The hospitality industry’s business models are founded on the strategic and operational pursuit of excellence in order to create ever-lasting corporate, community and country brand loyalty. But are hoteliers on track — even as the industry continues to prosper? The projected Average Daily Rate (ADR) and Revenue Per Available Room (RevPAR) are both expected to rise in 2019 , with forecast increases of 2.5 per cent and 2.3 per cent respectively. While such performance is noteworthy, is it a suitable proxy for revealing or measuring excellence?
In order to achieve continuity and progress toward perpetual excellence, it’s essential we fully understand the existential factors.
Over the last few years, for example, the Canadian brand has received numerous accolades from internationally recognized sources. As a destination, Canada has ranked in top spot for a couple of years, but in 2018, the renowned Anholt Nation Brand Index placed Canada in fourth position — a decline from third place in 2017. In 2019, FutureBrand Country Index ranked Canada in eighth position, a fall of three positions from 2018. As leading indicators, is this slippage worrisome, even though tourism demand continues to outpace growth in supply and has allowed hoteliers to raise rates?
As revealed in the report Unlocking the Potential of Canada’s Visitor Economy, Destination Canada points out that far more has to be done if the country’s collection of enticing destinations is to continue to grow and to maintain momentum. Among other issues, this suggests individual communities-as-destinations will have to take tourism far more seriously if they’re to up their game and provide exceptional visitor experiences.
Canada’s potential to further the development of tourism — province-by-province, community-by-community, neighbourhood-by-neighbourhood — is undeniable, but its improvement will be compromised unless a “whole-of-government approach” is taken to address issues such as labour, access, cost competitiveness and marketing funding. And, if more place- and people-based investments are to be earmarked for the communities, tourism needs to become recognized not just as an industry cluster, but as a super-cluster dedicated to excellence, not only within major gateway cities, but in all communities and regions.
For this is to happen, success in the accommodation industry cannot continue to be determined solely on metrics that explain performance in terms of supply and demand, occupancies and expenditures. If hotels and communities-as-destinations are to be assessed for their excellence, more precise performance indicators are required. For example, many service-oriented industries today utilize measures such as return-on-experiences (ROXs); key performance indicators (KPIs); balanced scorecards; and objectives and key results (OKRs) reflective of the key jobs to be done. More specifically, excellence is ultimately determined and evaluated through the effort and ability to create and capture value of particular importance and meaning to customers.
It may seem odd to note the importance of extending the pursuit of “excellence” outward from the accommodation industry into entire communities-as-destinations, but it’s predominantly the actions and activities in communities that draw people into hotels. And, while many hoteliers are strong advocates for their communities and actively involved in promoting their merits, it’s clear the effective management of communities-as-destinations cannot be taken for granted.
It’s the overall destination experience that matters — the memorable experiences that generate positive endorsement and repeat visitation. As research by McKinsey Consulting reveals, the attributes that build customer lifetime value and brand loyalty (they identify 30) are those that are functional, emotional, life-changing and create social impact. That suggests hoteliers have to become far more involved and engaged in improving the appeal, attractiveness and essence of their individual properties, as well as the communities and neighborhoods they either occupy, represent or depend on for business. By doing so, not only will their market-making abilities increase, but they’re more likely to protect hard-won reputations from indifference, uncertainty and threat.
Travel and Tourism
Visitors love Canada, but while the following statistics are impressive, the overwhelming issue is what more the accommodation industry can and must do to encourage more people to visit and extend their stay. As Statistics Canada reveals, tourism remains a major growth industry, with tourism expenditures amounting to $95.3 billion in 2018. The annual tourism GDP growth of 2.7 per cent (though not as substantial as the four-per-cent increase in 2017) outpaced the economy-wide GDP growth of 1.8 per cent, increasing the share of tourism in the Canadian economy to 2.1 per cent from two per cent in 2017.
Domestic tourism will always be the stalwart contributor, with Canadians in 2018 making 278-million domestic trips and spending $45.7 billion. On average, individual Canadian travellers spent $80 on same-day trips and $330 per overnight trip, with the largest spending category being accommodation at 23.2 per cent. As expected, 41 per cent of trips are for the purpose of visiting friends or relatives; another one-third for holidays, leisure or recreation; almost 10 per cent for business-related purposes; and the remainder for attending conventions and trade shows or for shopping. All interesting details, but hoteliers would benefit if even more-detailed demographic factors, such as income, education, family type, age, residential area and race — as well as psychographic factors in terms of interests, habits and behaviours — were taken into consideration and made readily available.
There are similar results for international markets. In 2018, 21.1-million visitors arrived in Canada — the highest number on record and up 1.2 per cent from the previous record of 20.9 million in 2017 (the year of the country’s 150th-birthday celebrations). In fact, 2018 was the first year since 2015 that growth in numbers of tourists from the United States (up 1.4 per cent) outpaced the increase from overseas countries (up 0.8 per cent). But, again, where are the details that would allow hoteliers to customize and personalize the visiting experience?
While Statistics Canada indicators provide year-to-year comparisons and information on timing patterns, methods of transportation, expenditure categories and entry points into the country, hoteliers, if they’re to be more effective as gracious and informed hosts, need to have access to more detailed knowledge — the use of planning tools, reasons for travel, issues and concerns, sought-after activities in specific destinations, cultural considerations and overall levels of satisfaction. This information may be available from other sources, including some industry associations, but it needs to be localized, readily available and better distributed.
As Canada’s most-significant international market, U.S. travel to Canada increased for the fourth-straight year, representing an overall 20-per-cent increase during 2014 to 2018. There were 24.4 million same-day and overnight trips, up 0.5 per cent from 2017. While about four of every 10 — or 10 million — made same-day trips (down 0.8 per cent from the previous year), 14.4-million arrivals were overnight travellers, still below the peak of 16.2 million in 2002.
Over the 2014-to-2018 period, the number of visitors arriving from overseas countries grew from 4.1 million to 6.7 million — an increase of 64.5 per cent. Put into historical and comparative perspective, overseas visitors represented 19.4 per cent of tourists to Canada from abroad in 2002, while representing 31.7 per cent in 2018. Last year, Canada welcomed 6.9-million travellers from overseas countries, the highest level on record and 1.1-per-cent more than 2017. Put into perspective, 76,000 additional overseas visitors came to Canada with notable increases from South America (up 52,000 trips) and Asia (up 22,000 trips), but declines in the numbers of travellers from Europe (down 15,000) and Oceania and other islands (down 8,000). Travellers from Europe (2.9 million) and Asia (2.4 million) accounted for 77 per cent of overseas travellers to Canada in 2018.
But, when it comes to local and regional travellers into our immediate communities, little is known about them, including the impacts of tourism on them. Part of the problem is the definition of who those visitors actually are and the reliability of the National Travel Survey, due mainly to voluntary participation. Then there are our Destination Marketing Organizations (DMOs), few of which are active in undertaking market or visitor research. Not only do too many rely on the corporate brands to drive demand, but few play a hands-on role in managing communities-as-destinations. While blame can be attributed to DMO budget shortfalls, what’s lacking is sufficient industry support in developing a stronger business case for their managerial roles beyond that of marketing.
Accommodation Performance
When the industry is performing well — as it currently is — engaging in destination and visitor management is put on the backburner.
For the country as a whole, (Exhibit 1) occupancy advanced 0.7 points to 66.2 per cent, while Average Daily Rate (ADR) grew by 4.4 per cent to $162.15, pushing RevPAR to $107.37 — or 5.5 per cent — from 2017. There were variations across the country, with occupancies in Saskatchewan and Alberta climbing 2.7 points and 2.2 per cent respectfully. The most significant increase in ADR occurred in British Columbia (8.9 per cent) followed by the Yukon (7.5 per cent), Nova Scotia (5.4 per cent) and Ontario (4.7 per cent).
In Atlantic Canada, Newfoundland’s occupancies plummeted 9.2 points to 53.2 per cent, as did its ADR (down 3.4 per cent to $140.10) causing RevPAR to fall 17.7 per cent to $74.52. Prince Edward Island’s occupancies remained relatively steady at 57.3 per cent, while hoteliers found the means to grow ADR to $152.49 — a 5.2-per-cent increase — resulting in RevPAR of $87.30. In Nova Scotia, as occupancies remained steady at 66.5 per cent, ADR was up 5.4 per cent to $148.79, increasing RevPAR to $98.90. The same story can be told for New Brunswick, with occupancies steady at 60.6 per cent, ADR up 3.3 per cent and RevPAR coming in at $76.04.
In Central Canada, occupancies rose 0.3 points to 69.8 per cent, with ADR rising 4.3 per cent to $164.75 and RevPAR coming in at $115.05 — a 4.7-per-cent increase. Occupancies in Quebec, however, fell 1.1 points to 69.2 per cent, while ADR increased three per cent to $173.19, with RevPAR increasing 1.4 per cent to $119.80. This was a situation caused by occupancies falling by 2.5 points to 72.5 per cent in Greater Montreal and ADR only managing to advance 2.6 per cent to $179.43. Occupancies in Ontario showed growth of 0.8 points to 70 per cent, though ADR rose by 4.7 per cent to $162.04, for a 5.8-per-cent advance in RevPAR to $113.47. For the Greater Toronto Area, occupancy averaged 76.1 per cent and ADR rose six per cent to $182.77, for a RevPAR of $139.12.
In Western Canada, occupancy rose 1.4 points to 63.3 per cent, while ADR advanced 4.8 per cent to $162.55. Manitoba achieved occupancy of 69 per cent — a 0.5-point increase — with ADR up 1.5 per cent to $125.22, for RevPAR of $86.43. Saskatchewan, on the other hand, grew its occupancy 2.7 points to 56.9 per cent, but was unable to increase ADR as it fell 1.3 per cent to $117.84, resulting in a RevPAR of $67.04. In Alberta, occupancy climbed 2.2 points to 55.9 per cent, while ADR only squeezed out a 0.7-per-cent increase to $130.91 for a RevPAR of $73.20. In B.C., with occupancy increasing only 0.7 points to 70.8 per cent, operators managed to advance ADR 8.9 per cent to $188.36, resulting in a RevPAR of $133.38 — an increase of 10.1 per cent. In Greater Vancouver, occupancy climbed 1.1 points to 80.2 per cent, while ADR rose an impressive 11.2 per cent to $211.78 for a RevPAR of $169.89 — a 12.7-per-cent increase.
Exhibit 2 reveals occupancy and ADRs by property size, type and price levels for Canada as a whole. It reveals the larger the property, in terms of the number of rooms and price levels, the higher the average occupancy levels, as well as the ability to advance the ADR. For property type, however, limited-service and resorts tended to have lower occupancy rates. As for ADR, the larger the property, the higher the ADR. In terms of property type, resorts achieved the highest ADR which, for 2018, came in at $262.17. The higher the price level, the higher the ADR. Interestingly, though, in 2018, budget properties were able to increase ADR by 5.4 per cent to $108.81, upscale properties by 5.7 per cent to $267.49, while mid-price properties recorded a 3.4-per-cent increase to $150.97.
To a great extent, performance in the accommodation industry is determined by the juxtaposition of demand and supply in individual markets. As a whole for the country, Exhibit 3 reveals while the supply of rooms advanced 1.2 per cent to 397,366 in 2018, average-demand-per-day rose 2.1 per cent to 263,056. As a point of interest, however, these stats only represent properties with 30-plus rooms, meaning data on the rapid rise of the sharing economy, represented by Airbnb and similar small and boutique properties (under 30 rooms) is not available. As such demand (represented by annual room revenues amounting to $15.57 billion for an impressive advance of 6.8 per cent, see Exhibit 4) and supply figures are conservative under-estimates.
Current and Contextual Realities
Prospects for 2019, on the whole, seem favourable for the hotel-asset class of real estate. The strength of demand shows no signs of dissipation and there is a palpable — and even unmet — desire for travel. But, while most of the economic outlooks remain positive and employment rates are high, there are anomalies. According to the International Monetary Fund, Canada’s comparative GDP growth of 1.9 per cent in 2018 has been below the average 2.2-per-cent growth in advanced countries. In fact, in 2019, Canada’s growth is expected to slow to a rate of 1.5-per-cent, which is being reflected in a slight weakening of consumer confidence and unsustainable levels of consumer debt (the highest of all G7 countries).
According to the Organization for Economic Co-operation and Development (OECD), the other proverbial elephant in the room has been unprecedented wage stagnation in all developed countries (that will continue to alter travel patterns, choice of destination, lengths of stay and expenditures), coupled with the excessive ratcheting-up of travel costs. But, as the Conference Board of Canada reports, “with travel-price inflation expected to ease (in 2019) and an exchange rate that remains favourable for many international markets, growth from the U.S. and overseas is expected to strengthen in 2019 and stay positive.”
Stability in the marketplace is important, especially when demand for accommodation continues to advance faster than the supply of rooms (as Exhibits 3 and 4 reveal). But, according to CBRE Hotels, it’s becoming evident that, in the next few years, there will be an expansion of many branded properties in select markets — particularly in suburban areas close to urban amenities. While there was somewhat of a restrained level for new hotel construction during 2018, that will change this year and possibly for the next three to five years. This is due, in part, to significant amounts of equity and debt capital in search of a home, particularly for preferred brands. With fewer existing properties for sale, renovation or expansion strategies are in the cards, fuelled by the relatively low cost of capital. The major worries, though, are the ever-rising per-room construction and real-estate costs, making it increasingly difficult for hotels to maintain rate integrity.
Defining Excellence
With a more cautious outlook expected during the next few years, along with an acceleration in supply, there has to be a doubling down on efforts to excel in both operational and strategic realms. Achieving excellence, however, is dependent on a number of both manageable and seemingly uncontrollable factors. Paramount is the nature of the relationship hoteliers form with guests — all their guests, not just those who are part of loyalty programs. Ultimately, the quality of these host/guest relationships is determined based on what transpires during face-to-face and face-to-place encounters and experiences.
Communities-as-destinations succeed, as do their hotel sectors, when they’re fit-for-purpose and designed to be compelling, when their hospitality is truly inspiring and when the value created is functionally and emotionally superb in cost-effective and life-affirming ways.
While it is vital to maximize the value of partnerships — whether with vendors, attractions, events, local suppliers or governments — it’s equally important to enhance the “power of pull” and all place-making activities that improve the connectivity with, and the value of, locations and surrounding neighborhoods.
Visitor- or guest-centricity cannot become a flavour-of-the-day trend, but a vigilant enterprise in which all hoteliers need to play a leadership role — not only within their organizations, but also for, and within, their communities. As a community’s premier hosts, what’s involved extends far beyond the provision of information. A hotelier’s core responsibility is to design, develop, deliver and master the experiences visitors come to expect.
Decisions on value creation and capture may start out as strategic initiatives, but implementation starts at the points of contact — on the frontlines. A hotelier’s prime responsibility is to ensure everyone becomes a master host that sets out to make a difference.
Written by Michael Haywood
