Canada’s hotel industry faces collapse

By Peter Mitham

OTTAWA – Within 48 hours of the World Health Organization declaring the new coronavirus COVID-19 a pandemic, the collapse of Canada’s hotel industry had begun. Cancellations from both business and leisure travellers as governments began enacting restrictions on events and movement cut bookings and slashed occupancies by half.

“Our occupancy dropped by 50 per cent of the national average,” said Susie Grynol, president and CEO of the Hotel Association of Canada.

By the end of the first 48 hours, on March 14, hotel occupancies had fallen to 46 per cent nationwide. A week later, the numbers were heading towards 10 per cent, and Grynol says they’ve fallen even further this week.

The result has been layoffs of tens of thousands of workers, and more than 100 hotels have been temporarily shut. By some estimates, up to 250,000 hotel staff could be laid off before the closures are through.

All hotels are vulnerable. A case in point is the Lord Elgin Hotel in Ottawa, a family-run hotel that announced its temporary closure, effective March 23.

“We are a local independent family-owned business with strong roots in Ottawa,” it announced. “It is with heavy hearts that we have made the decision to temporarily close.”

A week earlier, the Broadview Hotel in Toronto had announced its closure effective March 17, “until the current situation subsides.

“We feel this is the only responsible action to be taken under these circumstances to mitigate the transmission of this global virus,” it announced. “We recognize that the passion and creativity of our team are the heart and soul of our community and we will be here to serve you when it is safe for everyone to do so.”

When that might be is anyone’s guess at this point, with politicians and public health officials alike mulling the possibility that social distancing – which many provinces now require, stipulating fines for those who don’t comply – could be the norm for months.

The chilling effects as spring takes hold aren’t hard to fathom. In Western Canada, resort municipalities are asking people to stay away and shutting their doors completely. The resort municipality of Harrison Hot Springs shut down to visitors on March 22. The town’s landmark Harrison Hot Springs Resort and Spa, the largest of the town’s many hospitality establishments, has laid off more than 300 people.

Ultimately, it comes down to cost cutting, limiting the pain for what many hope will be a short-term situation and conserving resources for the recovery period.

“Most of this industry will close its doors, because at 10 per cent occupancy you can’t sustain business operations,” said Grynol, who described it as “a question of cutting expenses and putting into place austerity plans.”

But shutting down hotels isn’t that easy. They’re operating assets, and bringing them back to life isn’t a cheap exercise.

“The variable costs to keep a hotel open or to close a hotel are not that different,” explained Carrie Russell, managing director of valuation and advisory firm HVS Canada, noting that some may keep their properties open and maintain a skeleton staff. “If you go dark in a hotel you can’t just lock the front door and leave it.”

Quebec hoteliers have even expressed openness to the use of their properties as care centres in the event hospitals fill to overflowing with people sick from the virus, temporarily repurposing the facilities rather than shutting them down.

The nature of the business, even for many smaller operators, is that they’ll have two properties in a single city, often operating under different flags.

“A lot of operators, if they have a lot of assets in a city, they’ll be closing one of the two assets,” Russell said.

Germain Hotels, for example, announced the temporary closure of the Alt Montreal, Alt Quartier DIX30, Alt Ottawa, Alt Calgary East Village Hotels and Le Germain Hotel Toronto Mercer. The properties were chosen because Germain had other properties in the same destinations.

Some hotels may not have a say.

This week, the Ontario government announced that all non-essential businesses would be required to close beginning at midnight, March 25. Hotels and other lodging providers are considered essential businesses.

A federal state of emergency is also widely expected. Vancouver-based law firm McMillan LLP notes that there is no one definition of what constitutes an essential service in Canada, adding to public confusion and business uncertainties.

The question then becomes, when will the restrictions be lifted, and which businesses will emerge? Unlike the short-lived SARS outbreak in 2003, another coronavirus-related disease, the timeline is uncertain. While tourism rebounded strongly the following year, there’s no guarantee of that in the current forecasts.

“The recovery is absolutely going to depend on how many of these businesses we can keep afloat during this interim period,” Grynol said. “What does the new normal look like? I don’t know.”