Canada is one of the top 10 tourist destinations in the world in terms of arrivals,
but is not in the top 10 in terms of receipts. Canada’s share of
global tourism receipts has been declining in recent years, with 2001 receipts
down by 0.6% in comparison to 2000 and 2002 down by 10.0% as compared to
2001. The events of 2003 will have exacerbated the situation further.
Canadian
travellers represented almost 83% of our visitors in 2002. Many
people consider a tourist as someone from outside of Canada,
but our largest source of business and one that should be the
easiest to attract, is the customer from down the street.
The
next source of business and Canada’s largest international
source of tourist arrivals is the United States. The U.S. represents
81% of Canada’s international arrivals and approximately
65% of this country’s receipts from international travellers.
Notwithstanding
the fear of travelling to Canada when the World Health Organisation
travel advisory was in effect, generally, the attitude toward
Canada by Americans is still positive with significant percentages
of those surveyed are willing to visit Canada in the future.
The anxiety and negative bias was felt; however, the research
would suggest that it may not be permanent.
Over
the past several years, we have been selling Canada as a value
destination. However, there are challenges relative to Canada’s
largest international customer. In the year 2000, average daily
room rates for hotels in the top 51 cities in the U.S. were approximately
35% higher than the average daily room rates for hotels in the
top 10 Canadian markets when converted to a common currency.
Since
2000, average room rates for the top 51 cities in the U.S. have
declined by approximately 7% and average rates in the top 10
destinations in Canada have increased by 8%.
In
the past year, the Canadian dollar has appreciated against the
U.S. dollar by approximately 22%. The U.S top 51 and Canadian
top 10 cities are almost at par when converted to a common currency.
The price point advantage that Canada enjoyed over the past 10
years has disappeared. This fact impacts not only our relationship
to our U.S. market, which is Canada’s largest international
market, but also our relationship with the Canadian consumer
who is our most important customer. An improving or recovering
U.S. economy and travel industry may allow Canada to regain some
of the price point differential that we experienced for a number
of years. However, we may not see this until 2005 or later in
2004 at the earliest.
We
believe the Canadian industry will perform better than the U.S.,
as the accommodation industry in Canada has not declined to the
same level as the U.S. did in the past three years. The Canadian
hotel industry has enjoyed a stronger position or operating environment
since 9/11 than has the U.S. industry, as the events of 9/11
were far more severe in the U.S. than in Canada. In Canada, we
were impacted, but despite a loss in occupancy, the Canadian
industry was able to increase average rates.
In
2002, due to a weak economy, the U.S. hotel industry suffered
a further decline in occupancy and average rates. In Canada,
buoyed by a strong economy, which added 600,000 jobs, the Canadian
industry maintained occupancy and average rates grew by about
1%. This growth was fuelled largely by domestic travel.
In
2003, with the onset of the Iraq War and SARS, the industry succumbed.
The decrease in volume was so great that rates dropped in Toronto
and the rest of the country had to follow suit.
The
Outlook for a return to 2000 profit levels for the hotel industry
has been damaged in this past year. Thus, we are now looking
at a new benchmark for the industry. We can no longer look back
to 2000 as a target. Rather, 2004 is a new beginning and we must
look forward to find a new high water mark. Our focus should
be on Canada and the U.S. and more importantly our focus needs
to be on selling a quality experience and excitement rather than
price.
David Larone,
Director
PKF Consulting
