Tuesday, September 21, 2010

Vancouver hotels benefiting from Olympics afterglow

article in BC Business, available on the 18th floor
reception coffee table

Fairmont Pacific Rim general manager Randy Zupanski is still riding a market high sparked by the Olympics.

It was one of those miserable February days. That gloriously sunny start to the 2010 Winter Games that made the city look so camera-ready (if a little snowless) had turned into classic Vancouver winter: rain, rain and more rain. But with house guests keen to see the city, I – along with my sister and nephew from Calgary – joined the ant line of enthusiastic visitors downtown, marching toward the torch. We came, we saw – and we were soaked. The 10-month-old in tow was not amused.


And there, behind us, an oasis. All glass and marble and soaring ceilings, the Fairmont Pacific Rim practically glowed across the street from us. We hesitated, then scuttled in like drowned rats and dried ourselves out over lattes and pastries in the lobby bar. 


Variations on that scene were repeated throughout the city during those 17 days in February, when an estimated 582,000 people came to Vancouver, many staying in local hotels. And many more, like us – stepping in from the rain in need of a coffee break – grabbed a taste of Vancouver hospitality. “During the Olympics, we saw thousands of visitors and locals just walking through the hotel every day,” says the Pacific Rim’s general manager Randy Zupanski. “For promotion, there’s nothing like it.” 


For the local hotel industry, the Winter Olympics was a bright spot in an otherwise dark couple of years. For one month in February, hotels in Vancouver boasted 100 per cent occupancy rates and the bonus of premium rates – aside from those guaranteed-rate rooms blocked off for VANOC and sponsors – at a traditionally slow time of year (February 2010 represented a 75 per cent revenue jump over February 2009).


But one month in a long bout of low occupancy and diminished room rates does not make for successful business. Add to that the 1,085 rooms in 12 new hotels that have opened in the Lower Mainland since 2008 and some hoteliers are concerned that, in volatile economic times such as these, the hotel business just got a lot tougher. 


"We’re still way below the highs of where we were in ’07."

“It’s bad timing, for sure,” says Kostas Christopoulos, director of marketing at the Four Seasons Vancouver. The 34-year-old hotel underwent a $20-million overhaul in time for the Olympics – a complete renovation of all of the guest rooms, lobby and function spaces, along with a new restaurant and bar. “Even if you forget about the Olympics, we’re still way below the highs of where we were in ’07. We dropped 10 [per cent] for occupancy between ’07 and ’09, and our average room rate is down too.” 


Of course, the new guys – the Loden (which opened October 2008), the Shangri-la (January 2009) and the Fairmont Pacific Rim (February 2010) among them – were built for more than just a two-
week surge in business. “There’s no model in which a two-week Winter Olympics would convince you to build a hotel,” says Tsur Somerville, director of the UBC 
Centre for Urban Economics and Real Estate. A new hotel only makes sense if there’s also growing demand as a result of such things as increased tourism or convention business, he says. “Those are the things that would make the hotel market more attractive.”

The increase in supply comes at a time when the city, like the rest of the world, still hasn’t fully recovered from the economic crash of 2008. The global recession guaranteed that business and leisure travel would be down in 2009, but other factors were in play too: H1N1, which first broke in late April 2009, kept visitors away as tourists feared air travel; local cruise traffic dropped, including a staggering 34 per cent decline in May 2009, thanks to cruise lines favouring Seattle’s port over Vancouver’s; even the introduction of visas for Mexican visitors by the Canadian government in July 2009 took its toll. Revenue from accommodations in B.C. dropped 11.7 per cent between 2008 and 2009, from $2.0 billion to $1.7 billion. A half-million fewer visitors to Metro Vancouver last year compared to 2008 meant that Lower Mainland hotels – which make up 53 per cent of B.C.’s hotel revenues – were hit even harder, with revenue dropping 12.6 per cent. Between 2008 and 2009, the province’s hotel occupancy rate lost all the gains it had made in the four preceding years. 


Many in the industry are optimistic that the Olympics afterglow will lead to growth in both the leisure and business travel markets. But precedent shows this hasn’t always been the case. In 2004 Eric Pateman, owner of Granville Island’s Edible BC, conducted a study of the hotel industry in Olympics host cities for his MBA thesis at Oxford Brookes University (at the time Pateman was consulting for the hotel industry). Taking the revenue per available room as the standard indicator of hotel performance, Pateman traced the pre- and post-Games performance of five cities: Salt Lake City, Sydney, Atlanta, Calgary and – the only non-Olympics example – post-Expo 86 Vancouver (included because Expo was another mega-event and Vancouver was a future Winter Games host). Collecting data over an 11-year span (the year of the event, plus the five years before and after), he found that the “dramatic increase in room supply which typically occurs prior to the Games has a lingering effect on the lodging markets after the Games.” 


“The Olympics are very formulaic,” explains Pateman. “There were absolute patterns that Vancouver continued to follow.” One clear example, he says, was seen in restaurants. He explains that hotels that prebooked their food and beverage programs – where guests had to prepay for meals in the hotel restaurant, whether or not they used them – were more successful than those that relied on walk-bys. “By most accounts, most of the corporate accounts didn’t use the food programs. They’re up early to go to events and out running around,” explains Pateman, who is now consulting on food and beverage programs for organizers of the London 2012 Games. “But to get the room blocks they wanted, they had to guarantee x amount of spending.”


Study shows room demand was stronger leading up to Games.

If other patterns hold, Pateman’s study may be prophetic. It shows that the addition of new hotel rooms wasn’t matched by post-Olympic demand in the five cities he surveyed, and oversupply in the market resulted in a decline in market performance after the Games. In all cases, hotel room demand proved to be stronger in the five years leading up to the Games than after the Games. In Sydney, for example, oversupply resulted in more than 2,000 hotel rooms being closed or converted for residential use between 2000 and 2004. In Vancouver post-Expo, it was a similar situation. Occupancy nosedived by nearly 20 per cent in 1987, though it jumped back up two and three years after Expo. For some hotels, the recovery came too late: the Sutton Place Hotel, built in 1985, was up for sale a year after Expo when occupancy dipped below 40 per cent.


Pateman’s report shows that if supply growth were to be spread out over the entire 11-year period, as opposed to the pre-Games years (when hotels are likely to want to open in time for the Games themselves), a host city’s hotel industry could gradually handle increased capacity. In fact the recession may have inadvertently created just such a scenario in Vancouver. “Vancouver was a little smarter; a number of rooms were never built. The Hotel Georgia still isn’t open. And the Ritz-Carlton never opened,” says Pateman, referring to the much-publicized Ritz-Carlton Hotel, which was to have 127 hotel rooms and 123 luxury condos ready for occupancy in 2011. In February 2009, a rapidly declining economy forced developer Holborn Ltd. to shelve the luxury project. 


Although fewer rooms were built across Vancouver than was originally planned, oversupply remains a concern post-Olympics. But what really has local hotel owners and operators worried is the average room rate. “We’re seeing more of the leisure traveller this year, but the spend on the room per night is not increasing,” says Tim Tindle, general manager for the Pan Pacific, which opened for Expo 86 with 464 guest rooms and 39 suites. “Rates dropped anywhere from 10 to 15 per cent last year. And introductory rates from the new hotels is one of the factors why rates aren’t increasing.” 


Some hoteliers have fought hard to protect their rates, hopeful that once the economy improves recovery will come faster for them. Nicholas Gandossi is general manager of Yaletown’s Opus Hotel. Opened in September 2002, the 96-room Opus was at capacity during the weeks leading up to the Olympics and over the period of the Games. But Gandossi says his boutique property took a big hit in 2009: “For us, September 2008 was when we walked off the big cliff with the rest of the world. We look at ’08 for comparisons to give us perspective, but it’s hard to understand how much better we should be and how much the landscape has changed permanently with the buying patterns of consumers.”


Gandossi says the Opus strategy, even in the darkest points of 2008-09, has been to try to stay close to its pre-recession room rate. “The hotels that have rate integrity in their business plan, who didn’t go down as far during recessionary times, are in a better position to make that incremental jump,” he says. “If you keep training the consumer to go on to Priceline or Expedia to buy your discounted rate, they’re not going to go to your website to buy directly.”


Opus’s occupancy rates suffered during the worst of the recession, he adds, but by maintaining its room rate (and offering incentives such “stay three and pay two,” a hotel car and loaner bikes), he feels the hotel will be in a better position when the travel market recovers. In the meantime, it continues to benefit from another Olympic legacy: the Canada Line. Just a block from the new Yaletown-Roundhouse stop, Opus is ideally situated for downtown-bound arrivals from YVR.


Canada Tourism Commission invests in post-Games publicity.

For how much longer the industry’s pain will be mitigated by Olympics afterglow remains to be seen. The Fairmont Pacific Rim’s Zupanski says that so far they’ve blown through projections for the new hotel: while March was quiet at 42 per cent occupancy, April was at 65 per cent occupancy – 10 per cent over projections – and May was at 85 per cent, 20 per cent over projections. A lot of hope is also being placed on the Canada Tourism Commission’s decision to invest in post-Games publicity for Vancouver. Of the $26 million budgeted for Olympics-related marketing, 50 per cent has been dedicated to “harvesting the afterglow,” continuing to promote the city after the athletes and visitors have left town. 


But the real saving grace for hoteliers may be the city’s shiny new convention centre. The 467,000-square-foot facility, completed in April 2009, immediately tripled the city’s capacity to host large groups, and an aggressive sales team is already pulling in results: in 2006 Vancouver hosted 18 city-wide conferences (events with more than 1,000 people, involving three or four hotels), resulting in 90,000 room nights booked for the year. Based on current projections, 2010 is on track for 170,000 room nights, while 2011 is projected to see 220,000 room nights booked and up to 25 conferences coming to Vancouver. The convention centre team continues to court industry associations, and won the recent Meeting Professionals International conference: 3,000 members who hit the city this past July and who have the potential to bring their own colleagues and suppliers back to the city for future conferences. (According to Dave Gazley, Tourism Vancouver’s vice-president of meeting and convention sales, past stats for this conference indicate that about 40 per cent of those attending bring their clients back to the host city.)


Will all the aggressive salesmanship and expensive marketing campaigns be enough to bring the industry back? Four Seasons’ Christopoulos, for one, is uncertain. “In a perfect world, if these had all opened up in ’07 when the economy was doing well and we weren’t impacted by fewer cruises and we had the new convention centre, then a lot of the excess demand could be absorbed by the new hotels,” he says. “But for now, it’s at the expense of other hotels/"

Source:
BC Business

Note: The Fairmont Pacific Rim is a hotel we work very closely with, see previous articles from students who worked there in the past.

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