News for the Hospitality Executive
CANADIAN LODGING OUTLOOK
The Canadian Lodging Outlook is a joint monthly publication
of Smith Travel Research and HVS International,
Vancouver and Toronto, Canada
|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:
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.
Source Smith Travel Research
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.
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
|Also See:||Mansur Real Estate Services Wins Preliminary Approval to Build a $50 million to $60 million 250 room Westin at Indianapolis International Airport / March 2007|
|Jean-Marc Dizard, GM at Hyatt Regency Pittsburgh International Airport, Challenged with Marketing Hotel Sitting of Airport Property / Sept 2001|
|Fraport AG, Owner of the Frankfurt Airport, Signs Hilton International to Operate Two New Build Hotels on the Airport - a 314-room Hilton Garden Inn sitting alongside a 247-room Hilton Hotel / June 2006|