“Every exit is an entry somewhere else” – Tom Stoppard (British Playwright)
Two years into recovery from the tumultuous effects of the global recession, the Canadian accommodation industry is still taking cautious steps forward. In our 2010 Edition of Trends in the Hotel Industry Annual Operations Report, we talked about growth that was on the horizon across Canada. This growth has come to fruition in most parts of the country; however, it was heavily influenced by the occurrence of important tourism related events in major Canadian cities. Despite strengthened occupancy and low inflation levels in 2010, marginal rate growth is expected to constrain profitability in 2011.
Nationally, total revenue per available room increased by 5% in 2010, leading to an increase in bottom line Net Operating Income of 11% over 2009 levels. Central Canada experienced the highest levels of growth, with an 8% increase in overall revenue, and an 18% increase in Net Operating Income over 2009 levels. These increases were welcomed, as this region witnessed the greatest declines in 2009. The Atlantic region experienced a 1% increase in total revenues and a 6% increase in Net Operating Income. Western Canada observed more modest growth in both revenues and in Net Operating Income, with increases of 2% and 4%, but this Region still managed to outperform National levels by over 20%.
As anticipated, the 2010 Olympic Games had a significant impact on revenues for British Columbia, which along with a banner convention year as a result of the reopening of the Vancouver Convention Centre, led to a 7% increase in revenues and a 20% increase in Net Operating Income. Quebec witnessed significant increases in both revenues (13%) and in Net Operating Income (23%), assisted by the return of the Grand Prix in Montreal in June 2010. In addition to improving market support, the G8 and G20 Summits hosted in Ontario led to a 7% gain in revenues, and a 17% increase in Net Operating Income over 2009 levels. Hotel performance in the other provinces still managed to pull through the economic downturn in 2010, with the exception of Alberta, due in part to challenges in the oil and gas industries, and the increase in labour costs.
Nationally, Full Service hotels experienced a $2,614 or 6% increase in revenue per available room over 2009 results, resulting in an overall bottom line increase of 12%. Full Service properties in Atlantic Canada experienced a 2% increase in revenues and Net Operating Income increased by 6%. Full Service properties in Western Canada experienced a 2% increase in revenues translating into a 5% increase in Net Operating Income. The most significant increase for Full Service properties occurred in Central Canada, with an increase in revenue of 9% and Net Operating Income increase of 20% over 2009 levels. The pickup in Central Canada was twofold, stemming from the event related tourism boosting profitability levels, in conjunction with the increase and return of commercial travellers.
Nationally, Limited Service hotels witnessed less significant growth levels than the Full Service segment, with an increase of 4% in total revenue per available room in 2010 over 2009, leading to an increase of 7% in Net Operating Income. At the regional level, Limited Service properties posted increases in Net Operating Income of 13% in Central Canada, 5% in Western Canada, and 1% in Atlantic Canada.
Financial Outlook
In terms of bottom line performance, the Canadian accommodation industry reached a low in 2009 that had not been seen since 2003. The 5 point drop in occupancy, combined with the 5% decrease in ADR resulted in a decline in industry profitability of almost 30%. As a result, Adjusted Net Operating Income (ANOI)2 fell to $8,000 per available room nationally. Growth in the accommodation industry during 2010 increased, due to the buoyancy created by several large scale events, and increasing levels of market support. With a 2 point increase in occupancy, and 2% increase in ADR, RevPAR reached $78, an increase of almost 6% over 2009 levels. Industry profitability in 2010 was up over 13%, with ANOI recovering to $9,100 per available room.
We expect that the industry will hold its course and maintain profitability levels in 2011. PKF’s 2011 National Outlook is for a 1 percentage point increase in occupancy, but with no growth expected in ADR. As a result, with increased operating pressures, industry profitability in 2011 is forecast to remain flat with ANOI nationally at $9,100 per available room.
- For the purposes of this analysis, Net Operating Income 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 Net Operating Income is defined as income after property taxes, insurance, management fees, franchise fees, and capital reserves; but before rent, interest, income taxes, depreciation and amortization.
Rebecca Godfrey, Senior Consultant
PKF Consulting Inc. Toronto
