| by Eric S. Pateman, MBA, MHCIMA, February 2005
Introduction In July 2003, the International Olympic Committee (IOC) accepted Vancouver, Canada�s bid to host the 2010 Winter Olympic Games. The local lodging and tourism industry met the announcement with optimistic predictions of the potential benefits such a mega-event would bring. However, there has been little research to date which clearly supports this optimism. A literature search initiated as part of a research-based MBA thesis identified a common supply and demand problem which has plagued the lodging industry of past Olympic host cities. Examination of hotel room supply trends in the host cities revealed that the dramatic increase in room supply which typically occurs prior to the Games has a lingering negative effect on the lodging markets after the Games. The initial stage of the research required quantifying the potential impact that the 2010 Olympic Games would have on the Greater Vancouver lodging sector. To this end, a historical analysis was conducted on the lodging markets and their respective demand generators in past Olympic host cities including Salt Lake City, Sydney, Atlanta and Calgary. Data generated by Expo �86 in Vancouver was also included because of its similarities: same city, another mega-event. The entire thesis is beyond the scope of this article; however, a discussion of the historical analysis will illustrate the necessity for prudent planning by Vancouver�s lodging and tourism industries in preparation for the 2010 Winter Olympics. Past Experiences Lodging industry performance for each of the five host cities was analyzed using multiple operations-based indicators which included Revenue per Available Room (RevPAR), Rooms Supply and Rooms Demand. The data was collected for an 11 year span including the five years before and after the Games as well as the Olympic year when possible. Revenue per Available Room Revenue per Available Room (RevPAR) is considered the prime indicator of hotel performance when comparing hotels within or between markets around the world. RevPAR analysis of the five cities showed consistent trends with minimal to moderate growth in the 5 years preceding and strong growth the year of the Games; however, a subsequent decline the year following tended to negate the positive growth. The three most recent Games (Sydney, Salt Lake City, and Atlanta) saw significantly reduced growth in the year of the Games compared to Calgary and Vancouver�s Expo �86. This is a reflection of the impact IOC contracts negotiated during the bidding process had on RevPAR in Sydney, Salt Lake City and Atlanta. The contracts stipulate a maximum room rate for the Olympic Family and sponsors who account for up to 80% of the city�s room supply; RevPAR in Calgary and Vancouver (�86) were not affected by pre-determined maximum room rates. Hotel RevPAR in Past Host Cities
Rooms Supply Rooms supply describes the annual total number of hotel rooms available in a particular lodging market. The analysis of Rooms Supply data for the five host cities revealed an upward trend in rooms supply over the years prior to the Games. However, the addition of new hotel rooms was not matched by post-Olympic demand and the oversupply in the market resulted in a subsequent decline in market performance after the Games. Atlanta was the only host city whose growth in supply was matched or exceeded in the years surrounding the Games. In Sydney, the recent opening of the first hotel in the four years since the 2000 Games signalled the recovery of the lodging market, after which more than 2,000 hotel rooms were closed or converted for residential uses due to oversupply. Hotel Rooms Supply in Past Host Cities
Hotel Room Demand Hotel room demand, which is hotel occupancy factored by hotel room supply, is the best indicator of supply absorption and growth trends in the lodging market. In the case of the five host cities, hotel room demand has proven to be stronger in the years leading up to the Games as opposed to after the Games. In cities such as Salt Lake City and Sydney, the demand in the years following the Games is a reflection of unfavourable international economic and travel conditions and may not accurately represent the true impact of the Games. While there will undoubtedly be a decline in demand in the year following the Games, should the economic conditions be favourable, future host cities may perform with a similar trend to that experienced in Atlanta and Vancouver (�86) with a surge in demand in the years following the Games as well. Hotel Rooms Demand in Past Host Cities
Expectations Hoteliers in future host cities, including Vancouver have much to gain from analyzing the trends generated by lodging data from former Olympic host cities.
This article is based on research compiled for the author�s MBA thesis from Oxford Brookes University, and only touches on a brief section of the research. The final research paper is available for interested parties. The research uses a market study incorporating various techniques including trend extrapolation, expert opinion (interviews), as well as economic and demographic indicators to estimate the induced demand created by hosting the Games and to then determine the optimal level of supply of hotel rooms in Greater Vancouver both before and after 2010. The research will allow Vancouver as well as future host cities to avoid the over-supply issues and subsequent declines in market performance which have plagued past host cities. If you would like to receive a copy of the research, please send an email requesting a copy to [email protected] or call (604) 812-9660. Eric S. Pateman (ESP) Consulting Corp. specializes in hospitality consulting with a focus on Olympic and mega-event impact. The estimates and analysis contained herein are based on sources deemed reliable, but are not guaranteed by the researcher or Eric S. Pateman Consulting Corp. This article offers only an opinion as to how hosting the Winter Olympic Games in 2010 may impact the Greater Vancouver hotel industry. |
