The Hotel Association of Canada expects 2005 to be a year of tempered growth…
The Hotel Association of Canada expects 2005 to be a year of tempered growth.Remember the best barometer for our industry is the economy. Healthy levels of government spending will help support the Canadian economy in the absence of export strength. This results in large part from the minority government in Ottawa.
The economy will expand 2.8 per cent, up marginally from the 2.7 per cent last year, but well below the 3.5 per cent expansion expected in the U.S. this year. Economic growth will be fuelled largely by robust business
investment in machinery and equipment. Very important to our industry is that this will be supported by moderate gains in consumer spending and healthy gains in government spending.
The downside in our forecast is the appreciation of the Canadian dollar up 31 per cent from a low of 62 cents U.S. two years ago to what it is now – nearly 82 cents U.S. Analysts vary in their year-end 2005 dollar forecast
from the Chamber of Commerce at 85 cents U.S. to the Bank of Nova Scotia predicting 90 cents U.S. We don`t need to be reminded that with 91 per cent of our inbound overnight traffic coming from south of the border
we are severely impacted by the dollar.
A strong Loonie is another hit on Canadian tourism. Still in post-SARS recovery mode, a rising Canadian dollar is a double whammy for hotels, restaurants, ski resorts, casinos, local attractions, shops and any other
businesses that depend on tourists. It means fewer Americans will visit here and fewer Canadians will be staying home.
In April 2004, the Canadian Tourism Commission released a study examining the impact of a stronger Canadian dollar on travel this year and next. According to the evidence for every 10 percent gain in the Loonie
against the U.S. dollar, overnight travel by Canadians to the United States increased 15 to 16 per cent. PKF Consulting is an association Strategic Partner and the HAC endorses their projections:
PKF Outlooks projects we will end 2004 at a 61 per cent occupancy, $116 ADR and $71 RevPAR In 2005 projections are for 62 per cent occupancy, $120 ADR and $74 RevPAR
This is a 4.5 per cent increase year over year that compares to a 7 per cent increase predicted for the United States.
In PKF`s Accommodation Outlook they bring forward good news:
From a bottom line perspective, the majority of owners and operators are expecting profitability to increase by over five (5) per cent in 2005. In fact PKF`s Outlook is for a nine (9) per cent increase in profitability next
year. This is after a 27 per cent or $2,700 per room loss in 2004, offset by a $2,400 per room recovery this year. After peaking in 2000 at over $11,000 per available room, profitability has eroded and not recovered as
a result of recent events. Nationally, industry profit at $9,900 per available room will still be down in 2005from the industry high of 2000, by over 10 per cent. We are however, in a much better position than the U.S.
industry, which will still be down by over 20 per cent over this same period.
In addition to asking the industry where they thought top lines and bottom lines were headed in 2005, PKF also asked them where they saw hotel investment headed. 90 per cent indicated that they would continue to look
to acquire new assets in 2005. 80 per cent indicated that their investment criteria had not changed post 2003 and 2004, with 60 per cent of respondents looking for a 10 per cent to 15 per cent return and 40 per cent of
respondents looking for a 15 per cent to 20 per cent return. In evaluating rate of return, 75 per cent put the greatest emphasis on a normalized year or a 3 – 5 year projections. Only 25 per cent indicated they put the
greatest emphasis on historical or current earnings.
Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.
