It’s been a rough year for Canada’s hotel industry, as its members watched the price of oil drop to staggering lows. Energy-producing provinces, such as Alberta, Saskatchewan and Newfoundland and Labrador bore the brunt of the decline, resulting in the Canadian dollar slipping to its lowest level in 13 years.
“We were the poster child for hotel development,” says Dave Kaiser, president and CEO of the Calgary-based Alberta Hotel & Lodging Association (AHLA), which represents about 880 hotels, motels and resorts across the province. “For quite a few years we were leading in RevPAR. A lot of development was in secondary and tertiary markets and had one economic driver — that was the energy sector — and without that driver, the activity just falls off.”
Indeed, Alberta and Saskatchewan have suffered declines in demand, and as its markets attempted to absorb the abundance of supply, there were serious repercussions for occupancy and ADR. According to CBRE figures, in Alberta, occupancy dipped from 68 per cent in 2014 to 59 per cent in 2015 and is forecast to slide even lower to 54 per cent in 2016. Saskatchewan fared slightly better, with occupancy dropping from 64 per cent in 2014 to 59 per cent in 2015, to 57 per cent this year. Meanwhile, ADR in Alberta is expected to land at $137 this year, down from $140 in 2015, while Saskatchewan’s ADR is forecast to stay the same at $132.
“In Western Canada, over-supply is a big issue in some of these oil- and gas-specific markets,” agrees Nigel Lucas, VP, Franchising & Development at Superior Lodging Corp. “The amount of supply that’s come online at Calgary Airport is staggering. There’s still a question mark around whether it can absorb the amount of supply that’s come online in the past year.”
In Alberta, supply grew by three per cent while demand declined 11 per cent in 2015; this year, supply growth is forecast to remain the same, while demand will drop by six per cent, according to CBRE figures. In 2015, supply in Saskatchewan grew by six per cent while demand dropped by three per cent; this year, supply is forecast to grow by six per cent while demand will only grow by two per cent. “Other markets like Kindersley, Weyburn, Estevan — these were markets that were really hot for two to three years in oil and gas. Now, as that market has gone down, you’re seeing some are going into receivership and some are just selling the debt to try to get out of those properties,” Lucas adds.
Meanwhile, the team at Superior Lodging Corp. is shifting its attention away from parts of Western Canada as it focuses on expanding the Travelodge brand, among others, across Canada. “We just opened in Fort St. John [B.C.] and that one seems to be holding strong. Kitimat, B.C. is doing okay as well, but in Alberta we certainly feel the pressure right now from the economy,” Lucas says. So far, the team has added nearly 1,000 net new rooms and is on track to add another 1,000 to 1,400 rooms this year. Moving forward, his team will shift its focus away from Alberta to secondary and tertiary markets such as Thunder Bay, Ont., Sudbury, Ont. and various cities in Eastern Canada.
Airline Hotels, which owns and operates nine hotels in cities which include Edmonton, Saskatoon and Regina, is combating the market challenges by focusing on improving its guest experience. “Coming out of last year we had system-wide declines in occupancy and that was due to imbalances in supply and demand that were going on in Saskatoon and Regina,” explains Jaret Waddell, COO. “The good news is we’ve not only maintained, but strengthened our competitive RevPAR position in all four properties in Saskatchewan and grown the consolidated RevPAR index at the four properties above 110,” he adds.
“Though the market performance was really a system[wide] issue, from a competitive standpoint we’ve done well and have put a significant amount of time, energy and focus into enhancing the areas of the business that are the most significant in the minds of guests, which really are service and cleanliness.” Waddell’s team began using Revinate, a hotel software, to help measure guest satisfaction by capturing online reviews and social-media mentions into a single, integrated view. That helped them analyze perceptions of value, cleanliness and service which are generating feedback. “That’s where we’re going to put our time and energy,” he sums up.
However, the problems in Western Canada don’t worry Bill Hanley, president of International Development for Vantage Hospitality, based in Richmond, Va. “We’re bullish on Canada. Aside from Alberta, the rest of Canada is doing quite well. And that’s also true in our business, where virtually all the provinces, with the exception of Alberta, outperformed 2014 and 2015 and they’re expecting the same thing to hold true this year.”
Hanley’s company is not looking to halt development in Western Canada or in the rest of the country, as evidenced by a newly converted Canadas Best Value Inn-Calgary Chinook Station, formerly a Howard Johnson Express. “In Western Canada right now we’ve got Dawson Creek, B.C., Fernie and Fort Nelson that we’re working on. We’ve got projects in Sudbury, Cornwall, Barrie, Orangeville and Toronto so we’ve got a nice pipeline — and we just coincidentally signed a second hotel in Calgary, a former Howard Johnson. Even though Alberta may be down, there is still opportunity for us.”
Despite challenges with occupancy, there are still several positive developments in the works. Developers are managing to save on construction costs, thanks to an abundance of cheap labour. “We’re currently in the process of rebuilding our Microtel in Fort McMurray and when we re-tendered it, there was a 10- to 20-per-cent savings in construction costs,” Lucas adds. Thanks to a lower Canadian dollar, the inbound leisure travel forecast is expected to grow this year as Americans look north to stretch their travel funds further. Hainan Airlines recently announced it will offer direct service between YYC and Beijing beginning June 30, which will bring a slew of Chinese tourists to Calgary. And, while the groups may be steered towards the resort provinces, hoteliers are preparing to host the spillover to the other hotel segments.
Waddell remains optimistic, as he believes history is repeating itself: “Between 1999 and 2001 there was an 18-per-cent supply increase in Saskatoon at the time when the economy of the province wasn’t nearly as diversified as it is now … it was about a five-year recovery.”
For Edmonton, the fundamentals are different, where the city is dealing with a softening demand at the same time hoteliers are absorbing the supply increases. “If you look back into those cycles, like December of 1998 with $11 oil, there’s always recovery,” he says. “It’s just a question of when. There’s only so many things you can do and control.”
Volume 28, Number 3