continues to be a struggle,” she added.

Matthew Burke, regional manager for the Pacific region at STR, CoStar Group’s hospitality analytics firm, said hotels in smaller state and territory capitals such as Hobart and Adelaide have fared better, taking proactive steps to stimulate occupancy, which has been hovering around 60% since state borders reopened.

“Within the regions, Australians are happy to pay with limited choice but desire to travel,” Burke said.

As the corporate rebound continues in the next quarter, there will be a “new norm,” Long said.

“A busy night used to be plus 90%. Well, the busy night is probably going to be 70% now. If you can get your occupancies and rates back to those levels, that’s fantastic work by management and sales crews,” he added.