HENDERSONVILLE, Tennessee—As the first quarter of 2009 comes to an end, it seems to be a good time to look north and see if Canadian hotels have been experiencing the same bleak performance numbers as U.S. hotels. In many cases, the trends are similar.
For year-end 2008, Canadian occupancy declined 2.2 percent, ending at 63.9 percent, while average daily rate grew 3 percent to CAD$132.60. When taking an even closer look at 2008, the first 8 months performed very differently than the last four months – just like what U.S. hotels experienced.
Between January and August 2008, hotel demand for Canadian hotels grew 0.3 percent and ADR grew a healthy 3.2 percent to CAD$133.44. With the failures of the global financial institutions, key performance measures started to move south beginning in September 2008. From September 2008 through December 2008, hotel demand declined 2.9 percent over same period in 2007 and while ADR still grew at a positive rate – 2.3 percent (CAD$130.81) – there still was a clear slowdown.
Moving to current date, the downward trend throughout the last four months of 2008 continues. For the 12 months ending February 2009, supply was up 1.5 percent and hotel demand down 1.7 percent. With supply outpacing hotel demand, occupancy declined 3.1 percent ending at 63.3 percent. Preliminary first-quarter 2009, Canadian hotel room revenue growth will be flat (0.4 percent).
It is important to point out that some Canadian chain scales are faring better than others in regard to hotel demand and rate growth.
In reviewing Canadian chain scales, STR combines luxury/upper upscale, upscale/midscale with F&B, and midscale without F&B/economy. The combined upscale/midscale with F&B segment consists of 780 hotels, representing more than 113,900 rooms – the largest group of the three segments. The midscale without F&B/economy segment represents more than 742 hotels (more than 60,200 rooms) and luxury/upper upscale has more than 130 hotels (more than 49,000 rooms).
For the 12 months ending February 2009, across the board, supply outpaced demand for all three combined chain scales. It is interesting to see that the combined midscale without F&B/economy segment was the only segment that experienced positive demand growth during this period. For this segment, demand grew 2.3 percent over the same period last year.
Turning attention to occupancy and rate for these three segments, we notice one main difference between U.S. and Canadian chain scales – positive rate growth across the board in Canada. Combined upscale/midscale with F&B and midscale without F&B/ economy were the leaders.
Midscale without F&B/economy experienced the largest rate growth of 5 percent to CAD$101.17. Taking a deeper look into this combined segment, we compared weekday (Sunday – Thursday) and weekend (Friday-Saturday) occupancy and ADR performance.
Since 2007, occupancy for the midscale without F&B/economy segment has declined on both weekdays and weekends. Rate, on the other hand, has continued to grow. Year to date ending February 2009, weekday average daily rate grew 5.5 percent and weekend average daily rate grew 4.5 percent.
With this segment having the largest growth in new product over the past 12 months (representing more than 52 percent of the new room supply in Canada), and considering that both business and leisure travelers have less money for traveling, it is no surprise that the midscale without F&B/economy segment is faring better.
According to the Trading Economics Web site, Canadian unemployment reached a seven-year high of 8 percent in March 2009, and the manufacturing and construction industries are experiencing the majority of recent employment declines. We will continue to monitor and report how these difficult economic times are affecting the Canadian hotel industry.