The
year 2004 was heavily promoted to be the year of recovery
for the Canadian Accommodation Industry, with expectations
of profitability rebounding back to pre-SARS levels. The
soon to be released 2005 Canadian edition of PKF’s Trends
in the Hotel Industry Annual Operations Report reveals
that relative to 2003, there was an 8.3% improvement in
total revenues per available room after the 7.7% decline
experienced in 2003. Unfortunately, relative to both 2000
and 2002, 2004 was not strong, with profitability per available
room in 2004 14.6% below 2000 levels and 6.8% below 2002
levels. After adjusting for inflation, industry profitability
in 2004, remained 22.3% below 2000 levels.
Nationally, full
service hotels experienced a $3,900 or 9.2%
improvement in revenue per available room over 2003 results.
After significant cost cutting in 2003, expenses in 2004
rose by 5.3% resulting in an overall bottom line improvement
of 21.9 %.
Limited service hotels experienced a 5.0% improvement
in total revenue per available room in 2004, with net income
before other fixed charges per available room growing by
12.1%.
*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.
2005 and 2006 Financial Outlook
A
number of challenges have impacted the Canadian Accommodation
Industry over the 2000 – 2004 period. Increased
rooms supply, coupled with several uncontrollable circumstances,
including the September 11 th terrorist attacks, the
Iraq War, and the SARS Crisis in 2003, have all had an
impact on bottom line profitability.
While
demand recovery has been as strong as expected, this
has been offset by lower than expected recovery in average
daily rates. Continued increases in demand will be offset
by continued increases in supply, with only marginal
improvements in occupancy and average daily rates expected.
Based on these market factors, PKF’s projection
for earnings is to increase by 6.0% in 2005. Continued
demand and rate growth are projected for 2006, and PKF
projects that earnings will improve by a further 5.0%
in 2006.
Jeff
Hyslop
Consultant, PKF Consulting
