HENDERSONVILLE, Tennessee--Every day we hear—and the data confirm—how the current economic environment is taking a toll on the U.S. hotel industry. Supply is outpacing demand, resort destinations are struggling, luxury chain scales are reporting negative revenue-per-available-room growth, and the list goes on. What has all of this U.S. economic turmoil meant for our friends to the north? In analyzing the data, we have discovered that, essentially, Canadian hotels are performing much like U.S. hotels.
Year-to-date through October, Canadian occupancy was down 1.6 percent to 66.3 percent, compared to U.S. occupancy at 62.1 percent (down 3.4 percent). Canadian average daily rate grew identically to U.S. ADR compared to the same period last year, an increase of 3.2 percent, to CAD$134.11.
As a foundation, it is important to know the current performance of the Canadian chain scales and how they are performing during this down global economic downturn.
According to the STR census database, there are 7,670 hotels representing 420,957 rooms operating in Canada. Year-to-date, hotel supply is up 1.4 percent while demand appears to be relatively flat around -0.3 percent. As of October, there are 8,788 rooms in the construction pipeline, and Chart 1 shows the projected new supply by chain scale.
First, let us review the Canadian full-service segment, which combines luxury, upper-upscale and upscale chains. Year-end 2007, these combined scales recorded occupancy growth of 1.9 percent. Year-to-date ending October, the occupancy declined 1.6 percent. Shifting to rate, we have observed that the ADR growth for this group has remained positive at 2.5 percent, ending at CAD$166.17.
So what is causing this decline in overall occupancy for these scales: business or leisure travel?
In an agreement with 265 luxury, upper-upscale and upscale properties comprising more than 67,900 guestrooms, we have found that weekdays (Sunday-Thursday) have experienced a decline in occupancy growth—down 1.6 percent—compared to 2 percent positive growth at year-end 2007. With the majority of this segment’s customer mix coming from the business sector, we could conclude that, similar to their U.S. counterparts, the hotels’ occupancy decline is being driven by the slowdown among corporate travelers.
The good news is the rate continues to be strong for this group. Weekday year-to-date ADR is up 2.8 percent to CAD$168.12, and weekend (Friday and Saturday) ADR is up 1.8 percent to CAD$161.20. (Chart 2)
Switching gears to the limited-service segment, we combine midscale-with-food-and-beverage, midscale-without-food-and-beverage and economy chains. This group represents more than 1,220 hotels equaling more than 123,000 rooms. October year-to-date, these combined scales recorded 63.3 percent occupancy, down 2.4 percent compared to the year-end 2007 decline of 0.2 percent. The encouraging trend remains the positive rate growth. ADR reached CAD$110.59, an increase of 4 percent from the same period last year.
When we look deeper into the year-to-date occupancy decline for the midscale with F&B, midscale without F&B and economy combined scales, it is no surprise that we see the weekend business experiencing a greater decline (-3.1 percent) than weekday business (-.2.2 percent). (Chart 3)
Historically, these limited-service scales have been very successful in appealing to the family traveler. Although Canadian gas prices have started to decline slightly, households still are working through the higher cost of consumer goods and services, not leaving much in their discretionary funds.
As we are learning each day, the uncertain economic times are taking a toll on the global hotel industry. Companies are cutting corporate travel, airfares are still on the rise and households are tightening their budgets. The question we all ask ourselves is, “When will it end?”