Pacific Rim Business Brokers Pty Limited

2.  Star Ratings

AAA Tourism operates the NSW star classification system which is published online and in the NRMA Accommodation Guide.  The various rating are defined as follows:

1 star Establishments offering a basic standard of accommodation.  Simply furnished.  Resident manager.
2 star Well maintained establishments offering an average standard of accommodation with average furnishings, bedding and floor coverings.
3 star Well appointed establishments offering a comfortable standard of accommodation, with above average furnishings and floor coverings.
4 star Exceptionally well appointed establishments with a high level of facilities, plus quality furnishings offering a high degree of comfort.  High standard of presentation and guest services provided.
5 star International standard establishments offering excellent facilities, outstanding appointments, furnishings and décor with an extensive range of first class guest services.  A number and variety of room styles and/or suites available.  Choice of dining facilities, 24 hour room service, housekeeping and valet parking.   Porterage and concierge services available as well as a dedicated business centre and conference facilities.
½ star The additional half star indicates establishments offering similar standards to the full star, but offering more comfort by providing additional features and items.

Different guests demand different standards of quality and service.  Some guests will only stay at 4 and 5 star properties.  Others are happy with the lower tariff offered by 1 and 2 star properties.  Standard economic theory suggests that the lower the price the higher the demand.  However, in the accommodation industry, the reverse is the case.  The more expensive 4 and 5 star properties have consistently enjoyed higher occupancy rates than the less expensive 2 and 3 star properties.

 In non-Sydney motels the average occupancy rates for the 2012/13 financial year are set out below:

Star Occ %
1 15.7
2 43.9
3 49.2
4 61.1
5 46.5

The table indicates that

  • 2 star motels enjoyed occupancy rates 28.1 percentage points higher than 1 star motels
  • 3 star motels enjoyed occupancy rates 5.3 percentage points higher than 2 star motels
  • 4 star motels enjoyed occupancy rates 11.9 percentage points higher than 3 star motels
  • 5 star motels, of which there are very few in country NSW, struggled to match their 4 star counterparts, with occupancy rates 14.6 percentage points below the 4 star occupancies

As expected, the higher the star rating the higher the tariff.  In non-Sydney motels the average tariffs for the 2012/13 financial year are set out below:

Star Tariff
1 $79.51
2 $83.74
3 $113.74
4 $160.93
5 $426.39

As accommodation revenue per room can be expressed as Occupancy Rate x Tariff the annual revenue generated by each room can be expressed as follows:

Star Revenue
1 $4,569
2 $13,403
3 $20,432
4 $35,899
5 $72,408

On average, each room in a 3 star country motel generates $7,020 more in accommodation revenue annually than each room in a 2 star country motel.

The really big jump is between the 3 and 4 star motels, with 4 star rooms generating $15,466 more in annual accommodation revenue than 3 star rooms.  A 20 room motel upgrading from 3 to 4 stars might therefore enjoy a revenue increase from $408,640 to $717,980.

Most of this revenue goes straight to profit, because the costs of servicing a 4 star room are little different to the costs of servicing a 3 star room. 

This is an important point that motel buyer should bear in mind.  Renovations that lead to star rating upgrades are generally very successful, and result in increased revenue and profits.