How well are hoteliers meeting the needs of today’s guests? Occupancy rate, ADR and RevPAR identify a degree of success; satisfaction scores are also important, but even they don’t adequately measure how well requirements and expectations are being met.

So, to achieve success, hoteliers need a comprehensive understanding of the factors affecting travellers’ opinions and their desires to experience our country and communities. In such a highly competitive industry, there’s a dizzying array of consumer choice. Case in point: Airbnb, which has been valued at US$10 billion, according to The Wall Street Journal, is providing competition that many hoteliers seem to be ignoring.

Hoteliers aim to deliver seamless experiences informed by deep insight and imbued with brand promise. But are they succeeding? Do employees share a common vision? Are they enabled, and do they feel engaged? Do guests depart feeling delighted? What bearing does the performance of associates and other public and private services have on how well the hotel fares?

Studies of high-performing destinations and accommodation enterprises reveal that excellence is a result of persistence, deep insights, distinctive differentiation, purposeful positioning and overall experience. Today’s hospitality marketers need to understand consumers’ basic desires. Consumers want to be wowed when travelling, escaping the daily grind and seeking out the new and different.

Hoteliers should have an edge in this regard. After all, as Canada’s premier hosts, they are big believers in the appeal of our cities and countryside. Still, their contributions have yet to deliver the growth we deserve. For example, the World Tourism Organization in Madrid, Spain, reports that while travel and tourism accounts for 9.5 per cent of the world’s economy, it only contributes 4.5 per cent to Canada’s GDP.

There are many reasons this imbalance is difficult to fix. In fact, it’s an ongoing battle being fought by The Tourism Industry Association of Canada (TIAC), the Hotel Association of Canada (HAC), both based in Ottawa, and others who lobby on the hotel industry’s behalf, pressuring governments to be more forthcoming. In the July/August issue of Hotelier, even editor and publisher, Rosanna Caira, demanded a “time for action.” But legislated change will be slow in coming.

In the meantime, hoteliers must continue to emphasize the creation of real value, not only within their organizations, but throughout their communities or regions. Pricing must factor into the equation, but it should never define value. Discounting, in particular, undermines profitability and the ability to create, capture and communicate the true quality of most organizational and destination brands. It also cheapens the breadth of the Canadian experience.

Last month’s “Top 50 Report” emphasized “developing, renovating and creating better operating systems.” To increase gross sales, communities and corporations must work more collaboratively to enhance their value offerings and create seamless experiences. It’s time hoteliers lead the conversation, tell stories that bring their brands to life and collaborate to create a more prosperous future for their communities. By personalizing offerings and/or broadening relationships through meaningful touchpoints, such as more interactive services and branded content, a more vibrant tourism industry can be built.

Consider the following questions that determine future growth: what should be done to create more seamless experiences that engage customers and make communities more captivating; are the values and goals guiding organizational and brand strategies appropriate and clearly understood; in times of greater consumer choice and rising expectations, how can operational and marketing excellence be better executed in our digital age; and, what more can the industry do to honour and deliver brand promises and live up to the reputation Canada has earned?

Travel and Tourism

TIAC’s “2013 Gateway to Growth” and the Canadian Tourism Commission’s (CTC) “2014 to 2018 Tourism as Canada’s Engine for Growth” documents explore ambitious goals. Tourism fosters trade, but destinations and regions have to work more diligently if communities are to benefit from and improve tourism’s contribution to GDP.

Case in point: in recent years, an increasing number of Americans have stopped travelling to Canada (according to Statistics Canada, visitation was down 0.6 per cent to 25.2 million in 2013, with same-day visits sliding 5.7 per cent). In fact, Statistics Canada also reports that travel from the U.S. was down another 1.3 per cent during the first quarter of 2014. Given the economic resurgence in the U.S., more must be done to bolster the variety of Canadian experiences and have them register as truly unique and essential.

However, Statistics Canada’s report about the uptick in the number of international visitors — up 2.9 per cent to 2.7 million in 2013 — is great news. Canada’s major overseas markets represent visitors from Great Britain, France, Japan, Germany, South Korea and Mexico, but it is China that is advancing at an impressive pace, up 22.6 per cent in 2013 and 26.1 per cent during the first quarter of 2014. According to Statistics Canada, total visitation from outside the U.S. rose 5.2 per cent, though spending fell by 2.4 per cent. While the stabilizing world economy is paying dividends, this growth can’t be taken for granted. Visitor expectations must be met and suitable ways to strengthen relationships and spur further growth must be found.

Whether core, transitional or developing, the refrain from all markets remains the same: provide experiences that touch us, move us, improve us or change us. Knowing what that means and how to communicate and deliver the promise varies with each geographic, demographic or lifestyle group. Leveraging Canada’s “Keep Exploring” brand is essential and will bolster the power to wow, but for the Canada brand to resonate, it has to be articulated more directly and more meaningfully to guests.

With Statistics Canada identifying tourism as an $82-billion industry with more than 150,000 public and private enterprises, employing more than 600,000 people, tourism is deeply woven into our business- and leisure-based economies. In fact, domestic demand accounts for a robust 81 per cent of tourism’s expenditures ($66 billion), up from 65 per cent in 2001. In its assessment of the industry, TIAC notes that reliance on domestic tourism is worrisome and disproportionate, but it’s still amazing how few Canadians have experienced the breadth of what this country offers.

Despite the recent hoopla to connect the world’s largest and grandest trail network (Trans Canada Trail) by Canada’s 150th birthday in 2017, far more can be done to animate and celebrate our country, its history and future aspirations at the local level. For example, more effective use of social media can bring festivals and events to the attention of core markets. By doing so, perhaps even more Canadians and foreigners will travel within our borders, spend more money and fuel their propensity for short getaways and excursions in nearby communities.

Operational Context

Despite the effort and money being poured into branding and marketing, it’s surprising that the American Customer Satisfaction Index’s (ACSI) “Travel Report 2014” reveals that not a single hotel chain improved guest satisfaction. In fact, the average score for hotels dipped by 2.6 per cent to an ACSI score of 75 out of 100.

Ironically, while the economy is improving and consumer demand is increasing, customer satisfaction within the travel sector is on the decline, with all airlines receiving an ACSI average score of 69 out of 100. The headline to the associated ACSI news story Different Names, Same Experience? suggests that hotel chains are too similar and certain aspects, such as cleanliness and amenities are troubling. As the ACSI suggests, more hotel guests are questioning whether the value received justifies the constant rate hikes.

Such results represent an important wake-up call for three reasons: insufficient attention is being given to brand and community distinctiveness, employee engagement, meaningful innovation, appropriate and profitable revenue generation; travel and tourism are essential and discretionary activities that entail expenditures of time and money, the scarcity of which is more pronounced, thereby placing value propositions into question; and, people are seeking more meaningful and fulfilling leisure activities, especially through travel.

Travel should excite imaginations, be sustainable and be driven by a sense of style and design. Furthermore, hotels should be infused with personality, character and greater regional identity. Hoteliers need to enhance how they create, communicate and capture value, especially through innovation and design. After all, travellers show a preference for staying at properties that reflect and embrace a local destination’s culture.

Many customers may select a hotel based on price, but marketers should emphasize the value received: an improved quality of life, an accomplishment, an opportunity to relax or recreate, languish or learn. While many hoteliers are aware of this, there are overriding concerns about productivity, achieving operational efficiencies and honouring responsibilities to owners and shareholders. But consumers’ hunger for goods and services is being outpaced by a hunger for beauty, meaning, compelling stories and amazing moments — life-affirming intangibles that travel and tourism can provide.

The good news is that strong economic growth in many transitional and emerging markets is having a positive effect on international arrivals and expenditures. And this growth is slowing and can easily stall. On the home front, domestic tourism has remained steady, reflecting a slow economic recovery. And it appears that the economic situation can shift from low gear to reverse and back again.

In the U.S., for example, the National Association of Business Economics, based in Washington, D.C., has cut its growth outlook for the second quarter to an annualized rate of 3.0 per cent from 3.5 per cent. However, the Bank of Canada’s “Business Outlook Survey” reports that optimism prevails. Exports, future sales growth, a controlled rate of inflation and a weaker Canadian dollar are positive indicators.
As of July 2014 the Ottawa-based Conference Board of Canada’s index of consumer confidence has rebounded to 90.9. What’s disturbing, though, are second-quarter results from Statistics Canada, showing an annual inflation at 2.4 per cent, with wages not keeping pace, up only 1.9 per cent.

Accordingly, hoteliers seem to be keeping room rates in check. But an average 2.2-per-cent annual ADR increase suggests that dollars are being left on the table in many regions. With transportation costs rising above the average CPI, more travellers are choosing staycations, shorter trips or alternative leisure pursuits — even more reason for hoteliers to ensure their offerings are more appealing.

Of course, there are distinct provincial and regional differences. According to the Bank of Montreal, real GDP growth in Alberta should be 3.5 per cent in 2014, compared to 2.3 per cent for the country. Such growth, coupled with widening wage gaps and a low tax burden, will attract tourists from other regions of the country. The rest of the West is expected to perform closer to the national average. Central Canada should benefit proportionately more from a weaker dollar and stronger U.S. growth. Atlantic Canada is likely to remain comparatively sluggish.

Accommodation Analytics

In review, 2013 outpaced 2012. Within Canada as a whole, occupancies increased one point to 62.8 per cent (see Exhibit 1), far off the 64.9 per cent of 2007. Playing catch-up is frustrating when our major U.S. market remains unresponsive and seasonality continues to curtail the growth of average occupancies.

At first glance, an overall 2.2-per-cent increase in ADR to $132.53 in 2013 seems acceptable, but it lagged the average CPI increase for 2013. Of course, it doesn’t help if the industry and its offerings are commoditized or insufficiently differentiated despite branding efforts to overcome this problem.

Finally, RevPAR increased 3.8 per cent to $83.29, but, as Toronto-based PKF Consulting’s operational results for hotels attest, the increase in revenues is not being reflected in the bottom line due to increasing operating costs, especially energy, and some questionable asset-management practices.

If it weren’t for the boom in Alberta, hotel occupancies would be in the doldrums (see Exhibit 1). Alberta’s 2.4-point-increase to 68.2 per cent is noteworthy, as is the 5.5-point increase to 69.5 per cent in the Northwest Territories. British Columbia and Newfoundland were able to eke out a 1.6-point increase to 61.1 per cent and 70.8 per cent respectively. But across Atlantic Canada, occupancies barely budged from 2012, up 0.1 point to 58.5 per cent. Travel to Prince Edward Island declined by 0.2 points to 47.1 per cent; Nova Scotia ended up at 59.0 per cent, down 1.5 points; and New Brunswick remained steady at 55.4 per cent, up 0.6 points.

Economic woes in Central Canada also resulted in minimal changes to occupancy rates. Quebec’s average was 62.5 per cent, up 0.5 points (hindered by a two-point drop in Quebec City to 59.7 per cent). Ontario fared a little better, with occupancies up 0.8 points to 62.4 per cent. As noted, Western Canada was supported by Alberta’s and British Columbia’s performance, though occupancies fell 2.7 points in Manitoba to 60.9 per cent, and dropped 0.9 points to 67.2 per cent in Saskatchewan.

With reference to ADRs, hotels in Alberta, Newfoundland, Prince Edward Island, Saskatchewan and British Columbia raised their rates above the 2.4-per-cent inflation rate. In the remaining provinces there was a reluctance to follow suit. The reasons can be traced back to concerns that higher rates drive business away; beliefs that lower rates build occupancies; sales quotas based on occupied room nights instead of room rates; and too many brands chasing similar markets, suggesting that business models need updating.

As Exhibit 1 reveals, major gateway cities achieve the highest ADRs, which boosts overall provincial and national numbers. But other than Calgary and Edmonton, the average increase fell short of the 2013 CPI. Though not revealed in the Exhibit, notable mentions should go to Calgary northwest, up 10.7 per cent to $125.04; Regina, up 6.8 per cent to $133.06; Greater Victoria, up 6.3 per cent to $125.50; Langley/Surrey, B.C., up 4.9 per cent to $99.63; downtown Montreal, up 4.1 per cent to $153.35; and downtown Toronto, up 4.0 per cent to $168.05.

The RevPAR metric reveals that the most substantial increases were in the Northwest Territories, up 7.8 per cent to $107.11; Alberta, up 7.7 per cent to $93.81; Newfoundland, up 5.9 per cent to $99.72; and British Columbia, up 5.4 per cent to $82.07. Downtown Calgary has the highest RevPAR in the country, up 3.6 per cent at $152.08. Disappointing results came from Nova Scotia, down 3.0 per cent to $70.79; and Manitoba, down 2.4 per cent to $70.82.

In terms of performance according to property size, property type and price level (see Exhibit 2), increases in occupancy rate were more or less similar regardless of property size. But actual occupancy was highest in properties with more than 500 rooms (69.6 per cent) and lowest in properties with less than 50 rooms (51.7 per cent). Resort and suite hotels enjoyed a 1.5-point increase in occupancies to 54.2 per cent and 70.4 per cent respectively. Limited-service properties were up 1.1 points to 59.4 per cent and full-service properties were up 0.8 points to 65.0 per cent. In accordance with price levels, upscale properties advanced 0.5 points to 66.9 per cent, mid-price up 1.4 points to 62.5 per cent, and budget up 0.6 points to 54.7 per cent.

ADR advanced most for hotels with more than 500 rooms to $172.67 and was the lowest for properties with less than 50 rooms, up 1.5 per cent to $100.19. With reference to property type, limited-service properties grew ADR by 2.7 per cent to $107.32; full-service by 2.4 per cent to $138.46; suite hotels by 2.1 per cent to $140.05; and resorts by 2.2 per cent to $193.23. As might be expected, upscale properties had the highest ADR at $167.74, up 2.7 per cent, followed by mid-price at $119.46, up 2.2 per cent, and budget at $94.03, up 2.6 per cent.

Growth in the demand for rooms is not always evident until it’s compared to the growth in supply. Exhibit 3 provides a snapshot from 2008 to 2013. While the supply in the number of rooms (year-round properties with 30 or more rooms) has increased every year, only 2,100 rooms came onto the market in 2013, representing an increase of 0.6 per cent, the lowest rate of growth during each of the years. Demand for rooms, however, has been increasing since the disastrous falloff in 2009. Average demand per day in 2013 reached 236,808 rooms, a 2.4-per-cent increase from 2012.

Exhibit 4 shows there were 86.4-million room nights sold during 2013, representing a 2.3-per-cent increase over 2012. Translated into dollars, room revenues for 2013 amounted to $11.45 billion, a 4.8-per-cent increase from 2012.
The Bottom Line

Continued growth of supply and demand for hotel rooms across Canada is a positive sign, though when viewed in comparison to tourism’s potential, the outlook becomes somewhat questionable. Everyone wants to intensify our national, regional and local exposure marketing, but it’s getting more difficult. The dollars are not available, and today’s economic, social and political challenges are more complex.

While TIAC and HAC are building the case for tourism in terms of its contribution to trade, far more has to be done to spur growth. The challenge is surmountable but only if the power to wow is taken more seriously by everyone concerned with community and destination development. Hoteliers have no choice but to intensify the value-creation process, especially through more meaningful differentiation. This requires a more pronounced focus on discerning customer requirements as well as providing more personalized offerings and meaningful touchpoints. By doing so, hoteliers will enjoy greater flexibility in pricing and more opportunities to build profitable net revenues.

As tourism in Canada starts to reach its renaissance, more investment in hotels is likely. With supply increasing to meet the demand, however, nobody can afford to rest on their laurels. Competition will continue to intensify, so operators will have to get smarter, more innovative and more collaborative. In other words, there are no alternatives but to wow the cutomer and stem the flow of visitors seduced by other destinations.


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