We’re in better shape for this recession

David Larone, PKF

TORONTO—While 2009 will be difficult, the Canadian hotel industry is in much better shape than it was for either the 1991-92 recession or 9/11 and SARS in the early ‘00s. That’s the message David Larone of PKF gave delegates at the Hotel Association of Canada conference held in Toronto Feb. 10-11.

“The period 1989-1992 was an interesting, but difficult time in the hospitality sector. We were particularly challenged in real estate, most hotel chains were insolvent, balance sheets were down and banks owned a large percentage of hotels,” Larone said. “Supply growth was 12 per cent. One year later, in 1993, there was 30 per cent supply growth. Central Canada was ‘underwater’ then. No one had any cash in 91-92. In 1991 and 92, people went into panic mode.  We were a fragile sector—people hedged their bets and made short term decisions.

“From 2000 to 2003, 2000 was the best year, and the last quarter of 2001 was the worst.  There was growth in 2002, and then we were hit by SARS.  In 2002, there were declines in earnings led by Toronto, and in 2003 we recovered.

“Today, supply and demand are relatively in balance, better than ’02 and much better than ’92. ADR is also in much better shape. Better systems are available through the brands. Yield management is something we’ve been working at for 20 years.  The capability and assistance are there for the brand side.

“In short, we are better equipped to manage through a recession than we have been at any time in our history.”




Let’s not compete on rate

“If you’ve got a great asset worth $X, recognize that it is worth that.  Find other ways to add value,” said Larone. He gave the example of a Caribbean resort that maintained the room rate of $675 per night, but charged $998 for a round of golf. 

Another example is the new Shangri-La hotel in Vancouver, which is maintaining its rate integrity by charging $345 a night, but adding on a fourth night free, including vouchers for services, incidentals or spa services and tripling air miles.

Jestin: Canada is special

Warren Jestin of Scotiabank Group, who shared the stage with Larone for the opening presentation, provided a number of slides showing that the current economy is “a powerful synchronist downturn” that is happening worldwide, and applies across the sectors.

At the same time, he said that Canada is special.  It has the strongest banking system in the world. And rather than leveraging up, Canadian tend to accumulate savings in their homes.  So now we are leveraging our savings.  Our strength is in our domestic economy.  Nevertheless, the drag from this powerful synchronist downturn is now beginning to show up. Jestin predicts a lingering economic convalescence for 2010. He added that Saskatchewan, Manitoba, Alberta, Newfoundland and BC economies are the strongest in terms of real GDP, and (no surprise) Ontario’s GDP is off.