In our 2007 and 2008 Editions of Trends in the Hotel Industry – Canadian Edition, we talked about the regional disparities across Canada- the strength of the West, and the challenges facing the rest of Canada. In our recently released 2009 Edition, we demonstrate that in 2008 the story was much the same, with industry profitability in Western Canada still more than 25% above the national levels.  

Nationally, total revenue per available room remained flat from 2007 to 2008, increasing by only 0.5%, leading to a moderate increase in bottom line net income of 1.3% over 2007 levels. Among all regions, Atlantic Canada had the highest growth in Revenues and Income Before Other Fixed Charges, exceeding the national average, although still the lowest region in terms of net income on a $ per room basis.  Western Canada also had a relatively strong year, seeing increases in both total revenue and net income. Central Canada experienced a slight decline in both total revenue and net income in 2008, and continued to operate at levels more than 30% below the record net income levels being set in Western Canada. 

The most significant increases in Canadian top line revenue in 2008 occurred in Atlantic Canada, with total revenues per available room up by $1,382 or 3.3% over 2007.  In Western Canada, total revenue per available room in 2008 grew by $992 per room or 1.7% over 2007 levels.  Central Canada was the only region to experience a decline in revenues per available room, with a decline of $527 or 1.0% over 2007 levels.  Both Atlantic Canada and Western Canada posted higher net income in 2008, while Central Canada’s profits declined.  In terms of percentage growth, Atlantic Canada led the nation with income before other fixed charges improving by $617 per room or 5.2% over 2007 levels. Western Canada experienced a rise of $702 per room in net income or a 3.5% over 2007 levels. Central Canada saw top line decreases in revenue translate into an eroding bottom line, with a decline of 1.6% in 2008 or $225 per room. 

Nationally, full service hotels experienced a $531 or 1.0% improvement in revenue per available room over 2007 results, resulting in an overall bottom line improvement of 4.2%.  Full Service properties in Atlantic Canada realized growth with revenues improving by 2.7% and net income before other fixed charges rising by 3.0%. Full Service properties in Western Canada experienced a 2.6% improvement in revenues translating into a 7.9% rise in income before other fixed charges. Although full service properties in Central Canada posted a decrease in revenue of 0.4%, net income before other fixed charges grew modestly by 1.0%.  

Nationally, limited service hotels experienced a 3.1% improvement in total revenue per available room in 2008, with net income before other fixed charges growing by 2.2%.  Limited Service properties posted gains in net income of 1.7% over 2007 levels in Western Canada and 7.2% in Atlantic Canada.  Limited Service properties in Central Canada saw a slight decline in net income of 1.4%.

2009 Financial Outlook

As noted, the Canadian accommodation industry had continued to grow over the 2004-2007 period.  By year-end 2007, occupancy levels at a national level had improved to 65%, and average rates were up 10% to $127. Despite a fall off in occupancy in 2008 to 63%, due to the impact of the on-coming economic downturn, the industry still managed to hold top line revenues as a result of a 3.0% increase in average daily rates. With some positive operating expense adjustments, this actually translated into a bottom line profitability increase of about 2.0%. 

While net earnings reached $11,800 per room nationally in 2008, the outlook for 2009 is far less optimistic. Based on a 5 point occupancy decline and a 5% ADR decline forecast for this year, industry RevPAR is expected to decrease by 13%.  Unless the industry can minimize the impact of its pricing tactics over the balance of the year, the projected year end declines in RevPAR across the country will continue to have a significant impact on profitability and values. As a result profitability nationally is expected to decrease by about 34% to $7,800 per room in 2009. These impacts are being felt in all regions across the country.  As a point of comparison industry profitability was at $7,200 per room in 2003 as a result of SARS and at $7,400 per room in 1997 as we were coming out of the last economic downturn.

• For the purposes of this analysis, Income Before Other Fixed Charges is defined as income after property taxes, and insurance, but before management and franchise fees, capital reserves, rent, interest, income taxes, depreciation and amortization.
• For the purposes of this analysis, Adjusted Operating Profit is defined as income after property taxes, and insurance, management and franchise fees, and capital reserves, but before rent, interest, income taxes, depreciation and amortization.