The 2001 Canadian edition of Pannell Kerr Forster’s Trends
in the Hotel Industry Annual Operations Report reveals
that the year 2000 marked the eighth consecutive year
of increased profitability in the Canadian Accommodation
industry, with income before fixed charges increasing
by a healthy 6% over 1999 results. The full findings
of this report will be released by the end of September
2001. This annual publication contains the 2000
operating results for 531 hotel properties representing
about 103,000 guest rooms. The 50-page report provides
detailed financial data by operating department nationally
and regionally for full service hotels, limited service
hotels, suite hotels and resorts.
Despite continued demand growth in the range of 2%, national
occupancy decreased marginally in 2000, primarily due to
a 3% increase in supply. On the bright side, average
daily rates realized 5% growth in 2000, resulting in RevPar
growth of approximately 4% over 1999 levels. The ability
of Canadian hotel operators to drive rate growth in 2000
was the largest contributing factor to bottom line improvements.
There has been stated concern that the profitability of
the industry has peaked and that bottom lines [1] are
about to erode. However the industry has continued to see
growth of 6% in 2000 and 10% in 1999, after a peak of 20%
in 1998. With occupancy levels relatively flat, and
anticipated rate growth of about 4% this year and next, our
forecasts indicate a continued growth in profitability, albeit
at levels lower than previously experienced. After
a 6% increase in 2000, bottom lines will continue to grow,
a further 6% this year and next.
1For the purposes of this analysis, Operating
Profit is defined as income after property taxes, and insurance,
but before management and franchise fees, capital reserves,
rent, interest, income taxes, depreciation and amortization.
The outlook for the industry is not without some challenges.
Cost controls, specifically in the area of undistributed
expenses need to be examined more closely. While revenues
over the 1993-2000 period are up 50%, and net income has
tripled, undistributed expenses are up 25% (50% above the
rate of inflation). Of primary concern is an increase
in A&G expenses of 32%. Climbing undistributed
expenses need examination and may present some opportunity
for enhanced profitability. The well-documented increase
in energy costs will also cut into the average hotel’s
profitability in 2001 and Property Taxes continue to erode
both profits and values.
While challenges exist, the fundamentals of the industry
are sound and the prospects for continued growth are
firm.
Brenda York, Consultant
Pannell Kerr Forster Consulting Inc.
The overall conclusions in this article do not necessarily
reflect the impacts on the economy and more specifically
on business and leisure travel which could potentially
result from the recent events of September 11, 2001 in
the United States.
