Posted on October 30th, 2014 in General Business

Hospitality – A Look at the State of the Industry

Like many other industries in North America, the hospitality industry hit its peak performance in 2008 and then suffered a dramatic drop-off during the recession. Today, there’s good news: A slow but steady recovery has landed the Canadian hospitality industry in a positive place relative to profit levels.
While the industry is still slightly below its pre-downturn peak, the outlook is favourable.

National and Regional Outlooks
According to Allinial Global Consulting, which specializes in the hospitality and tourism industries in Canada, the hospitality industry has seen positive growth in all regions of the country. By the end of 2014, the industry will be well on its way to catching up with 2008 numbers.
The firm is projecting national accommodation demand growth of 2.7 percent over last year, due in large part to significant growth in overnight travel. Numbers from the Canadian Tourism Research Institute and Conference Board of Canada point to an especially cheery outlook for western provinces, which have seen extremely strong growth in the last few years.
However, Central and Atlantic Canada are also projected to see very healthy growth through the end of the year — almost double the growth rate of last year in both regions.
Allinial Global Consulting is also forecasting that national occupancy rates will improve by one point to 64 percent, and average daily rate (ADR) will improve by 2.5 percent, finishing the year at a $136 average.
While some of these figures may seem slim, they suggest a profitability increase of approximately 7 percent this year for the industry overall, which is about three times the rate of inflation.

Investor Interests
Interestingly, the general mood of investors points to greater interest in acquiring existing hotels and resorts in Central and Atlantic Canada versus developing new ones. Conversely, the investor outlook in western Canada tends to favour development over acquisition. This is due to the particularly hot market in western Canada, where demand is outstripping supply.
The challenge with new development, of course, is construction costs. As expected, the cost of development is growing, and higher demand has created a sizeable premium for new construction in the western provinces — as much as 25 percent.

Sector Strength
Across the nation, certain trends are emerging in terms of product segment strength. While all sectors are predicted to grow materially, Allinial Global Consulting projects that the strongest profitability growth will be in the resort sector. Limited-service hotels and full-service hotels will also see growth in profitability, with suites and extended-stay properties staying somewhat flat, according to the firm.
Allinial Global Consulting suggests that travel and economic growth will continue over the next four to five years. By 2018, the firm expects to see all regions nearly reach or surpass 2008 numbers in terms of adjusted net operating income.
So if you are in the hospitality and tourism business — or are a supplier to these industries — it’s wise to consider these numbers as you create your strategic plan for the next five years. Your future could be very bright.

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