National and Regional Market Outlooks
It has certainly been a challenging year across the board. For the lodging industry, key issues have included: the increasing gap between GDP and the decline in hotel demand, the impacts of industry-led discounting on profitability, and the continued disparity in regional performance. These challenges aside, there is light at the end of the tunnel in 2010, should operators take charge of their own pricing and performance.
Year-to-date 2009, we have seen the erosion of occupancy, ADR and RevPAR across all regions, and our expectations are that occupancy levels will drop 5 points, with a 5% decline in ADR by year-end. Apart from the impacts of SARS in 2003, at 58% occupancy, we will back to the lowest national occupancy since 1992. Relative to our 2009 Outlooks, which were prepared in the Fall of 2008, our revised RevPAR forecasts for this year indicate that National results will be 17% below our expectations, Atlantic Canada at 11% below, Central Canada 17% below, and Western Canada 18% below our original projections. While Atlantic Canada is showing the lowest variance, it also had and maintains the lowest RevPAR. Conversely, Western Canada is showing the highest variance it also and maintains the highest RevPAR.
When considering the road ahead in 2010, our expectations are for modest but positive growth in occupancy, ADR and RevPAR across all regions. Specifically, we are forecasting growth in the range of 1.5 to 2 points for occupancy, and 1.5%-2% in ADR. As a result, RevPAR in Atlantic Canada will be up almost 5%, Central Canada 4% and Western Canada 4%. Nevertheless, Atlantic Canada will still end 2010 at 3% below 2008 levels, Central Canada at 9% below, and Western Canada at 10% below 2008 RevPAR levels. The key factor here is that there will be demand growth and opportunity to recover some of the ADR that was lost in 2008.
TABLE 1 |
NATIONAL AND REGIONAL MARKET OUTLOOKS |
|
2007 |
2008 |
2009 |
2010 |
Actual |
Actual |
Forecast |
Projection |
NATIONAL |
|
|
|
|
Occupancy |
65% |
63% |
58% |
60% |
ADR |
$127 |
$131 |
$125 |
$128 |
RevPAR |
$83 |
$83 |
$73 |
$76 |
ATLANTIC |
|
|
|
|
Occupancy |
62% |
60% |
57% |
59% |
ADR |
$115 |
$119 |
$116 |
$118 |
RevPAR |
$71 |
$71 |
$66 |
$69 |
CENTRAL |
|
|
|
|
Occupancy |
63% |
61% |
57% |
59% |
ADR |
$128 |
$130 |
$123 |
$125 |
RevPAR |
$81 |
$80 |
$70 |
$73 |
WEST |
|
|
|
|
Occupancy |
68% |
66% |
60% |
62% |
ADR |
$128 |
$133 |
$129 |
$131 |
RevPAR |
$87 |
$89 |
$78 |
$81 |
National and Regional Financial Outlooks
With occupancy down 5 points and ADR down by almost 5%, the impact on bottom lines this year is expected be quite dramatic. This year’s results indicate that bottom lines will be down 35% nationally relative to our 2009 Outlooks prepared last fall. At $7,800 per room, we are back to 1997 levels. While the West is expected to be down 32% over 2008 at $11,000 per room, it remains the strongest region in Canada, as compared to a 23% decline in Atlantic Canada, and 43% decline in Central Canada. In fact, at $5,400 per room, profits in Central Canada are forecast to fall 30% below the national average, and 25% below Atlantic Canada by year-end 2009. This is strong contrast to 2000 levels, when industry profitability was at its highest, and Central Canada actually led the country from a hotel industry perspective.
Our expectations are for modest but positive growth in bottom lines in 2010, ranging from 5% in Atlantic and Central Canada, and 4% in Western Canada. It should be noted that this growth is nothing compared to the 30% -40% declines experienced in 2009.
Over the next five years, we do see industry recovery. Demand is expected to outpace supply, and occupancy is projected to grow at about one point per year. With ADR growth in the range of 2.5% per annum, industry profitability will get back to $10,600 per room nationally, a 30% recovery; yet it will take more than inflation for the industry to grow profitability beyond 1999 levels.
Rebecca Pickford, Consultant
PKF Consulting Inc. Toronto
