This summer, the spotlight shone on Toronto as it welcomed athletes and tourists from all over the world for the Pan Am/Parapan Am Games. The sweeping skyline, buzzing entertainment district and the city’s vibrant multiculturalism showed thousands of visitors and onlookers a Toronto they’ve never seen. Meanwhile, hoteliers across the Greater Toronto Area welcomed an onslaught of visitors, introducing them to the unique brand of Canadian hospitality.

All across the country, large-scale events like the Pan Am Games, and a host of other attractions and festivals, are helping Canada gain its foothold on the global tourism stage. Is it any wonder Canada has gained the coveted number-1 ranking in terms of its reputation in 2015? According to the Boston-based Reputation Institute, which tracks public and multi-stakeholder perceptions around the world, such admiration and esteem confers legitimacy that should translate into a significant increase in economic performance. The country is on the verge of regaining its mojo, increasing the number of international visitors during 2014, validating that there is a positive correlation between the two realities. But, what are we doing collectively within our businesses and communities to build momentum, ensure sustainability and create and capture value? As Winston Churchill once said, “It is no use saying, we are doing our best. You have got to succeed in doing what is necessary.” So what’s necessary?

It’s one thing to build local or Canada’s “Keep Exploring” brands on the back of credible reputations, but a solid reputation doesn’t always guarantee strong brands. When brands are under-powered or disconnected from the customers’ mindset, their ability to contribute meaningfully and significantly to profitability and growth is constrained. Fortunately, with a much-needed infusion of an extra $30 million to boost the Canadian Tourism Commission (recently rebranded as Destination Canada) budget to $68 million per year during the next three years, there is renewed hope that more focused marketing efforts will yield better results.

Brands, however, have to be a direct expression of coherent strategies, bold goals and plans for growth. But because destination brands are more challenging to control than corporate or hotel brands, there is a need to synchronize corporate strategies with national, provincial and regional strategies and work effectively to educate hoteliers, tourism operators and destination management organizations (DMOs) about their responsibilities and collective worth.

This year’s Pan Am/Parapan Am Games’ motto “United We Play/Jouons Unis” is fitting in this regard. Successful economies, communities and sporting enterprises revolve around a collective form of dynamism and a play-to-win mentality that embraces rich possibilities, complex choices and the overwhelming challenges of getting it right. As a community-based and intense industry, it certainly helps when hoteliers get their brains in the game.

Focus has to be on the refinement of new and useful ideas required to position the team to win. Fortunately, hoteliers are in a prime position to help their communities or regions attract more visitors on a continuous and seasonal basis by bringing their tourism clusters together in order to encourage collaboration, unlock imaginations and help create astonishing and unique experiences that cannot easily be emulated by others.

What’s important is not simply being alert to opportunities, as much as what everyone does with the opportunities and capabilities they’re given. This includes a desire to develop the capacities, talent and structural frameworks essential in supporting entrepreneurial activity and more collaborative innovation that can excite imaginations as well as a willingness to become guarantors of exquisite visitor experiences.

Economic Context
Hotel and hospitality managers will argue, however, they aren’t the master of their own fates — the context is. So who manages the context and the ambiguities and uncertainties? Occupancies, rates and net operating incomes always seem to be at the mercy of prevailing economic circumstances with few showing concern when everything chugs along, as in 2014 when relative stability seemed within reach, with real GDP advancing 2.4 per cent, consumer spending growing 2.7 per cent and the consumer price index checking in at 1.9 per cent.

While there was joy in Alberta as GDP advanced 4.4 per cent, despair existed in Newfoundland and Labrador as GDP declined 2.9 per cent. The remaining provinces struggled, posting real GDP growth less than the national average, yet a sense of optimism prevailed. A more buoyant economy in the U.S., combined with a declining Canadian dollar, helped bolster the prospects of a surge in visitation, as it also did from Asian markets in ascendancy.

The outlook for 2015, however, has become more sanguine. Scotiabank is forecasting a 1.6-per-cent growth in real GDP, with a decline of 0.1 per cent in Alberta due to the collapse in oil prices and heightened unemployment. Newfoundland is expected to continue its slide for the next couple of years, while Ontario, Manitoba and British Columbia are expected to experience better-than-average upticks in GDP growth, due mainly to infrastructure investment and stronger manufacturing sectors. Real GDP growth in the remaining provinces is likely to be close to the national average, with the exception of Saskatchewan and New Brunswick.

These predictions are due to various factors: lingering uncertainty and fragile global activity triggered by one-off events, austerity and structural forces, recurring and growth-dampening geo-political events and heightened volatility in financial and currency markets. While strengthening U.S. demand alongside an even lower-valued Canadian dollar seem to hold out hope, there is a snag: the Ottawa-based Conference Board of Canada announced a 13.6-per-cent decline in consumer confidence in April 2015 to 94.7, and the same happened in the U.S. with its consumer confidence declining 7.1 points to 94.3.

Managing with continuous economic volatility, a demoralized middle class and corporate travel restrictions is unsettling, especially for hotels dependent on business travellers and a frugal leisure market whose discretionary incomes are affected by job insecurity and declines in purchasing power. But that doesn’t mean consumers’ penchant for travel is on hold.

Canada’s provinces, regions and communities are bursting with astonishing and undiscovered promise. Imagine more hoteliers becoming involved in “cultivating and managing the context,” and not simply “marketing the context.” Greater emphasis could be placed on enhancing community or regional appeal and sense of place, neighbourhood by neighbourhood, through creativity, deeper awareness of what visitors might desire and a higher degree of collaborative innovation.

Travel and Tourism
National economic circumstances need not dictate dynamism and robustness in local economies. Effort is required to work with local economic development agencies, municipal officials, universities, colleges and business communities to discover hidden opportunities and improve the conditions for entrepreneurial activity, accessibility and development of “smart” communities.

The value and joy that visitors get from their experiences originates within the destinations visited — the people they meet, and our warm, Canadian hospitality. Unfortunately, tourism statistics don’t highlight stories and experiences that delight visitors, but they can be used to reveal unrealized potential. For example, when the former CTC reported an increase in international arrivals of 3.2 per cent to 17.1 million, contributing $16 billion towards total expenditures of $78 billion in 2014 (reported in 2007 prices) no mention was made that the international growth rate fell short of 2014’s global average increase of 4.7 per cent.

Nor was evidence of declining real growth between the years 2000 and 2013 identified: during this period the number of international visitors slipped from 19.6 million to 16.6 million; Canada’s share of total international trips fell from 2.8 per cent to 1.5 per cent; its ranking in hosting international visitors went from eighth position to 17th; and tourism receipts plummeted 26 per cent. Certainly, overnight arrivals from the former CTC’s key overseas markets increased in 2014 over 2013 by 10.6 per cent, supported by improvements in core markets such as the U.K., France, Germany and Australia (+5.1 per cent), Latin America (+11.4 per cent) and Asia (+20.9 per cent), but is this significant in a highly contested and competitive context in which Canada cannot maintain its market share?

The fact that overnight arrivals from the U.S. (representing 70 per cent of Canada’s international visitors) only advanced 0.9 per cent to 12.11 million in 2014 also remains discouraging: overall demand in terms of the number of U.S. visitors dropped a staggering 54 per cent since 2000. Thankfully, the Ottawa-based Travel Industry of Canada’s (TIAC) “Connecting America” program has finally received the federal government’s attention, though achieving its goal of attracting 4.7 million more visitors by 2020, which would add an additional $5 billion in spending, is going to be a stretch.

Reliance on more focused marketing and policy changes won’t be sufficient unless the hotel industry, together with individual communities and destinations, becomes a more active participant in creating and implementing strategies and programs dedicated to tourism’s revitalization. Reliance on domestic tourism to increase demand seems like a moot point; it already accounts for more than 80 per cent of total demand (generating $62.4 billion, reported in 2007 prices) and its growth potential is limited. Stat Canada’s “2014 Travel Survey of Residents of Canada,” for example, identified a decline of -0.7 per cent in the number of trips to 320.2 million; a 1.9-per-cent increase in the number of overnight stays in Canada; and a 2.1-per-cent increase in trip expenditures — a slight increase over the consumer price index. Nevertheless, far too many Canadians still do not appreciate or have experienced the diversity of our country. There is a significant upside potential in facilitating niche markets to “Keep Exploring” within Canada. Of course, with many travel costs pinned to the exploding value of the U.S. dollar, more Canadians are likely to rein in their outbound exodus and travel closer to home, but the reprieve won’t last long.

As for the 2015 travel outlook, PKF Consulting, a CBRE Company projects a 1.0-per-cent increase in business domestic travel, a 2.8-per-cent increase in domestic pleasure travel, a 4.2-per-cent increase in U.S. travel, a 5.8-per-cent increase in overseas travel and a 2.6-per-cent increase in total overnight travel.

Accommodation Industry Performance
The accommodation industry is both a principal recipient of, and contributor to, tourism’s largesse. As the Ottawa-based Hotel Association of Canada reports, the industry contributed $16.7 billion or 20 per cent of the $84 billion tourism generated in 2013. But the potential for growth and the addition of new properties is governed by demand and an inclination to maintain a balance between demand and supply. As PKF reports, hotel room supply only increased 0.7 per cent in 2014, though Colliers’ “Canadian Hotel Investment Report” identified supply increases in Winnipeg at 8.9 per cent, Regina/Saskatoon at 5.9 per cent, Halifax at 5.2 per cent and Calgary at 3.9 per cent, with declines in downtown Montreal at -7.0 per cent and Ottawa at -6.5 per cent. With regard to real-estate transaction volume, Colliers notes a 28 per cent year-to-year growth (excluding the sale of a portfolio property) at $1.46 billion. Average price per room was $79,300 in Eastern Canada and $114,800 in Western Canada.

As PKF has reported, operational performance was far better than originally anticipated during 2014 (see Exhibit 1 on p. 12). Average hotel occupancy rates within the country advanced 1.5 per cent to 64.3 per cent; average daily rate (ADR) went up 3.7 per cent to $137.28; and, revenue per available room (RevPAR) grew by 6.2 per cent to $88.21. Seemingly in accordance with economic conditions, occupancies were off -4.5 points in Newfoundland to 66.3 per cent, and -3.4 points in Saskatchewan to 64 per cent, though up 3.4 points in P.E.I. to 50.5 per cent, three points in British Columbia to 64 per cent, 2.8 points in Quebec to 65.3 per cent, and 1.8 points in Ontario to 64.1 per cent. The range of occupancy rates in major markets is considerable but notable is Montreal, up 2.8 points to 69.3 per cent; Ottawa, up 1.6 points to 69.9 per cent; and Quebec City, up 3.4 points to 63 per cent.

Wooed by the regaining strength of the economy in 2014, hoteliers had the wherewithal to increase ADR. Solid advances occurred in Montreal, up 4.7 per cent to $145.91, Vancouver gained 5.5 per cent to $145.87, Quebec City increased by 5.5 per cent to $151.41, as well as in a number of smaller regional centres and resort areas. On the strength of numbers, RevPAR shot up especially in Montreal (9.1 per cent) and Quebec City (11.5 per cent). British Columbia and P.E.I. posted exemplary RevPAR with increases of 9.9 per cent and 12.1 per cent, respectively.

Taking into consideration property size, type and price level nationally (see Exhibit 2) the highest average occupancy rate was achieved by hotels with more than 500 rooms — increasing 2.1 points to 71.6 per cent; resorts advanced the most by 2.6 points, though the highest-average occupancies occurred in suite hotels at 70.8 per cent. Occupancy rates according to price level advanced at more or less the same rate with mid-price properties achieving average occupancies at 66.8 per cent, upscale properties at 68.5 per cent and budget hotels at 55.2 per cent.

ADR advances were solid for properties with 201 to 500 rooms (up 5.2 per cent to $154.74) and more than 500 rooms (up 5.7 per cent to $181.87). Resort hotels advanced the most by 4.3 per cent to $200.41, followed by full-service properties up 4.1 per cent to $144.19. For hotels in various price levels, upscale properties advanced their ADR by 4.6 per cent to $208.22, followed by mid-price properties at 3.1 per cent to $135.33.

In assessing the relative balance between the supply and demand for hotel rooms (see Exhibit 3), since 2010, demand has outpaced supply. During 2014, for example, it grew 3.2 per cent to 243,814 room nights while supply only advanced 0.6 per cent to 379,182 rooms. Calculations for lodging demand throughout 2014 (see Exhibit 4) reveal that revenues from 89 million room nights amounted to $12.22 billion (not including food, beverage and incidental revenues) — a healthy 7.0-per-cent increase from 2013.

Playing to Win
Hoteliers looking to improve performance can learn a lot from the prowess of athletes at the recent Pan Am Games and FIFA World Cup. By working with the best, outperforming when surrounded by the best, and focusing on what was important, the athletes gained coveted spots on the podium. Imagine what would have happened if they had played or compared themselves to the average. Market reports such as this, therefore, do a disservice if hoteliers find consolation by making such comparisons — if that’s the case, make no mistake, “good enough” is a recipe for mediocrity not magnificence.

As with many sports, tourism is a team effort in which everyone needs to know that in order to succeed you have to find ways to consistently create and capture value. As a destination’s primary hosts, hoteliers can’t afford to be commodity players; rely on indistinguishable products and services; remain aloof from community attempts to create exquisite experiences; or disregard the quality of visitor experiences within their communities. In an era of disruption, podium finishes are not about cost containment or risk abatement, nor do they depend on loyalty and revenue-management programs, or, for that matter, marketing’s penchant for extolling greatness or unrealizable promises.

Athletes triumph by pursuing a rigorous regimen that allows them to self-tune and peak at the right moment. Within ever-changing environments they recognize that new options need to be generated, evaluated and, on the basis of what works, amplified. Within destinations this means finding ways to work collaboratively in order to reinvent tourism — resetting the vision and establishing a common ground; revising structural frameworks, strategies and tactics as circumstances change; exploring visitors’ evolving needs and pain thresholds; borrowing from the playbook of successful experimenters; developing action plans as well as leaders who can seize, shape and champion opportunities; building portfolios of unique offerings, experiences and talent; and gathering regular feedback from visitors and employees on the frontlines. Then, and only then, can the virtues and value of the best of what is on offer be extolled, especially through heartfelt narratives (utilizing the power of social media) that resonate emotionally and inevitably put more heads in beds.

Written By: Michael Haywood is president of The Haywood Group, a tourism/hospitality consultancy. He can be reached at michael.haywood@sympatico.ca.

Volume 27, Number 6

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