Marc Staniloff refuses to give up on Fort McMurray, Alta. The president and CEO of Superior Lodging Corp. is currently rebuilding — for the third time — a Microtel Inn & Suites by Wyndham that has twice been destroyed by fire during construction. The first time, in December 2015, was because of arson; the second time, just five months later, was as a result of the devastating Fort McMurray wildfires that caused a reported $3.6 billion in insured damages. The wildfires also completely destroyed a Super 8 property adjacent to the Microtel, which Superior had owned for two decades. According to Staniloff, it was the highest-grossing Super 8 property among the company’s more than 130 locations across Canada.
The new Microtel property is expected to finally open in November, and Staniloff says Superior is currently considering options for the now-vacant Super 8 location. The redevelopment may involve another brand in Superior’s portfolio — which includes Wyndham, Marriott, MasterBuilt Hotels and Travelodge/Thriftlodge — although Staniloff isn’t prepared to say just yet. “We’re committed to that location,” he says.
Superior, which has planned, developed, financed and managed more than 150 hotels and $1 billion in real-estate assets during its 20-plus-year history, is also contemplating another new location in South Calgary. The company is already opening a new Travelodge in Lloydminster in May, while franchisees are building new Super 8 properties in both Canmore and Hardisty.
This continued development comes as the province’s hoteliers struggle through one of the worst crises their industry has seen, precipitated by the disastrous 2014 oil crash and its spinoff effects.
A reported 64 tar sands/oil sands projects worth billions of dollars have been either delayed or cancelled since oil prices fell three years ago (they did rally slightly, only to dip below $50 a barrel in mid-March), with dire repercussions for hoteliers outside of the province’s tourist areas — whose business is largely reliant on oil-related corporate travel.
Non-resort hotels from Edmonton to Peace River have seen both occupancy rates and ADR plummet, while the province’s RevPAR has tumbled well below the national average. Not surprisingly, some hotel operators are looking to abandon ship. AlbertaMotelsForSale.ca listed 25 hotel properties for sale in mid-March, ranging from a “totally renovated and well-managed” 86-room Ramada property in Lethbridge (asking price: $7.4 million) to the eight-suite Dinosaur Hotel in Drumheller ($349,900). But, Staniloff has been through this before. “I was born in Calgary and I’ve lived and breathed these ups and downs,” he says. “While we’re challenged right now, I’m still bullish on this market. It’s going to come back.”
When pressed, though, he admits the current predicament facing the province’s hoteliers is as bad as it has ever been. Their woes are being further compounded by the NDP government’s new carbon tax, which came into effect on January 1. A recent report by the Alberta Hotel and Lodging Association (AHLA) says the tax could add as much as $200 per room, per year in operating expenses.
Hoteliers are also still unclear what impact a series of increases to the provincial minimum wage — set to reach $15 per hour by 2018 — will have on their business. “We’re getting these forced increases at a time when there’s no pricing power nor enough customer demand to raise top-line revenue,” says AHLA president and CEO Dave Kaiser. “Operators are pulling their hair out.”
Even in a market accustomed to the volatility of the oil industry, some operators are stunned by the severity of the current crisis. “This is the absolute worst we’ve ever seen it,” says Leanne Shaw, general manager of the Country Inn & Suites by Carlson-Calgary Airport, a 106-room hotel serving the Calgary International Airport market. “We’re fighting over a fairly small pie and ever-growing competition.”
Kaiser says the one bright spot for the industry in 2017 — an expected 2.5-per-cent increase in demand — is being tempered by a 3.7-per-cent increase in inventory thanks to several new properties commissioned prior to the oil crash, which are set to open in the coming months.
“We have an imbalance now, but that exacerbates [the issue],” says Kaiser, who predicts Alberta’s occupancy rates for 2017 will be “flat at best,” with net operating income for the industry expected to fall another 8.5 per cent.
In some ways, the Calgary airport market is a microcosm demonstrating the fundamental problem faced by the province’s hoteliers: an abundance of supply, with still more coming on-stream, coupled with reduced demand. Shaw says her market alone has grown from 19 hotels in 1999 (the year her family opened their hotel) to a projected 41 by the end of 2017.
Shaw’s property recently picked up a short-term contract for air crews doing seasonal flights into Calgary, the type of business it wouldn’t have pursued in the past. “It’s low-rated, but when you have the vacancies, low-rated is better than nothing,” she reasons.
Perry Battke, general manager of the Denham Hospitality Organization — owner of the 95-room Best Western Plus Denham Inn & Suites and the 116-room Days Inn Edmonton Airport — says the Edmonton market, which currently boasts approximately 3,000 rooms, is also “saturated” with new inventory that will likely counteract any increased demand. “[Last year] was the most difficult year that I’ve ever been through in 25 years in the industry, and we’re not necessarily seeing any light at the end of the tunnel,” says Battke. “We anticipate things will be about the same into 2018.”
Kaiser says the combination of low demand and excess inventory has produced a “race to the bottom” on rates in the province’s non-resort markets. November RevPAR for Alberta’s non-resort hotels was down 17.1 per cent year-over-year, compared with the 14.4 per cent year-over-year growth experienced by their resort counterparts.
He predicts development in the province will “slow dramatically” beyond this year as skittish investors pull back on financing. He says it will still take some time for the industry to absorb the new inventory.
Hoteliers unanimously despise the idea of discounting, but say they are powerless to hold the line, particularly as corporate clients take advantage of their newfound leverage. “[It’s] a zero sum game, but people are in desperation mode,” says Battke. “We’ve seen huge declines in occupancy and new hotels coming in.”
Meanwhile, 130 kilometres from Calgary, Chris Barr, general manager of the independent Banff Aspen Lodge, says hotels in the resort market will likely push through rate increases of $20 to $30 per room this year, as international tourists taking advantage of the weak Canadian dollar continue to flock to the area.
Barr anticipates a 99 per cent occupancy rate this summer, and says he is already taking bookings for 2019, yet even amid boom times, he sympathizes with his non-resort counterparts.
“We’re hoping we’re going to see some of those regions get back up to the numbers they were at before,” he says. “Everything goes in waves. It wasn’t always great in the national parks, and now things are going well for us and not so well for others.”
Volume 29, Number 3
Written by Chris Powell