Canada goes cold

Canadian hoteliers could never have dreamed they'd be looking to Mick Jagger to help revive their flagging businesses. But in a sense it was fitting. The Rolling Stones opened their headlining slot at a Toronto concert this summer with the hit Start Me Up. And the sentiment wasn't lost on a tourism industry that has been fumbling to find first gear again after a string of devastating events.

Profits from the July concert, which drew more than 400,000 people, went to help tourism and healthcare workers affected by an outbreak of severe acute respiratory syndrome (Sars) in Toronto in the spring. But while Jagger assured the crowd that "Toronto is back and it's booming" and actor Jim Belushi declared: "We're bringing this city back," hotel, restaurant and tourism workers know it's going to be a long haul.

Canada's annus horribilis began with an appreciating Canadian dollar that put off many visitors. Then came financial problems for Air Canada (the main carrier between Canada and the USA) and the economic impact of the Iraq war. However, the biggest whammy came when March's Sars epidemic in Toronto put the city on a blacklist for international travel.

Bookings dropped off and visitor numbers fell and continued to fall for three straight months. Then in May a second Sars outbreak erupted in Toronto and there was an outbreak of "mad cow" disease in Alberta. According to Statistics Canada, the number of tourists travelling to Canada in May was the lowest recorded in 13 years.

While the figures for June show an increase, international travel to Canada was still down 17.2% year-on-year, and hotels have lost hundreds of millions of dollars in room revenues (see below).

"We refer to them here as Sars 1 and Sars 2," says Marlin Keranen, general manager of the 425-bedroom Holiday Inn on King hotel in central Toronto. "After Sars 1 we'd just got the all-clear and then a week, 10 days, later it started up again. That really killed us."

Rod Seiling, president of the Greater Toronto Hotel Association, says the Sars outbreak, which killed 40 people in Canada, has been far worse for his members than the 11 September terrorist attacks: "After 9/11 our occupancy went down but soon started to climb again. With Sars, occupancy went down, then kept going down."

Toronto hotels "hit rock bottom" in the last week of April, says Seiling, with average occupancy in downtown properties at just 29%, 62% lower than the previous year. Keranen's average occupancy in April was 37%. Things have improved, but not much. His figures for July (normally showing 95% occupancy) were 65%. August, also typically 95%, was expected to come in at 68%. For a time, Keranen discounted deeply, slashing up to Cdn$120 (£55) a night off the price of rooms which last year sold for Cdn$240 (£110). But he has now resolved to stop. "We've got to have enough money to pay the bills," he says.

Thousands of hotel workers in Toronto have been laid off, and thousands more have had their hours cut, says Seiling. And there has been little or no extra summer recruitment. Keranen laid off 68 of his 225 full-time crew and cut back hours for another 60. At the 341-bedroom Best Western Primrose hotel, also in central Toronto, staff have escaped layoffs, but restaurant workers have had their hours cut and been deployed elsewhere in the hotel. Director Scott Yellan says occupancy is still down by about 20% and room rates are down by about 10%. He's trying hard to avoid discounting further. "That's a hole we don't really want to go down," he says.

Price promotions tend to have been short-term and strategic. Best Western hotels in Toronto were selling their rooms for just Cdn$25 (£11.50) a night one weekend in May, down from about Cdn$140 (£64). But while this nearly doubled occupancy - then lagging at 35-40% - that wasn't the point. Guests received a coupon for 50% off a future stay, which the association hoped would boost sales for the rest of the summer. Hilton Canada, whose properties are still 10-20% down on normal summer occupancy levels, has been running short-term price promotions such as letting guests stay a third night free.

Hoteliers are aggrieved that they have received no direct financial aid from the Canadian government. And yet, they say, millions of government dollars have funded marketing initiatives (see below). Just when things couldn't get much worse, part of the country suffered an electrical blackout in August leaving major cities without power.

Despite their woes, members of the Hotel Association of Canada were said to be optimistic and bullish when they met for an August board meeting. The attitude of attendee Stuart Broster, president of Hilton Canada, is typical. "The optimism for us comes from the fact that a lot of these things are not of our making," he says. However, reminders of the downturn were close at hand. The venue, Deerhurst Resort, Muskoka, in the wilderness of Ontario, expects sales to be down by nearly 10% this year following a two-year sales growth of 45%.

While Broster doesn't hold with PKF Consulting's prediction that Canada's hotels will be recovering next year - "No chance. You might get it in pockets but in Toronto it's a three-year [recovery] cycle at least" - others are more optimistic: David Scholefield, director of field marketing at Best Western, hopes his members will be back to normal business levels at the end of this year. Autumn convention bookings in Toronto are strong, he says. But, more to the point, spirits among members are high and "they still believe in their city".

How canada has suffered

• Hotel room revenues countrywide in April, May and June were down Cdn$318m (£145.5m) on 2002.
• Average occupancy across Canada in 2003 is expected to be 59%, a 12-year low.
• In central Toronto, the average loss per hotel room for April and May was Cdn$5,800 (£2,654). Hotel rooms in this area usually generate Cdn$5,000-Cdn$6,600 (£2,288-£3,020) a month.
• Average room rates in central Toronto in June were down 21.5% on last year, to Cdn$144 (£66). In greater Toronto the rates were down 16.5% to Cdn$117 (£53.50).
• In June, overseas visitors to Canada were up 8.5% from May. Total international visitors in June dropped 17.2% compared with June 2002.

(Sources: PKF Consulting, Statistics Canada, Canadian Tourism Commission)

Canada v USA: an old rivalry

The Canadian Tourism Commission (CTC), with financial aid from the federal government, has spent Cdn$21m (£9.7m) on three advertising campaigns this summer to help kick-start tourism (one in the USA, one in Canada, and a three-week TV and press campaign in the UK and France). By far the largest spend - Cdn$12m (£5.53m) - has gone to winning back US visitors.

Hoteliers talk bitterly of the negative US media coverage during the Sars crisis (which saw some news channels accompanying reports on Toronto with images of masked people in China) and stress that face masks were hardly seen in the city.

Hoteliers also believe US visitors were put off by the Canadian government's decision not to take part in the Iraq war.

The USA is an important market to win back. Last year 16 million Americans visited Canada, contributing Cdn$8b (£3.7b) to the economy, according to the CTC. June figures show just a 0.4% increase in visitors from the USA. Anne Larcade, general manager at Deerhurst Resort, says recovery is heavily reliant upon US media coverage. "If we're able to leverage the US media to show you don't have to be frightened to travel, [recovery] could be faster," she says.