We have been asked many times this year, if in
light of the year to date performance of the hotel industry in
Canada, would we be adjusting our forecasts for 2005 and our Outlook
for 2006? These questions started coming as early as January.
In
a word, “No!”
We do a soft update for the June edition of Trends
and our annual Outlook in November, barring any geo-political catastrophe.
Our projection prepared in the Fall of 2004 called
for National RevPAR growth in 2005 at 4.0% over 2004. Year to date
March the industry was ahead by 2.7%, year to date April ahead
by 4.6% and year to date May by 4.3%. Therefore, any overall adjustment
does not appear necessary thus far.
It is fair to say that not all markets across
Canada are performing at the same level and that some individual
markets are struggling. The larger swing markets such as downtown
Toronto, downtown Montreal and downtown Vancouver were all ahead
of last year to the end of April. However, the May results turned
decidedly negative for Montreal and somewhat less so for Toronto.
Toronto and Vancouver Metropolitan areas are still running in positive
territory for the year.
A recent survey conducted by Statistics Canada
in conjunction with the Canadian Tourism Commission shows that
hoteliers in general were positive about the outlook for industry
performance over the April to June 2005 period. We at PKF were
puzzled that the survey concluded that the economy was an impediment.
Since the economy is projected to grow, depending on the source,
at between 2.3% and 2.6% this year, with some bank economists suggesting
that it is tracking closer to 3.0%, we feel the economic situation
will largely benefit the hotel industry.
PKF has always acknowledged that it is more difficult to raise
room rates when one is on the firing line than when one is sitting
behind a desk. However, numbers tell a story and the Canadian
hotel industry, supported by a strong domestic economy, should
exceed 2004 RevPAR performance this year.
An important
question is “Where should we be as an industry?” Positive
RevPAR growth against a benchmark of a disastrous 2003 is not
something to write home about!
Year to date April, the number of U.S. citizens visiting Canada
for one night or longer has declined by 6.0%. Despite this decline,
the hotel industry is still growing in terms of the crucial RevPAR,
thus supporting the notion that the domestic economy can, and
is, supporting the industry.
Canadian
economic projections are positive and national travel outlooks
forecast tangible growth. There is an unprecedented level of
equity seeking a home in the hospitality industry and there
is a significant appetite from the lending community, combined
with enhanced marketing funding in a number of the provinces
and at many of the DMO’s (Destination Marketing Organizations).
We believe this is a formula for success, not disaster.
We do need to exercise caution in certain areas. The industry
needs to keep the supply and demand equation in balance and there
are some markets where levels of new supply are moving ahead
of the demand curve. Good opportunities exist, but they are not
all beside the last hotel that was built or the one that is going
in the ground!
At the 2003 and 2004 national PKF Outlook meetings, PKF forecast
that it would take until 2008 for the industry to recover to
2000 levels of profitability, the highest levels recorded by
PKF Consulting in the industry in twenty years. We still believe
that the industry will get there.
David Larone, Director
PKF Consulting
