Despite the lagging recovery of 2004 following the SARS crisis of 2003, the Canadian accommodation industry has finally picked up the pace on its climb back to the industry’s golden year of 2000. Although conservative projections were made for 2005, the 2006 Canadian edition of PKF’s Trends in the Hotel Industry Annual Operations Report shows that the year 2005 witnessed top line revenue gains of 4.0% over 2004, translating into a bottom line profitability increase of 4.6%1. After adjusting for inflation, industry profitability remained 10.7% below 2000 levels. Looking forward and barring any further crises, PKF continues to project that industry profitability will surpass 2000 performance levels by the year 2008.
Nationally, full service hotels experienced a $1,844 or 4.0% improvement in revenue per available room over 2004 results, resulting in an overall bottom line improvement of 5.2%. Leading the nation was Western Canada, which experienced a 15.2% rise in income before other fixed charges.
Limited service hotels experienced a 4.4% improvement in total revenue per available room in 2005, with net income before other fixed charges per available room growing by 4.7%.
Source: Trends in the Hotel Industry, 2005 Canadian Edition, PKF Consulting
2006 and 2007 Financial Outlook
The September 11th Terrorist Attacks, the Iraq War, and the SARS crisis, in combination with increased rooms supply over the last five years, have made a definite impact on bottom line profitability in the national hotel industry. In 2004 and 2005, while demand growth was in line with expectations, recovery in average daily rates was lower than expected. Nevertheless, strong rate growth in 2006, with continued improvement in occupancy, will contribute to significant revenue growth. Based on these market factors, net income is expected to increase by over 10 percent in 2006. Continued demand and rate growth are projected for 2007, such that earnings will improve by a further 6 percent.
Rebecca Pickford
Research Consultant, 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.
