Why the pandemic’s lingering effects will continue to hurt the hospitality industry

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The hospitality industry continues to struggle as pandemic-mandated restrictions on travel and assembly hurt the bottom line and livelihoods of both businesses and workers alike.

International travel to Canada is down by more than 90 per cent and while some travellers are still trickling in, the Canadian government requires them to quarantine at designated hotels for about three days at a potential cost of up to $2,000.

The enforced quarantining might help a small number of hotels near the airports in select cities, but it will not provide any relief for most of the 8,000 hotels of varying sizes and quality across Canada.

Room occupancy rates dropped precipitously to 33.7 per cent in 2020, from 66.5 per cent in 2019, and the decline forced the hotel industry to lower room rates. The average daily rate in Canada, which had been steadily rising since 2010, declined to $124 in 2020, from $162 in 2019. The revenue per available room correspondingly declined to $43 in 2020, from $109 a year earlier.

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A look at recent travel trends helps explain why the hotel industry’s key performance indicators have collapsed by so much, because nowhere has the impact of COVID-19 been more evident than in the international tourism and travel sector.

The number of travellers from the United States and overseas in December 2020 was down by 93 per cent compared to December 2019, according to Statistics Canada data released earlier in February. Even the number of Canadian residents returning from abroad was down by 91.3 per cent during the same period.

A year-over-year comparison reveals that the number of international trips to and from Canada dropped to 25.9 million, an annual decline of 73 per cent. Excluding Canadian residents, only 5.1 million travellers arrived in 2020, a decline of more than 84 per cent from 2019. The number of Canadian residents returning from abroad was down by 74 per cent to 14.6 million.

Returning residents and new immigrants impact housing markets more than hotels, while business travellers and tourists generate the demand in the hospitality sector. A sizable segment of the demand for overnight hotel stays, restaurant meals, and art gallery, aquarium, museum and zoo visits is generated by international and domestic tourists whose numbers have considerably declined.

Even trips by U.S. residents to Canada in December 2020 were down by 93.3 per cent from the year before. Not all U.S.-based trips are overnight trips, of course, but those visitors still enjoy meals at restaurants and buy goods at stores.

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The declines are a far cry from the glowing forecasts that greeted the hotel industry as recently as 2019. “Our hotels are full, and we are in good shape to continue to grow top and bottom lines in 2019,” said an annual review of Canadian hotel industry by CBRE Group Inc., a commercial real estate services and investment firm.

CBRE further noted that “the only factors that cause significant shifts in the hotel market are either geopolitical events — such as 9/11 and the global financial crisis — or the delivery of new hotel supply.”

With the benefit of hindsight, we can add pandemics to the list of factors that can drastically affect the hotel industry’s bottom line.

The long-term forecasts for the hotel industry do not solely depend on lifting international and domestic travel restrictions. For one thing, web-conferencing technologies have displaced some demand for intercity and international travel. Virtual meetings, conferences and even birthdays and weddings emerged in response to the restrictions that prevented face-to-face meetings.

Traditionally large gatherings for birthdays and weddings are likely to return once the pandemic is over. However, one could expect a relative decline in business travel, given that businesses are now armed with cost-cutting tech-enabled tools.

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The resulting effect could be more pronounced in downtown employment hubs in large urban centres, where near-empty office towers could struggle to attract employees who have proven to be equally productive working from home. With employees teleworking, what’s the point of flying to a different city to visit business associates?

The hotel industry is likely to do better in 2021 and beyond than it did in 2020. Still, the industry should be prepared for a future of sustained lower demand. This might require some hotels to change their offerings, such as providing longer-term stays, and being part of the solution for challenges such as housing affordability that many cities continue to face.

Murtaza Haider is a professor at Ryerson University. Stephen Moranis is a real estate industry veteran. They can be reached at the Haider-Moranis Bulletin website hmbulletin.com.