Bug 1356461

To narrow this down the change in return value seems to have appeared between libvirt version 1.3.4 and 1.3.5, and looking through the git logs commit d218344e6c1afce5788d7f72b78859219c50a3de could be a suspect:

commit d218344e6c1afce5788d7f72b78859219c50a3de
Author: Eric Blake <eblake>
Date:   Mon Mar 14 14:30:24 2011 -0600

    virsh: optimize creation of default connection
    
    Ramon de Carvalho Valle reported a problem with:
    virsh connect qemu:///system
    as a non-root user.  The real root problem appears to be a regression
    in libvirtd being auto-started on the default qemu:///session URI;
    however, the symptom points to an independent flaw in virsh - we
    shouldn't be wasting efforts on making a connection if we aren't going
    to be using that connection.  Fixing virsh avoids Ramon's issue, while
    I work in the meantime to fix the real libvirtd regression.
    
    This patch looks big, but that's because 'gcc -Wmissing-field-initializers'
    gets triggered by './autobuild.sh --enable-compile-warnings=error', so I
    had to add 0 initialization to everyone (rather than my preference of
    just adding the non-zero flags to virshCmds and to cmdConnect).
    
    Meanwhile, if you use 'virsh -c URI', the connection must succeed; this
    patch _only_ optimizes the default connection to be deferred to a later
    point where we know if a particular command to be run needs a connection.
    
    * tools/virsh.c (VSH_CMD_FLAG_NOCONNECT): New flag.
    (vshCmdDef): Add new flags field.
    (vshCommandRun): Honor new flag.
    (domManagementCmds, domMonitoringCmds, storagePoolCmds)
    (storageVolCmds, networkCmds, nodedevCmds, ifaceCmds)
    (nwfilterCmds, secretCmds, virshCmds, snapshotCmds)
    (hostAndHypervisorCmds): Populate new field.
    (vshReconnect): Don't warn on initial connection.


As this suggests, running virsh with a non-default connection using the -c argument does indeed yield the expected results:

# virsh -c qemu:///system; echo $?
error: failed to connect to the hypervisor
error: Failed to connect socket to '/var/run/libvirt/libvirt-sock': No such file or directory
1
# virsh connect; echo $?
error: failed to connect to the hypervisor

0
# virsh -v
1.3.5

'git bisect' points to:
commit 0c56d94318393a8295cc0613abb6097a6fd60002

    tools: Fix connect command

git describe: v1.3.4-2-g0c56d94 contains: v1.3.5-rc1~505

Fixed upstream with v2.1.0-rc1-33-gff498a9ac70a:

commit ff498a9ac70a550bed08233a86e00a4faf12aecf
Author: Martin Kletzander <mkletzan>
Date:   Fri Jul 29 08:09:22 2016 +0200

    virsh: Report error when explicit connection fails

Reproduced with libvirt-2.0.0-2.el7.x86_64.
Steps are as comment 0.

Verified pass with libvirt-2.0.0-4.el7.x86_64.
Test steps:
1.$virsh connect abcd
 error: failed to connect to the hypervisor
 error: no connection driver available for abcd

2.Check the return value:
  $echo $?
   1

3.$virsh connect abcd --readonly
 error: failed to connect to the hypervisor
 error: no connection driver available for abcd

4.Check the return value:
  $echo $?
   1

5.$virsh connect qemu:///session

6.Check the return value:
 $echo $?
   0

7.$virsh connnect


8.Check the return value:
 $echo $?
 0

9.$virsh "connect abcd; connect; uri"
error: failed to connect to the hypervisor
error: no connection driver available for abcd


qemu:///session

10.Check the return value:
$echo $?
0

Since the problem described in this bug report should be
resolved in a recent advisory, it has been closed with a
resolution of ERRATA.

For information on the advisory, and where to find the updated
files, follow the link below.

If the solution does not work for you, open a new bug report.

https://rhn.redhat.com/errata/RHSA-2016-2577.html