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Tourism and Economic Recession

By Bernard

Over the last few months the world has gone crazy over the apparent slow down in today’s economy. People are afraid of losing there jobs, companies are afraid of losing all their money to bankruptcy, stock holders are selling their stocks as they believe they will no longer have enough return on their stocks in the near future. Small businesses are folding as they become the first victims of these economic times and countries are scrambling to save the bigger businesses. In the United States alone, $700 billion was spent by the government to try to keep big home insurance companies and other mega corporations afloat. The fact is that this huge recession is taking everybody down and the tourism industry is a being affected like the rest of the world.

The consumer has the same mind set when it comes to buying accommodation services and buying gas. The more expensive it is, the less the consumer will want to buy. However, the tourism industry is not like gas prices. Earlier elasticity of demand was used to explain the consumer’s willingness to buy a product according to the increase in price. Buying a hotel room is nothing like buying gas. A consumer des not need a hotel room like gas. If the price of a hotel room went up, then the consumer loses nothing extra by not purchasing the room. If the purchaser is smart and makes reservations or calls ahead of time, a great increase in price of the room will just persuade the consumer not to contribute o the tourism industry.
As a result to this problem, hotels will just let the vacancy rates rise, or will lower their prices in order to increase the amount of clientele served.

Canadian National Accommodation Averages
Year Occupancy Average Daily Rate
1992 57.0%  $       68
1993 60.0%  $       68
1994 62.0%  $       72
1995 65.4%  $       84
1996 65.4%  $       88
1997 66.8%  $       94
1998 67.0%  $       99
1999 65.9%  $     106
2000 64.9%  $     111
2001 62.1%  $     114
2002 61.9%  $     116
2003 59.0%  $     114
2004 61.0%  $     116
2005 63.0%  $     119
2006 65.0%  $     123
2007 65.0%  $     127
2008 F 65.0%  $  132

This information above tells an interesting story in the Canadian hotel industry. In the last three years, hotels have increased the rates they charge and vacancy rates have remained stagnate. This means that revenues for hotels have been increasing despite the economic slow down. Hotels however are in for a tougher future because the recession has only started to affect them recently. They will begin a tougher fight as they try to keep revenues up.

Hotel Growth Supply in Canada
Year Growth
2002 1.1%
2003 1.3%
2004 1.3%
2005 1.5%
2006 1.9%
2007 1.9%

The Hotel Growth information is yet another look at just what is happening in the hotel industry. Notice how 2006 and 2007 had the same growth rate. This is a huge positive for the industry and is a statistic they must keep as the recession looms on them. As long as the rate does not get below zero and into the negatives then we know that it is stable for the time being.