AHA Report: Heading towards the debt cliff

© Elnur - stock.adobe.com Heading towards the debt cliff

In the hotel industry, we do not use the term ‘hibernation’.

Popular with some politicians and the media, it gives the false impression that aft er three to six months of rest, everything will bounce back to normal.

But as restrictions begin to ease in most states it is abundantly clear that the hotel sector is in no position to just “snap back”.

Recent data shows just how bad things are in our industry. Occupancy is down by 70 percent nationwide, and room revenue down by 66 percent. A recent NSW survey found that if JobKeeper was to fi nish under current trading conditions, 44 percent of staff would be laid off or have their hours reduced.

In Queensland, 77 percent of venues said they would not be open today without JobKeeper. So instead of using hibernation, we use the term “debt cliff ”. It is a means of explaining to government that while the doors of hotels were shut, bills such as electricity network charges, insurance, security, leases and interest still had to be paid.

Shutt ered hotels had zero revenue, but costs continued to accumulate. These loans and losses did not disappear once the doors re-opened and the longer partial closures and capacity limits remain in place, the greater the “debt cliff ” escalates.

CEO, Australian Hotels Association

how long the banks will hold out before calling in loans, forcing sales and evictions.

The bridge to recovery for hotels and their staff will be slower and take longer than many other sectors. Hotels are directly impacted by the international travel bans in place and likely to remain for the next 12 months.

Moreover, closed domestic borders are resulting in virtually zero business travel and venue capacity limitations are forcing all major events to be placed on hold.

This is why we have put to the government several submissions proposing initiatives to help the hotel industry back on its feet. Our fi rst proposal to the government included a wage subsidy, assistance with commercial leases and the early release of superannuation.

The government responded positively with the announcement of schemes such as JobKeeper and the ABA small business relief package. When others were calling for the government to shut down accommodation hotels, the AHA and TAA fought for hotels to retain the right to stay open. Aft er seeing the need for isolation and quarantine accommodation in cities such as Barcelona, the AHA and TAA moved quickly with the federal and state governments to provide solutions for accommodating Australians returning from overseas.

Stephen Ferguson

The AHA through our offi ces in each capital city have been working closely with state and territory governments to ease capacity restrictions placed on the hospitality sector and mass gathering.

Having fully functional and vibrant pubs, bars and restaurants is essential in encouraging domestic visitation. Likewise, easing restrictions on mass gatherings is necessary to create the demand drivers for people to travel, e.g. business, sporting and cultural events.

It is a tough process, but we are making ground. We are also leading the campaign on having JobKeeper extended. Our argument for extending JobKeeper beyond September is that for $750 per week, the government can keep people out of Centrelink queues, keep staff connected to their employer and help hotels stay afl oat until restrictions are lift ed and trade increases. Those reasons might seem obvious to you and me, but unfortunately the government views these things through a diff erent lens. The government has advised that while they appreciate the equity and fairness issues associated with them having shut down our industry, we need to show that future dollars spent will have a “multiplier” eff ect on creating jobs and stimulating the economy.

On behalf of AHA and TAA, Ernst and Young (EY) is preparing a weekly update for Treasury and government with an update on current occupancy and room rates, forecasts and gross revenue percentages.

This is being backed up by economic analysis by EY to support our arguments for removing FBT for entertainment and accommodation expenses for a period of three years.

The argument underpinning removing FBT is that without international travel, we will need to stimulate spending on domestic travel, dining out, events and accommodation. Removing FBT is a simple way of encouraging Australians and Australian businesses to spend in this way.

Another key area that AHA and TAA are involved is in the Att orney General’s review of the IR system. Phil Ryan and I are representing employers on the award compliance and simplifi cation forums.

The diffi culty is that the award system has been entrenched for decades. Every change - such as penalty rates has been hard fought – but we will keep pushing.