News for the Hospitality Executive
.By: Johanne Paquet - HVS Global Hospitality Services - Canada
CANADIAN LODGING OUTLOOK
The Canadian Lodging Outlook is a joint monthly publication
of Smith Travel Research and HVS International,
Vancouver and Toronto, Canada
The problem of attracting and retaining qualified workers, once an issue only in an isolated number of markets, is increasingly becoming a global challenge. Demography, wage levels, failure to adequately address worker satisfaction and a reputation for long hours and low pay are all cited as contributing factors. Creative hospitality professionals have begun to develop innovative strategies for capturing and keeping high quality workers.1
Canada’s current skilled labour shortage is affecting Canadian hoteliers in two basic but distinct ways: the shortage is driving up the wages of hotel staff, impacting the bottom line of hotel operations, and it is increasing the cost of building new hotels, which is creating new challenges for hotel developers. These challenges are for the most part negatively affecting hotel values, although in some markets high construction costs are having the opposite effect, increasing the value of existing hotels by putting a hold on new supply. Hoteliers must act strategically to succeed in this stringent labour market.
Canada’s low unemployment rate is pushing wages higher as companies face tougher competition for employees. The shortage of hotel workers is driving up wage costs and expenses in all departments, which negatively impacts the bottom line and in turn could cause hotel values to decline. At the same time, events such as 911 and SARS and the poor performance of the US dollar have all impacted sustainable RevPAR growth, compounding the impact of the labour shortage. Over the past five years, wage costs for Canadian first-class hotels have outpaced RevPAR growth by two to one. Wages in different hotel sectors, especially first class hotels, many of which have unionized staff, grow by 2% to 4% per year, regardless of world events. The increasing cost of labour is a serious issue the industry is facing.
Concern about staffing shortages is high across the country, but it is most dire in Western Canada. British Columbia (BC) Premier Gordon Campbell has announced that his province expects to be short 84,000 workers by 2010, the year of the Winter Olympics. In 2006, 42% of businesses reported one or more vacancies of at least four months in Alberta, followed by BC at 34%. In the same year, the longterm job vacancy rate was 6.3% in Alberta, followed by 5.7% in Saskatchewan, 4.3% in BC, and 4.2% in Manitoba. Bringing skilled foreign workers to Canada is one solution to this shortage. According to Canada’s Immigration Minister, the federal government may increase Canada’s immigration by up to 40% over the next five years. While increased immigration is part of the solution, it is not as simple as it sounds and it will not necessarily alleviate labour shortages. Unfortunately, negative consequences may occur; some companies in Alberta that have turned to foreign workers have run into problems weaving their new employees into the workforce.2 Likewise, labour shortages are mostly affecting the hospitality industry in BC and Alberta. A new Wal-Mart raided 11 to 15 front desk staff from a hotel in Fort McMurray, offering them $4 more per hour. Some hotel owners in Western Canada are making beds and cleaning dishes to keep their doors open.3 This is rare but representative of the labour crisis the industry is facing.
Offering competitive salaries is only one component of a strategy designed to retain and attract good workers. In 50 Best Employers in Canada, Hewitt Associates analyzed employee data and determined that other factors have a higher impact on employee engagement than wage: managerial support, recognition, work processes, and opportunities for learning and development; this was the case even in Alberta. High-engaged employees also translate into better financial results. The study shows that net sales for the top 20 best employers grew at an average annual compounded rate of 12.9% over the last five years. This is in marked contrast to the 20 lowest ranked publicly traded companies that participated in the study: net sales for these companies grew at an average annual compounded rate of only 4.9% over the same period.4 [Note: Hotel companies are among the top 50 employers in Canada: Marriott Lodging Canada (ranked #21), Delta Hotels (ranked #26), and Starwood Hotels & Resorts (ranked #37)].
Labour shortages in the construction sector drive up the cost of new construction and hold off new supply, which causes the value of existing hotels to increase. This effect is especially evident in Alberta and BC, where the labour shortage is most concentrated.
As noted in the table below, cities in Western Canada recorded substantially
higher increases in construction costs (commercial, industrial, and institutional
buildings) than cities in Nova Scotia, Quebec, and Ontario. Categories
of costs include material, labour, equipment, taxes, overhead, and profit.
The shortage of construction workers has increased construction costs across Western Canada. This inevitably affects the value of existing hotels positively, as inaccessible materials and labour shortfalls cause construction projects to stall. This is not always a boon to existing hotels: a hotel in Three Hills, Alberta, waited one full year before a new pool could be completed. Development companies are being forced to ensure that they can afford to construct a proposed hotel instead of investing in an existing building. Development companies cannot afford this financial uncertainty. Faced with this tension, a hotel company in Montreal was prepared to move its own construction crew from Quebec to Alberta to construct its new hotel in Calgary.
In BC, the massive construction projects required for the 2010 Winter Olympic Games are intensifying the labour shortage. The construction industry has three main ways to deal with the worker shortfall, but they all have drawbacks: find more qualified people within BC or in other provinces; train more apprentices in BC, which takes at least five years; or bring in qualified foreign workers on short-term visas or sponsor them as landed immigrants. Increasingly, employers are seeking qualified foreign workers, but they face many obstacles and need more help from the relevant government departments to bring workers into BC quickly.
A domestic solution to the shortage of skilled labour is unlikely for the near term, given the lengthy training time required, and employers face bureaucratic impediments to importing skilled labour from outside the country. Consequently, building a new property is not as easy as it used to be, and hoteliers are faced with higher operating costs. The higher cost of constructing a hotel inflates the market value of existing properties. At the same time, however, the bottom line is not were it should be for existing hotels owing to lower RevPAR and higher wages, and this puts downward pressure on the market value of existing hotels. The net effect of these forces, one of which is inflating the market value and the other that is driving values down is difficult to estimate because of the different factors (external and internal) that affect each situation. Hoteliers must respond strategically to the challenges engendered in the labour shortage. As salaries and wages keep growing at a steady pace, pushing occupancy or average daily rate or both becomes an even more important priority. Hoteliers must strive to lower turnover within the industry and invest in training and development to encourage qualified and trained employees to stay within the industry. It will also become important to attract and support under-represented groups such as qualified immigrants, aboriginals, and recent retirees to fill the estimated 250,000 new jobs that the Canadian tourism industry is expected to create by the year 2015. 5
Johanne Paquet is a consultant with the Toronto Office of HVS-Canada and a candidate member of the Appraisal Institute of Canada. She has her Masters in Business Administration from the University of Ottawa as well as an undergraduate degree from Laval University, Quebec. She also has ten years experience with Fairmont Hotels & Resorts.
CANADIAN LODGING OUTLOOK
HVS INTERNATIONAL - CANADA
|Also See:||Shrinking Labor Force is Top Challenge for Global Hospitality, Tourism & Service Industries / Jeff Coy / January 2006|
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