How a strong US dollar affects guest behavior in Canada
How a strong US dollar affects guest behavior in Canada
22 MARCH 2017 8:21 AM

While the U.S. hotel industry is seeing the negative impacts of a relatively strong U.S. dollar, Canadian hoteliers are seeing the benefits of being an attractive and discounted destination for outbound U.S. travelers.

GLOBAL REPORT—A strong U.S. dollar is largely regarded as a negative when discussed in the U.S. It has a chilling effect on international travel to the country as popular destinations like New York City get relatively more expensive.

But Canadian hoteliers are currently seeing the other side of that dynamic, with markets that typically draw U.S. visitors currently available at a discount to those travelers. At the same time, Canadian travelers are more likely to stay within the country as U.S. destinations become pricier.

Daryl West, hotel manager for the Coast Victoria Hotel & Marina by APA in Victoria, British Columbia, said the impact of U.S. travelers on his property has changed significantly since 2013, when the U.S. dollar was weaker compared to the Canadian dollar.

“For that period, we’ve seen a 48% increase in U.S. roomnights, and overall for the same period a 16% increase,” West said.

He said the hotel’s share of visitors increased from 11% to 15%.

West noted there are great benefits to having more U.S. guests on property. For one, it often increases the average length of stay at the hotel, he said. There is also a corresponding increase in spending at the hotels’ Blue Crab Seafood House.

“It’s great for us,” West said. “We definitely see U.S. guests spend more money” at the restaurant.

Dollar vs. dollar
As of early Tuesday, $1 was trading to roughly 1.33 Canadian dollars, which was down from the height seen in early 2016 of CA$1.46 but up significantly from the period in 2012, 2013 and early 2014 when the two currencies were roughly on par.

For most of 2016 and 2017, the U.S. dollar has enjoyed a 30% or more premium over the Canadian dollar—effectively a 30% discount for U.S. travelers to Canada, but an equivalent increase for Canadians looking to come to the U.S.

Glenn Squires, founder and CEO of Bedford, Nova Scotia-based Pacrim Hospitality Services, said states and provinces along the border are more likely to be affected by perceptions of a discount or premium for cross-border travelers.

“The broader population beyond the border states aren’t aware of (inexpensive travel to Canada),” he said. “And the other side of it is, it has really restricted Canadian travel. My colleagues in places like Buffalo say traffic is down. So a big reason we see an increase in traffic is that compression of Canadian travel.”

He said the impact of currency has been so acute that even areas that are hurt by the weakness of oil and gas, such as Alberta and Saskatchewan, have seen an uptick in domestic travel.

Because of the impact of currency, West said, it’s worth keeping an eye on where the two currencies are trending, but a property like his can’t put too much emphasis on it.

“You don’t necessarily base your rate strategy around the dollar, but if, for instance, we’re forecasting our budget for next year and the projection is the U.S. dollar will depreciate and we’re likely to lose some of that market, we’ll probably tamper down some of our projections.”

A welcoming country
Squires noted that Canada is currently experiencing something of a perfect storm when it comes to drawing international travelers. Not only is the country enjoying a discount due to currency exchange from its largest feeder country, it’s also developed a reputation for being welcoming at a time when many countries are trying to lock down their borders and are at least creating the perception of being less open and friendly.

He said the boom in travel to Canada is “partly due to the Canadian dollar and partly a difference in philosophy.”

Squires said he’s hopeful that marketing efforts from Destination Canada will help more U.S. travelers realize how affordable and attractive travel to his country can be. He said the Canadian tourism organization had focused more of its efforts in Europe and global markets than on the U.S. in recent years, but has decided to reach out to more U.S. travelers in marketing messages to capitalize on the current environment.

Serge Primeau, VP of operations, development and finance for Canada at Bethesda, Maryland-based Urgo Hotels & Resorts, said his company is feeling both sides of the currency impact. Urgo has seven properties in Canada and 22 in the U.S.

He said leisure travel to hotels in Northeast Canada, where his company’s properties are located, has seen a boom.

“If you look at markets like Montreal and Quebec City, which are great U.S. leisure destinations, they’ve seen a huge increase from May to October,” he said. “And we’re anticipating the same thing to happen in 2017.”

But the inverse is true for the company’s U.S. properties that typically see strong travel from Canada—especially near the border in destinations like Lake Placid, New York, where Urgo has an independent property, the Whiteface Lodge. But it’s also true, he said, for warmer destinations like Florida, where Urgo has multiple hotels.

“There is huge traffic from Canada going down to Florida,” Primeau said. “But all of a sudden, you’ve got to pay 38% more on already inflated hotel rates.”

West, who used to work in Whistler, British Columbia, said hotels in that ski destination see a marked increase in length of stay and on-property spending when the U.S. dollar is strong. That’s due in part to fewer Canadian travelers who are willing to spend the premium to travel to destinations like Vail, Colorado.

“When I was working in a hotel in Whistler, I loved it when the dollar was strong,” he said.

Development possibilities
Squires said developers are now baking stronger expectations into their projections for new properties.

“We were developing a hotel in the Canadian Rockies and put the project on hold because the study was bad,” Squires said. “But since we’ve gone back and based solely on the projected rate increases, we were able to go forward.”

Primeau noted that the favorable exchange makes Canadian hotel deals more attractive, but exchange alone shouldn’t be enough to spur development, he added.

“It’s something to consider,” he said. “But although it’s interesting … you’re often looking at hotels as long-term investments. Given that, exchange is a one-time contribution, but on a long-term basis, it won’t make much of a difference.”

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