The
2003 year end results have been compiled and to no one’s surprise it is not a pleasant picture. The soon
to be released 2004 Canadian edition of PKF’s Trends
in the Hotel Industry Annual Operations Report reveals
that relative to 2002, there was a 7.7% reduction in total revenues
per available room. Owing to SARS and other uncontrollable circumstances,
the Canadian accommodation industry took another step back, with
a dramatic decrease of 22% in bottom line profitability in 2003,
after posting a modest gain of 1% in 2002.1
Nationally, full service hotels experienced
a decline in revenues of $4,504 per available room -- 10% less
than 2002 results. With little room left for cost cutting after
2001, expenses dropped by only 4.5% for an overall bottom line
reduction of 23%.
Limited service hotels were not
hit as hard, experiencing a 4% decrease in revenues per available
room, with net income before other fixed charges falling by 9%.
2004 and 2005 Financial Outlook
Despite a setback in 2003, net income before fixed
charges is expected to increase by 24% in 2004, reflecting the
recovery from the impact of the Iraq War and SARS on industry profitability.
Looking ahead, Canada remains well positioned for demand growth,
and with a slowing of the supply cycle, there are reasonable prospects
for a return to growth in hotel profitability.
Based
on these factors, PKF’s projection
is for earnings to improve by a further 6.5% in 2005. This reflects
a strong, albeit, not full recovery of 2003 losses and a return
in industry profitability to 1999 levels. With continued economic
growth, it is reasonable to expect further improvements in 2006
and beyond.
Fran Hohol
Principal, PKF Consulting
1Operating 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.
