Hotel performance across Canada is on a roll, continuing to surpass expectations. In 2017, national occupancy advanced two points to 66 per cent, ADR was up 4.8 per cent to $155.10 and RevPAR rose 7.8 per cent to $101.69. Spurred in part by Canada’s 150th-anniversary celebrations, total expenditures from domestic and international visitors reached $97.4 billion, up 6.3 per cent from 2016 and contributed to 2.06 per cent of the nation’s GDP.
Moreover, with demand advancing by 3.9 per cent and supply growth of 0.9 per cent (or 17,220 rooms), CBRE reports that conditions for further hotel investment remain favourable. Taking into account the accolades and worldwide recognition in recent years, a record-breaking 20.85 million overnight-visitor arrivals in 2017 contributed $21.3 billion — a 6.4-per-cent year-over-year increase. And, with more Canadians staying closer to home, domestic travel increased 6.3 per cent, resulting in expenditures of $76.1 billion.
With such resurgence, opportunities for further growth still abound, so long as communities-as-destinations dazzle, soothe and suit. The industry can be even more imaginative by continuing to fuel innovation, tap into the power of technology and provide stellar service. The key to doing so, however, means working more closely with communities to enhance their appeal, thereby catapulting Canada’s hospitality-and-tourism industry into that elusive super-cluster status — every sector of the industry working with community leaders to beautify public places and share the wisdom for what it takes to design destinations of merit.
Super-cluster status might sound audacious, but it’s a realizable goal. It will require furthering Canada’s outreach into international travel markets, not just for leisure travel, but to further ignite interest in trade and commerce — particularly in our distinctive urban regions. On one hand, this might require being more creative in embellishing our meetings, incentives, conferencing and exhibitions (MICE) markets. On the other hand, it means doubling down on our efforts to differentiate and make every community’s cultural, activity and interest segments (including adventure and culinary, rural and agro-tourism, sports and Indigenous tourism) more productive and world-class. Because success starts and accrues through superlative efforts at local, regional or micro levels, the question is, as hoteliers, are we doing enough to engage with and enhance the magnetic qualities of our communities-as-destinations? We are our community’s primary hosts and set the standard for hospitality. As true leaders, it’s our collective responsibility to prepare our communities to create and capture demand — demand that requires improving, not only place-brand experiences (inbound-awareness marketing), but being more forthright in understanding and improving the complex set of requirements and experiences desired by both our guests and our community of hosts.
With many communities struggling to escape obscurity, work remains to be done to identify and pursue new market spaces; facilitate idea generation; improve future-forward talent; advance best practices, processes and methods; and find the means to encourage innovation throughout our communities-as-destinations.
By pursuing an inside-out approach to the development of communities-as-destinations, the industry can build more exciting marketing and branding programs — an approach that can be energized by technologies in service to the provision of stellar services. But how might this approach differ from what is already being done?
As consultancy firm McKinsey and Co. outlined in a recent article, 30 Elements of Value, published in the Harvard Business Review, “Most private and public enterprises are limited in their understanding of what determines and constitutes price/value relationships — a fact partially evidenced by a lack of differentiation among some hotel brands and their plodding advance in ADRs, often below rates of inflation.”
Within our own enterprises we may believe that we amaze our customers and guests, but is this actually the case? What about at all touchpoints during visitors’ trips? We hope everything is going well, but hope is not a strategy. Even when we invest heavily in renovations, new products, services and experiences, do we know the extent to which new and better value is actually being created beyond that which is merely functional (reducing costs, improving quality, saving time, simplifying, providing variety and avoiding hassles)?
As we know from personal experience, it’s the emotional value that provides either the most joy or the most heartache. Throughout our communities and even among some hospitality establishments, we know greater attention needs to be given to design and aesthetics, nostalgia, wellness, attractiveness, fun and entertainment — all attributes that go into the making of successful hotels and entire destinations.
Further up the value hierarchy are the life-changing elements of value — providing self-actualization, affiliation and belonging. At the pinnacle of values resides social and cultural impacts, the realization of which comes through rising above the platitudes and boring sameness commonly associated with many transactional aspects of tourism. All visitors to communities look for, and expect, moments of amazement and joy. The more often that happens, the more communities-as-destinations become beloved. Their identities get a boost and net-promoter scores improve.
If we are to be creative in our interpretation and application of these elements of value, however, we need to have a far better understanding of what exactly motivates — what people long for and truly value. By doing so, customer loyalty and extended-lifetime value intensify. Repeat patronage translates into higher and more sustained revenue; simultaneously we gain more latitude in achieving higher ADRs, RevPAR and market-share growth.
TRAVEL AND TOURISM
Visitors stream to certain destinations when the right elements of value are in play; when every aspect of visitor journeys — to and within communities — meets or exceeds expectations; when travellers feel welcome and comfortable and can adjust effortlessly to new surroundings. Visitor-serving organizations intent on becoming more destination-centric do so by customizing offerings to meet specific requirements; by making customer interactions easier, more enjoyable and convenient; and by ensuring all hosts (frontline talent) are sufficiently astute in knowing how to deliver superior value that astonishes. Done exceedingly well, hospitality and tourism become deemed as essential services, community relationships are strengthened and recognition intensifies.
Visitor counts, however, aren’t really a good proxy when it comes to determining levels of satisfaction and the extent to which value enhancement is working. Fortunately, though, in 2017 and for the country as a whole, visitor arrivals surged to 20.8 million trips for one or more nights. Approximately 14.3-million of these trips were from the U.S. — a 3.1-per-cent increase over the year prior (highest since 2005), while 6.5 million came from overseas markets, up 7.2 per cent from 2016.
Of course, the efforts of Destination Canada and its counterparts in various provincial and regional departments of tourism need to be applauded, though economic conditions — particularly favourable exchange rates — helped, even boosting tourism-related employment one per cent to 735,300 jobs — of which 146,000 were in hotels, a 1.9-per-cent year-over-year increase.
Despite the effort that goes into place branding to help ease destination-choice decisions, it’s important to note that the control of messaging has shifted to individual visitors. With this shift has come the realization that hotels, as well as destinations, can no longer ignore the immediacy of “moments of truth” broadcast in real time. Gone are the days when the value propositions and business models of hotel brands could remain static, undifferentiated or unresponsive to the uniqueness of communities and their contextual realities and opportunities. As such, there are only two choices: hotels and communities have to impress constantly or reset the bar — both choices demand we become more astute and authentic in how we create and demonstrate value.
ACCOMMODATION PERFORMANCE
It may be hard to enact change and transformation, however, when accommodation businesses are doing far better than original forecasts led us to believe. While not necessarily linked to value enhancement, occupancies for 12-months ending December 2017 across the country (Exhibit 1) were up 1.8 points to 65.6 per cent, with ADR rising 4.8 per cent to $155.10, pushing RevPAR up 7.8 per cent to $101.69.
Across the country, occupancies in Atlantic Canada rose 2.2 points to 63.3 per cent, with Nova Scotia leading the pack at 67.2 per cent (up 2.7 points). In Central Canada, there was an occupancy increase of 1.8 points to 69.5 per cent, with Quebec leading the way with a 2.3-point rise for average occupancies of 70.3 per cent, followed by Ontario at 69.3 per cent — a 1.6-point increase. The Greater Toronto Area had the highest overall occupancies at 75.5 per cent, with Greater Montreal at 75.1 per cent and Ottawa at 74.8 per cent — both increases of 2.3 points. Average occupancies in Western Canada were 61.9 per cent — a 1.8 point increase — highest in British Columbia at 70.1 per cent (a two-point rise) but lowest in Alberta and Saskatchewan at 53.7 per cent and 54 per cent, respectively. With reference to occupancy rates in regard to property type and price level (Exhibit 2), occupancies were highest for properties with more than 500 rooms (74.2 per cent) and lowest for those with under 50 rooms (52.5 per cent). As for property type, suite hotels had the highest average levels of occupancy (74.2 per cent) while limited-service properties had the lowest (60.6 per cent). Upscale properties had the highest occupancies (71.1 per cent), with budget properties the lowest being (59.7 per cent).
With regard to Average Daily Rates (ADR) for the country, they advanced 4.8 per cent to $155.10 (Exhibit 1) with virtually everyone benefitting. ADR rose in Atlantic Canada by 5.1 per cent to $135.41; in Central Canada by 6.2 per cent to $157.94, especially with properties in Ottawa advancing 9.7 per cent to $171.57, Greater Montreal at $174.90 (a 7.5-per-cent increase) and in the Greater Toronto Area ($172.27, representing a 7.9 per cent increase). In Western Canada, ADRs increased 3.2 per cent to $154.84, mainly because British Columbia was able to muster a 6.5-per-cent increase to $172.51, with declines registering both in Saskatchewan (down 4.7 per cent to $119.35) and Alberta (a 0.9-per-cent decrease to $130.07).
Exhibit 2 reveals how ADRs fared by property size (lowest for properties with less than 50 rooms at $113.30; highest for properties with more than 500 rooms at $231.28, a 7.6 per-cent increase). Resorts achieved the highest ADRs at $244.72, representing a 6.4-per-cent increase. As might be expected, ADRs for upscale properties came in at $254.66 (a 5.7-per-cent increase) while budget properties recorded ADR of $103.16 — a 7.2-per-cent increase. With regard to Revenue Per Available Room (RevPAR), the average for the country was $101.69 — a 7.8-per-cent increase (Exhibit 1). Across the regions, Atlantic Canada registered the lowest RevPAR at $85.77, despite a nine-per-cent increase, with the best showing in Central Canada at $109.83, a nine-per-cent advance. RevPAR in Western Canada averaged $95.88 (a 6.2-per-cent increase). The strongest advancements in major markets were in Halifax (a 15.6-per-cent increase to $107.04), Ottawa (up 13.3 per cent to $128.29), Whistler Resorts ($204.30, a 11.8-per-cent increase) and Greater Montreal (a 10.9-per-cent increase to $131.27). Areas with disappointing RevPARs included Saskatchewan (a decline of four per cent to $64.42), Newfoundland (a 0.1-per-cent increase to $90.50) and Alberta (up two per cent to $69.84) — particularly Edmonton and Calgary.
For a comparative glimpse of supply and demand, Exhibit 3 reveals that in 2017, the supply of rooms increased one per cent to 392,637 from 2016. Because occupancy rates advanced 1.8 points to 65.6 per cent, average demand-per-day advanced 3.8 per cent to 257,570 rooms. This translates into 94.01 million room nights sold during the year (Exhibit 4), accounting for revenues of $14.58 billion from room sales only during 2017.
RESPONDING TO CONTEXTUAL REALITIES
Measures of performance need to be contextualized to what is happening locally and how individual enterprises respond to what may be in, or beyond, their control. As a theme, “Amplifying Success” suggests that hospitality and tourism be viewed as drivers of community development. But how so? Too many operators act as if their performance is pre-determined by local, regional and national economic conditions. This is evidenced by business models that aren’t sufficiently adaptable or by value propositions that aren’t clearly differentiated or communicated. Then there are pressures from organizational travel-management programs that only align value to price, which puts downward pressure on rate hikes and causes some owners to limit expenditures on asset improvements.
Obviously, leeway exists when occupancies rise above functional capacity levels, allowing revenue-management programs to kick in and gain the upper hand. But then, net revenues may shrink due to escalating franchise fees and other commissions. And, it doesn’t help when accommodation taxes go through the roof; land becomes scarce and too expensive; condo developers outbid hotel developers; or the need for social housing takes priority. While current ADRs reflect a strong economy, strong demand and relatively stable and full-capacity supply situations, uncertainties abound (NAFTA negotiations, tariff impositions and a variety of struggling resource sectors), making it virtually impossible to determine what’s likely to happen in the short-term.
Given this realization, hotel development is becoming more boutique focused, expressively design-driven, tailored and endearing to communities.We’re seeing a disruptive shift in business models and value propositions that, on one hand, give credence to the importance of community stakeholders and, on the other hand, become more amenable to taking into consideration the sentiments and sensibilities of visitors who expect hotels to be hubs. Existing hotel brands are starting to determine how best to customize their properties in order to suit the communities in which they operate. By being eminently strategic and innovative, more communities are beginning to recognize, accept and proclaim hospitality and tourism as important contributors to economic progress.
To fulfill this transformative agenda, however, hoteliers will need to re-consider what drives loyalty and start focusing more on relevance. Or, more to the point, focus on ensuring value resonates in the most meaningful of ways so as to drive volume.
Michael Haywood is president of the Haywood Group, a tourism and hospitality consultancy. He can be reached at [email protected]
