THE MOTEL INDUSTRY
OVERVIEW
The motel revenue industry size in Australia is $2.7 billion1 and the term motel derives from ‘motor hotel’, as this form of accommodation has traditionally catered to motorists. Consequently, many industry establishments are located near main roads or highways. These establishments provide accommodation in the form of rooms or suites, and some provide food and beverages on the property. Most motels have direct access to an open parking area and most guestrooms are equipped with a bath or shower, but have limited in-room cooking facilities.
Quoted from the report by IBISWorld Motels in Australia March 2023; “Revenue in the Motels industry is on track to return to pre-pandemic levels over the coming years. The volume of tourist activity in Australia is set to grow, fueling a rebound in occupancy rates at motels. With more rooms occupied, motels will be in a better position to cover their fixed costs and lift industry-wide profit margins. Conversely, motels are expected to encounter higher competition from hotels and serviced apartments, which will slow the industry-wide recovery. Overall, revenue is projected to grow at an annualised 2.9% over the five years through 2027-28, to $3.1 billion1.
Motels often derive a proportion of their revenue from sources other than accommodation, such as sales of in-room food and beverages, and operating on-site restaurants. However, these services make up a significantly lower portion of revenue for motel operators than they do for hotel operators, as travellers using motels typically seek no-frills, budget accommodation.
COMPETITION
The motel industry exhibits low market share concentration and is highly fragmented with no individual motel operator generating more than 5% of the industry’s total revenue1. Choice Hotels operate more than 270 hotels, motels and resorts in Australia, New Zealand and Singapore under numerous brands, many of which are franchised. Silverneedle also operate under several brands including Sundowner Inns and Country Comfort. Best Western have approximately 150 hotels, motels, and resorts in Australia and New Zealand and Golden Chain have approximately 250 member locations throughout Australia. While numerous motels are associated with these member groups for the provision of marketing services, administration and training support and assistance with negotiations with the larger travel agencies, they are often small, privately-owned, single establishment operations.
Airbnb – Extracted from the report by IBISWorld Motels in Australia March 2023;
Competitive pressures from Airbnb are set to ease in the coming years, benefiting motel operators – supply of substitute accommodation is set to fall in the coming years, easing competitive pressures on motels. Demand for housing supply and higher rents are set to cause a fall in the supply of short-term rentals, as a growing proportion of property owners pull their properties from platforms like Airbnb. As the cost benefits of Airbnb decline, a growing proportion of tourists are likely to opt for more trusted forms of accommodation, like motels. With less external competitors, motels will be in a better position to lift their prices, which is set to contribute to growth in industry-wide profitability.
PRODUCTS & SERVICES
Industry operators primarily provide accommodation, usually in the form of suites or units with private facilities, though some facilities such as bathrooms may also be shared. Motels usually operate without liquor licenses but often provide meals. The term motel derives from ‘motor hotel’, as this form of accommodation has traditionally catered to motorists. Consequently, many industry establishments are located near main roads or highways. Most motels are rated three or four stars.
The largest services segment in the industry is three-star accommodation. Three-star rooms make up more than 60 percent of the total graded motel room supply (Source IBIS World Industry Report H4402 Motels in Australia 2017 – 2018). Compared with four-star accommodation, three-star establishments tend to have modest amenities and cater to more price-sensitive travelers. Consequently, three-star establishments tend to charge lower fees than four-star establishments. The number of three-star motel rooms in the industry has grown over the past five years, as motel owners have been catering to more budget-conscious consumers. As a result, this segment has grown as a share of industry revenue over the past five years.
Motels with a four-star rating account for the second-largest portion of industry revenue. Typically, four-star establishments operate predominantly in more major population centres. Although there are more three-star motels than four-star motels in Australia, four-star accommodation has greater earning potential due to the superior amenities and services it offers.
GEOGRAPHICAL MARKETS
MARKET SHARE
The motels industry exhibits low market share concentration and is highly fragmented, with no individual operator holding a significant share of the market. While numerous motels are associated with members groups such as Best Western (approximately 150 hotels, motels, and resorts in Australian and New Zealand) or Golden Chain (approximately 250 member locations throughout Australia) for the provision of marketing services, administration and training support, and assistance with negotiations with the larger travel agencies, they are often small, privately-owned, single establishment operations.
The four largest operators account for substantially less than 40% of the industry revenue (Source IBIS World Industry Report H4402 Motels in Australia 2017 – 2018).
The larger operators are Choice Hotels and Silverneedle. Choice operate more than 270 hotels, motels and resorts in Australia, New Zealand and Singapore under numerous brands, many of which are franchised. Silverneedle also operate under several brands including Sundowner Inns and Country Comfort. Both brands service more affluent motel customers.
The rise of Airbnb has put additional pressure on the industry, particularly in more major population centres.
