For years the hotel industry has experienced an ever-widening gap between the expectations for growth and reality. What’s worse is the situation can’t be considered temporary anymore — instead, it’s a new normal. Today, many hoteliers are concerned about how to grow, transform and reinvent their business. Most have stabilized operations, but relentless economic and market retrenchment still affects performance and obscures opportunities for growth.
Managing a hotel in these conditions remains a thankless task, unless managers excel as hosts and strategists and act in the best interest of their company and city. Hoteliers who succeed consider the following questions: What does my business bring to the world and my community? Is our difference distinctive? Is what we’re doing today having a positive impact on tomorrow? How can we clarify why, whether and to whom our business matters?
Success is determined by collective efforts to improve the quality of attractors, amenities and assets (natural, cultural, man-made and human) that connect and attract people to the communities in which hotels operate. Unless we are actively involved in our communities, our business foundation erodes, but we cannot afford to take these resources and responsibilities for granted.
We must enhance our strategy, innovate and renew our marketing efforts. We need to strengthen our connections with our tourism clusters — enterprises and people who benefit from tourism — so they transcend mediocrity. The success of tourism is not determined (or undermined) by government policies and initiatives; it is dependent on inspired hospitality that connects, informs and delights.
If, as Einstein said, “Insanity is doing the same thing over and over again and expecting different results,” then our success is dependent on change. We must remove perceived barriers to promoting Canada, communicating and delivering value while delighting our guests and generating a viral buzz about our country. We need to establish Canada as a dream destination.
Travel and Tourism
Hoteliers are dependent on tourism. And, this year industry observers have something to smile about as the overall rebound of visitor arrivals to Canada between January and May 2012 increased 4.3 per cent overall, with U.S. visitors up 4.2 per cent and visitors from other countries up 4.6 per cent in comparison to the same period last year. It’s a positive omen, even though The Conference Board of Canada’s Travel Markets Outlook is only forecasting 1.8-per-cent annual growth in overnight stays.
It’s important, however, to put this modest rebound into perspective. Over the five-year period from 2006 to 2011, the number of overnight visitors dropped 12.3 per cent. While the number from the U.S. fell 16.3 per cent, visitors from all other countries rose a paltry 0.2 per cent, and the road to recovery is still steep. While the stats for receipts are only available up to 2010, they too fell by 1.6 per cent, over the aforementioned four-year period. Contrast this situation with Canadians travelling abroad. We increased our travel and expenditures during the same period by 31 per cent, with more than $30 billion spent on trips outside our country in 2010.
Though a 12-per-cent growth in domestic overnight visitors between 2006 and 2011 has been fortuitous, many hoteliers remain frustrated about the future of tourism and what must be done to develop our international markets. After all, if Canada is the world’s strongest brand (according to the Country Brand Index) why is our share of international arrivals plummeting? Why are we unable to convert this esteemed ranking into more visitor arrivals and expenditures?
The fact that Canada slipped from fifth to ninth place in the World Economic Forum’s Travel and Tourism Competitiveness Index proves our marketing, access and product-development initiatives are falling short. A new Federal Tourism Strategy was recently established; however, government cutbacks have neutered the Canadian Tourism Commission’s (CTC) ability to effectively market Canada internationally. Its operating budget of $100 million in 2001 was slashed to $72 million for 2012/13 and $58.5 million for 2013/14 — a pittance compared to budgets of similar nations. As a result, the CTC has been forced to exit many top-tier travel markets.
Our governments have no option but to perform triage on expenditures. Tourism’s less essential ranking is indicative of a “new normal” despite the fact that governments are aware of the benefits derived from tourism (all levels of government earned a combined $19.7 billion in taxation revenues from tourism, according to a 2007 Statistics Canada study).
The accommodation industry’s concern that tourism will continue to slide backwards has everyone worried. In a search for long-term, sustainable solutions, the Hotel Association of Canada (HAC) and the Tourism Industry Association of Canada (TIAC), stepped up to the plate. They have approached the federal government with two funding model proposals; they propose reinvesting international visitors’ GST and/or an international visitor arrival levy.
But, more can be done at community and regional levels. Although Destination Marketing Organizations and Convention and Visitors Bureaus are financially constrained, careful thought has to be put into developing more innovative tourism clusters. Despite the existence of many partnerships, tourism clusters have to ensure everyone is working towards a common purpose, creating new, significant and relevant value that exceeds expectations. Too many destinations take a cavalier approach and make minimal effort to ensure people’s needs are thoroughly met.
Tourism clusters can enhance the chances of harmonizing the common interests of relevant stakeholder groups such as tourism-related business enterprises, government agencies, non-governmental organizations and community groups. When the focus on tourism is strategically sound and geared toward achieving consistent success, magnificence will triumph over mediocrity; only then is healthy growth assured.
In the Ottawa-Gatineau region, for example, collaborative efforts are being made to ensure tourism becomes and remains a vital economic sector. While growth is not the overriding objective, cooperative efforts to expand visitation opportunities and meet the exacting visitor and other stakeholder requirements extend tourism’s benefits. The mayor, for example, is an ardent tourism supporter and works with many tourism organizations to boost visitation.
Operating Environment and Context
There is no doubt global economic concerns (Euro debt crisis, the fiscal crisis in the U.S., the slowdown in the Chinese economy), along with domestic economic challenges, such as high household debt and lagging productivity, is leading to declines in consumer confidence. Nevertheless, with healthy labour markets (7.2-per-cent unemployment) good job prospects, low stable inflation (1.2 per cent in May), superior fiscal finances, a solid banking sector and a strong Canadian dollar (which could negatively affect international visitation rates) our economy appears stable, particularly compared to others.
Consequently, BMO Capital Markets is predicting an annual two-per-cent real GDP growth for 2012 and 2013 (down from 2.4 per cent in 2011), unless a Euro-zone breakup occurs. Regionally, the three major resource-producing provinces — Newfoundland and Labrador, Alberta and Saskatchewan — are expected to grow three per cent in 2013, while Central Canada and the remaining Atlantic provinces will struggle to achieve two-per-cent growth. How well local economies perform will have profound effects on accommodation businesses.
At the consumer level, the most worrisome Statistics Canada data is the slow growth of personal incomes in comparison to credit. The debt-to-income ratio is at such a record level that consumers are re-assessing expenditures, especially discretionary travel, tourism and hotel stays. With debt consolidation restraining consumers as well as governments, consumer spending is slowing down (retail sales volumes have been falling in recent months, despite climbing auto sales). Higher duty-free limits on cross-border shopping may also encourage many Canadians to travel stateside.
While gloomy economic conditions are destined to persist until there’s a global economic recovery, our industry can regain momentum if it becomes more proactive. By working more effectively and collaboratively to spur change through innovation, whether through product leadership, operational effectiveness or more effective visitor engagement, we can achieve core market growth, adjacent market growth and new market creation. But, first we must discover new ways to excite, invite and delight. This requires an understanding of specific visitor needs, purchase habits and complementary activities associated with travel. Being more creative and technologically savvy can help identify the new opportunities that emerge as consumer needs evolve and tourism continues to converge with cultural, arts, entertainment and related sectors of the economy.
Accommodation Analytics and Performance Indicators
As anticipated, national occupancy inched up one point in 2011 to an average 61.2 per cent, still short of the 64.9 per cent occupancy level achieved in 2007 (see sidebar, p. 20). Not surprisingly, hoteliers remain sensitive to raising rates. ADR actually declined 0.6 per cent to $126.87. RevPAR, therefore, was only able to advance by a modest 1.1 per cent to $77.66.
In Atlantic Canada, occupancies averaged 58.5 per cent, down 0.1 points, with the exception of P.E.I., which climbed 2.8 points, but only to achieve an average 50.2 per cent. Occupancies in Newfoundland, however, reached 68.1 per cent. Overall, ADR in Atlantic Canada advanced 0.9 per cent to $117.95, and RevPAR rose 0.7 per cent to $68.98. Despite an increase in occupancies in P.E.I., ADR dropped 3.7 per cent to settle at $113.40 with RevPAR only reaching $56.95. Newfoundland, however, enjoyed an ADR of $132.04 and RevPAR of $89.93, reflecting a more vibrant economy.
The story in Central Canada reflected the continuation of a soft economy as occupancies and ADR only advanced 0.8 points to 61.4 per cent and $125.61, respectively. Rev- PAR rose 2.2 per cent to $77.06. Of all the major markets, Ottawa was the stand-out story with occupancies climbing 3.1 points to 70.7 per cent, ADR rising 2.1 per cent to $136.23 and RevPAR up a significant 6.7 per cent to $96.38. Greater Montreal also performed well with occupancies rising 2.4 points to 66.3 per cent, ADR increasing 1.4 per cent to $137.08 and RevPAR up 5.2 per cent to $90.85. Comparatively, the Greater Toronto Area saw occupancies decline 0.2 points to 65.9 per cent, ADR advance 1.1 per cent to $128.44 and RevPAR settle for a 0.8-per-cent increase at $84.62.
Occupancies in Western Canada averaged 61.5 per cent, up 1.4 points, though ADR fell 2.3 per cent to $129.64. Consequently, RevPAR did not budge from its 2010 level, ending at $79.68. With weaker Asian export demand, British Columbia contributed largely to these mediocre numbers, as occupancies fell 0.3 points to 59.7 per cent, ADR dropped by 5.6 per cent to $130.35, causing RevPAR to tumble to $77.85, a 6.1-per-cent decline from the previous year. Occupancies were the highest in Saskatchewan, though they too dropped 0.5 points to 68.4 per cent. ADR advanced 1.8 per cent to $122.27, as was RevPAR at $83.63, up 1.0 per cent.
Alberta was the most robust market. Occupancies, excluding its resort properties, climbed 3.9 points to 62.3 per cent, though ADR only grew 0.5 per cent to $125.84. RevPAR advanced 7.2 per cent to $78.38. The big story in Alberta was the “other Alberta communities” where occupancies, reflecting the oil boom, climbed 9.8 points to 60.5 per cent, causing RevPAR to shoot up 19.4 per cent to $71.62.
Meanwhile, the largest properties, with more than 500 rooms, continue to garner the highest occupancies (68.4 per cent), although their occupancy levels were the only ones to falter, dropping 0.3 points (see sidebar, p. 22). Expectantly, ADR was highest for the largest hotels at $164.84, dropping 1.1 per cent from 2010. ADR for properties with less than 50 rooms fell the most, 2.3 per cent to $97.71.
In terms of property type, Suite Hotels enjoyed the best occupancy figures (68.6 per cent), and the highest increase, up 1.6 points. Perhaps this was due to a decline in their ADR, which fell 2.1 per cent to $132.26. As usual, resorts seem most prone to having the lowest occupancies at 51.5 per cent, falling 0.2 points, and the highest ADRs at $181.36, though falling 1.9 per cent from 2010. Full-service properties seemed the most stable, as occupancies grew 1.0 to 63.9 per cent with no change in ADR, registering $133.45.
Average occupancies of budget properties tend to be the lowest, at 51.8 per cent in 2011, while upscale properties enjoyed the highest at 66.4 per cent. ADR remained relatively static for both categories at $89.61 and $160.37, respectively. Properties in the mid-price range enjoyed the highest year-to-year increase in average occupancy — a 1.8-point rise to 60.5 per cent. With regard to ADR, however, they experienced a 0.6-per-cent drop to $113.29.
While the preceding numbers do not paint a flattering picture, the story is not so bleak. Certainly tourism is in the doldrums; occupancies are comparatively low; ADR is stalled and RevPAR is merely inching up. But, supply has constantly increased during the period between 2006 and 2011 (8.3 per cent) with a 1.3-per-cent increase to 370,000 rooms in 2011. As a consequence, negative growth in demand (5.1 per cent) was outstripped by supply during the same five-year period. After a two-year period between 2008 and 2009, in which demand plummeted, average demand per day in 2011 (226,428 room nights) finally surpassed its 2007 level. While the 3.0-per-cent demand increase is not as substantial as the 4.6-per-cent increase in 2010, it’s impressive nevertheless.
In total, lodging demand for accommodation businesses (year-round properties with 30 or more rooms) racked up 82.65-million room nights, which boosted the industry’s 2011 room sales to $10.5 billion, a 2.4-per-cent growth following a substantial 6.7-per-cent rebound in 2010.
Growing Through Strategic Collaboration
Buoyed with the prospect of continuing growth in demand, hoteliers know demand has to be earned, particularly through higher perceived value. Only then will customers’ re-evaluation of the price-value relationship be such that higher ADRs are achievable.
Laying a solid foundation for growth in these trying times starts by creating a more coherent sense of purpose and working passionately on what truly matters so the seeds for renewal and reinvention become self-evident. Discovering the most appropriate ways to increase gross revenues comes from rebuilding core markets, attracting adjacent and complementary markets and developing new markets. Brand focus can be sharpened by identifying and pursuing transformational-sustaining innovations that reframe a tourism product category, attraction or activity. Extraordinary improvements and fundamental changes to visitor offerings can lead to breakthroughs in market share.
Facilitating creativity and innovation has to occur at the corporate and community level. Since success is driven by the attractiveness, responsiveness and overall receptivity of destinations, hoteliers have to be equally diligent in tourism-cluster development.
In short, relevant organizations have to collaborate more effectively to create exquisite visitor experiences, identify and provide the appropriate resources and gather people with the right talent to develop and manage new growth efforts. As a community-driven industry, tourism is a partner in a community’s economic and cultural development. Hoteliers are among tourism’s major beneficiaries, and they’re in an excellent position to lead and advocate for their destinations. u
Michael Haywood is president of The Haywood Group, a Quebec-based hospitality and tourism consultancy. He can be reached at firstname.lastname@example.org.