The Hotel Insider
The highs and the non-existent lows of Canadian hotel pricing
By Eric Barber
2017 is an exciting year for Canada, celebrating its 150th anniversary, and it appears that this is going to be a record-breaking year for travel in Canada. In addition to our 150th celebrations, there are many other factors making inbound tourism buoyant such as the weak Canadian dollar versus the US dollar and Euro; extensive additional airlift from international markets, in particular China; the possible negative perception of travel to our American neighbours south of the border; and of course excellent tourism product branding from Destination Canada.
Looking at the hotel industry in Canada as a whole, this is going to be a record year across the country, although the oil and gas patches in Alberta and Saskatchewan continue to be an unfortunate exception. Demand is so high in Vancouver and the Rockies, as well as the Niagara Falls to Quebec City corridor, that availability and capacity has become a major issue for our tourism partners across the globe.
Hotels have significantly reduced their allotments and available group blocks across the board, wishing to capitalize on what hoteliers see as more profitable sources of business such as consumer direct bookings, with such high domestic and US demand for our tourism hubs. This, of course, has pushed room rates across all segments on a significant upward trajectory. With such a rise in the cost of travel in Canada comes significant risk.
Is this excess of demand sustainable past the short term?
As the costs continue to rise for accommodation across the country, at what point does Canada as a destination lose competitiveness in the international marketplace to other long-haul destinations eventually driving our numbers down?
Capitalizing on demand
Hoteliers will naturally capitalize on this demand and try to maximize top line revenues as much as possible while we ride this tourism boom, aft er all it is a business and many industries commonly price yield based on demand.
Of course, this is a very short-term strategy for hotels. It can be argued, however, that most hoteliers maintain only a short-term strategy for their business, and if one reviews the reasons for this, perhaps it is time that we start to re-evaluate our thinking in the medium to long term.
Yield management is not a new concept to the hotel industry, we have been conducting displacement analysis and forecasting based on historical data for decades. But it is short term in its thinking.
The question is why?
In Canada, there is regular turnover of management and staff at hotels across the country, retention has always been a challenge to the industry. Thus management and staff are rewarded for the short-term results in their hotels, and aft er two years, there is a strong chance that they will have moved on to another position at another property. There is frequently no long-term accountability to investor interests.
This should concern shareholders of properties, as the teams deployed to generate the most amount of revenue are not worried beyond their own immediate future. But like any economic boom, this is not going to last indefinitely in Canada, and there is going to be a downturn. Whether we plateau in arrivals because we have become too expensive by 2019 or other unforeseen events develop, we as an industry will have to react to this.
The question is are you prepared for the medium to long term?
If hoteliers look after the longer-term interests of their ownership, they may find that they need revise their displacement analysis techniques that are being capitalized upon now. Client X may be paying lower rates now, even with impressive rate rises in their contracts, but if client X has been loyal to your hotel and creating adequate volume over a longer span of time, then it is going to be very difficult to expect goodwill from that client if that client has been turned away or told that their business is not valuable enough. There are hotels in Canada that have declared that certain segments are no longer accepted at their properties for rate reasons. Unless the property is one of the most iconic institutions in its market, that hotel is going to find it very difficult to win that business back in the medium term.
Considering the purchase cycle of the different market segments in their RFP process, it won’t be unreasonable to think that it may take upwards of two years to win some of that business back, not to mention very high acquisition costs in terms of attending expensive trade shows, entertainment costs, etc.
As an industry, we have experienced hard times in Canada fairly recently, but as an industry, we have not always reacted well to these changes and continue to make the same mistakes again. Our dependence on Online Travel Agency partners demonstrates this perfectly. Capitalize and seize the benefits of the market while it is good, but make informed decisions with proper revenue analysis that goes beyond the traditional short-term methodologies.
Eric Barber is the senior director, national sales for Realstar Hospitality and he will be contributing a monthly column to Canadian Travel Press offering an insider’s look at the hotel industry.