In our 2007 Edition of Trends in the Hotel Industry Annual Operations Report, we talked about the appearance of recovery in industry profitability nationally, but the reality of regional disparities - the strength of the West and the challenges facing the rest of Canada.

On a national scale, Western Canada is still the driving force behind the success of the industry, with profitability almost 25% higher than the national level.  Central Canada has continued to struggle and is still 15% below the record levels it achieved in 2000. As such, from the perspective of bottom line performance, the industry is still operating in a state of two solitudes divided at the Manitoba-Ontario border – the West and the Rest of Canada.
 
The most significant increases in Canadian top line revenue in 2007 occurred once again in Western Canada, with total revenues per available room up by  $4,205 or 7.6 % over 2006.  In Central Canada, total revenue per available room in 2007 grew by $909 per room or 1.8% over 2006 levels.  After experiencing a 4.7% increase in 2006, Atlantic Canada continued its momentum in 2007, posting a total revenue per available room increase of $2,881 or 7.2% over 2006 levels.  All regions posted higher profits in 2007.  Atlantic Canada led the nation with income before other fixed charges improving by $1,336 or 12.6% over 2006 levels.  Central Canada saw top line revenue translate into bottom line profit at the rate of 2.2% in 2007 over 2006; net income remained below 2000 levels by $2,392 per room.  Western Canada experienced a rise of $1,127 per room in profitability or a 6.1% over 2006 levels.

Source: Trends in the Hotel Industry, 2008 Canadian Edition, PKF Consulting

Nationally, full service hotels experienced a $2,381 or 4.7% improvement in revenue per available room over 2006 results, resulting in an overall bottom line improvement of 5.4%.  Full Service properties in Central Canada realized growth with revenues improving by 1.7% and net income before other fixed charges rising by 2.8%.  Full Service properties in Western Canada experienced an 8.7% improvement in revenues translating into a 5.4% rise in income before other fixed charges and full service properties in Atlantic Canada posted an increase in revenue of 7.0% translating into a 13.4% gain in net income before other fixed charges.  

Nationally, limited service hotels experienced a 5.3% improvement in total revenue per available room in 2006, with net income before other fixed charges growing by 3.9% .  Limited Service properties  posted gains in net income of 7.0% over 2006 in Western Canada and 3.0% in Atlantic Canada.  Limited Service properties in Central Canada saw a slight decline in net income of -1.0%.
 

2008 Financial Outlook

In 2007, the Canadian accommodation industry once again achieved record levels in terms of bottom line performance surpassing 2006 levels by 5.3%.  This success can be primarily attributed to the continued success in Western Canada. For 2008, PKF projects that Western Canada will continue to lead the charge among the three major regions in Canada with improved average daily rates and occupancy levels.  These improvements are projected to contribute to strong revenue growth and an increase in net income per available room nationally of 5.0% in 2008.

(1) For the purposes of this analysis, 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.