By: Monique Rosszell - HVS Canada
An airport terminal hotel is a lodging facility that is physically attached
to an airport, either integrated into the terminal or connected via a walkway
so guests can walk to the hotel from the airport without having to rent
a car or use an airport shuttle. At present, four such properties exist
in Canada, and most appear to significantly outperform their respective
airport lodging markets.
A hotel attached to an airport is in a unique situation to capture demand.
It is the first hotel that travellers might consider when they are stranded
at an airport because of a flight cancellation or an overbooking, as it
does not require additional travel by shuttle, bus, or rental car to stay
there. Airport terminal hotels are often used as a hub for corporate
meetings in which business people fly in from different locations. This
reduces the costs and complications involved in trying to obtain transportation
away from the airport, and the airport location has fewer distractions
than a downtown property.
The following are the primary factors that contribute to the success
of airport terminal hotels:
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Airport terminal hotels occupy a convenient location for short, same-day
business trips/meetings.
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Airport terminal hotels are easily accessible from the airport, so there
is no commute time, and they are insulated from bad weather.
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Airport terminal hotels can easily accommodate distressed passengers and
airline contract demand.
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Airport terminal hotels have a unique ability to capture day-use rates
from international travellers and short-haul airline crews.
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An airport terminal hotel's food and beverage facilities can compete with
the restaurants in the airport for demand emanating from non-hotel guests.
Our research shows that, in addition to the hotels near the airport, airport
terminal hotels compete strongly with the downtown hotels within a given
market.
To gain a general understanding of how airport terminal hotels operate
in relation to their respective competitive markets, we analyzed the operating
performance of 14 airport terminal hotels in the United States (10 properties)
and Canada (four properties). Their combined performance was compared to
an aggregate of their respective competitive sets to determine their aggregated
penetration rates. The performance of the airport terminal hotels relative
to their respective competitive sets was then analyzed to determine the
occupancy, average rate, and RevPAR penetration levels typical of airport
terminal hotels.
The table presents Smith Travel Research's trend results for these airport
terminal hotels. Airport terminal hotels strongly outperform the
local airport markets in which they compete. As shown in the table, the
airport terminal hotels posted occupancy penetration levels above 100%
in each of the last 11 years; the occupancy penetration rate ranged from
roundly 102% to 112%. The highest occupancy penetration levels were achieved
in 1998, 2001, 2002, and 2004. The average rate penetration levels for
the airport terminal hotels were even stronger; they ranged from roundly
113% to 122%. Average rate penetration peaked in 2000, moderated in 2001
and 2002, and gradually recovered until it surpassed all previous levels
in 2006. As a consequence of these strong occupancy and average rate penetration
levels, the RevPAR penetration level has slowly but steadily increased
from roundly 116% in 1996 to 131% in 2006, and estimates for 2007 look
even more promising.
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Aggregate of Airport Terminal Hotels vs.
Aggregate of Their Respective Competitive Sets
Source Smith Travel Research
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Historically, airport terminal hotels have clearly demonstrated at least
average operating performance in the worst of times and superior operating
performance in healthier times.
Interestingly, although airports (and thus airport hotel markets) suffered
vastly in 2001 following the events of September 11th, the decline in the
aggregated performance of the airport terminal hotels was comparable to
that experienced by their respective competitive sets on a percentage basis
for overall RevPAR, with declines in average rates being greater than declines
in occupancy. As stricter airport security measures created lengthy airport
delays during the passenger check-in process following September 11, many
travellers discovered the unique benefits of staying at an airport terminal
hotel; the added difficulties travellers began to experience unexpectedly
benefitted airport terminal hotels. Even if their business takes them to
a downtown area, travellers often bypass typical downtown accommodations
in favour of the airport terminal hotel knowing that they could spend the
night before their return flight at the airport, thereby assuring a timely
airport check-in.
As high-pace lifestyles seem to increase the premium that travellers
place on time, all segments of hotel demand are becoming less pricesensitive
to the rate premium that airport terminal hotels command. In other words,
travellers recognize the unique value of staying at airport terminal hotels
and are willing to pay higher rates for the advantages they offer.
The physical barriers to entry support the high RevPAR penetration between
airport terminal hotels and their competitive sets. Airport authorities
usually authorize one terminal hotel per airport, or one per terminal in
larger airports. Downward pressure on RevPAR growth is experienced in most
markets until the new supply has been absorbed. For airport terminal hotels,
the barriers to entry and the advantages of their unique location strongly
mitigate this impact.
So why don't we all go out and acquire airport terminal hotel properties?
They are rarely sold and highly coveted. In Canada, there are three new
airport terminal properties currently in the development pipeline, at the
Montreal Airport, the Halifax Airport, and the Edmonton Airport. Allegedly,
the bidding process has been very competitive. Perhaps we need to build
more airports.
CANADIAN LODGING OUTLOOK
HVS INTERNATIONAL - CANADA
Decmeber 2007
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CANADIAN LODGING OUTLOOK
HVS INTERNATIONAL - CANADA
December 2007 YTD
© Smith Travel Research, 2005.
Reproduction or quotation in whole or in part without permission is forbidden.
*INS - Insufficient Data
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