BC Business
First it was 9/11. Then SARS. Then a soaring loonie. And now, a global economic crisis the likes of which we haven’t seen in a generation. Hit after hit after hit. So why are B.C.’s tourism operators so upbeat?
It may have been strong mettle or perhaps naiveté, but Pat Corbett and his wife, Juanita, decided to launch their business – the Hills Health Ranch, a four-season lifestyle spa and guest ranch just north of 100 Mile House – during one of this province’s deepest recessions. “We took a gamble in ’83. We committed ourselves and started to build,” said Pat from behind his promotional booth at the Vancouver Home and Garden Show back in February, surrounded by giant images of the Chilcotin landscape, horses and luxuriating hot tubbers. He chuckled and shook his head as he shared their startup story. “If you recall, that was the era of very high interest rates and major inflation. So we built when it was the last recession.”
As B.C. sinks into what many observers believe will be the worst economic downturn in a generation – with an anticipated decline in tourist spending of four per cent, or about $600 million, in the province in 2009 – the Corbetts are at it again, expanding when everybody else is battening down the hatches. They are on the cusp of a $75-million to $80-million real estate deal that would see 265 mixed units built on 400 hectares of their ranchland.
Pat touts it as Canada’s first “spa village,” offering recreational property to buyers who can come when they like but also rent it out through the resort’s reservation department. If the Corbetts succeed – with zoning in place and engineering plans underway, they are hoping to break ground in the spring of 2010 – it will be the largest real estate development in the Cariboo Chilcotin area since Pat helped build the 108 Mile Ranch in the early ’70s.
Is now really the time to do this? How can you possibly follow a business plan, as the Corbetts do, given such uncontrollable factors as terrorist threats, health scares, weather and now the global economic crisis? “You have to know where you are going,” answered Pat. “In terms of any capital plans that you have for expansion, it’s good to have a plan. . . . We have always known where the next step was, and it has only been a matter of waiting for a moment.” While Pat said he had to let go four staff members in January from the service side of his business (because visitors are foregoing upgrades such as massages and excursions), he’s confident that, just like past recessions, this too will pass and he’ll be ready when consumer confidence returns.
ONE SENSES A SIMILAR ASSURANCE throughout the industry these days because, as anyone plying the tourist trade could tell you, there’s no such thing as “steady revenues.” Recessions are just one calamity among many that can hit tourism operators, which is why Tourism B.C. is constantly gathering a variety of trend indicators for its members – including stats on the volume of visitors, occupancy rates and tourist inquiries. Operators devour the stats and know when to heed the warning signs. And right now, those signs have them trimming teams, making services more accessible and finding creative ways to sustain their brand without doing irreversible damage to their bottom line.
The recent slide in tourists started in early 2008 with a strengthened loonie, soaring gas prices and the first stages of a rapidly deteriorating U.S. economy. Historically, Americans have accounted for 75 per cent of all overnight international visitors to B.C., and in 2008 U.S. visits were down eight per cent – 12 per cent in the third quarter alone. The saving grace last summer was the wanderlust of travellers from areas of the world not yet hit by the recession: visitors from New Zealand (up 35 per cent), Australia (up 19 per cent), France (up 28 per cent) and Mexico (up 24 per cent). This summer, with the economic crisis having gone global, operators expect a much rougher ride.
Rod Harris, president and CEO of Tourism B.C., remains optimistic, stating his belief that people will continue visiting B.C. in healthy numbers but that the nature of their travels will change to reflect new economic realities. “They’re economizing on their trip, so rather than doing five to seven days, they might do a three- to four-day trip,” he says.
The trend toward shorter trips is already apparent to many local operators. Managers at the Capilano Group of Companies, which runs two lodges in the Canadian Rockies – Cathedral Mountain Lodge in B.C. and Moraine Lake Lodge in Alberta – say early bookings at Cathedral Mountain Lodge are averaging 2½ nights – down from three last summer – and advance reservations have dropped seven per cent. The group’s signature property, North Vancouver’s Capilano Suspension Bridge, typically draws an average of 725,000 people each year, mostly travellers staying in Vancouver. Last summer American visits dropped by 10 per cent – and Americans usually account for 25 per cent of the site’s total visitors. In the first half of this year, overall numbers were down by 15 per cent, a trend that’s expected to continue throughout the summer season (May through October) when it does 80 per cent of its annual business.
To prepare for the lean season ahead, Nancy Stibbard, president of the Capilano Group, says she’s maintaining her marketing budget for the suspension bridge – reassigning funds for TV advertising to radio, print and transit ads. The group is also making sure, through aggressive personal appeals to tour companies and concierges, that the site remains a top-of-mind recommendation for local attractions. But Stibbard is ready for the worst: “We have two or three scenarios and all our management is prepared for each one of these scenarios. Our worst case could be somewhere in the arena of 20 per cent off. And we’re prepared for that.”
That number almost matches the decline the suspension bridge experienced in the summer of 2003 when SARS unexpectedly made Vancouver and Canada a no-go zone for world travellers. The 19 per cent drop in business came without warning and forced Capilano to rewrite marketing plans and make staffing changes on the fly. This time around, however, Stibbard and her team are preparing to make pre-emptive staff cuts, hiring only 85 seasonal workers instead of the usual 100. They are also focusing efforts to build customer loyalty by improving their annual pass program. In the past, a standard admission of $28.95 would grant B.C. residents unlimited access to the site for one year. In a new offer, guests can buy a pass for $20.10 that is valid until Dec. 31, 2010 – regardless of purchase date.
While Stibbard is confident tourists will return once the economy rebounds, others aren’t willing to wait. Murray Seward is general manager of Vancouver-based Canadian Outback Adventures, a company that has been providing adventure tours to individuals and groups as well as corporate team-building activities for 17 years. Last summer Seward noticed a slight shift in how people were travelling and that trend appears to be continuing, especially with corporate groups. “Heli-rafting is three to four times as expensive, so groups are opting for the standard rafting trips,” he explains, adding that demand for exclusive access and “buyouts” – where executive groups pay between $5,000 and $10,000 for exclusive use of their “Adventure Base” and rafts (to ensure privacy) – is also on the decline.
But the turning point for Seward – the signal that he had to adjust his strategy – came late last fall. “We were getting up to 30 leads a day,” he recalls. “And then, starting mid-November, we saw a 75 per cent drop.” Sensing the storm brewing, he refocused his marketing to the adventure side of the business, packaging activities such as rafting and bungee jumping so as to hold on to as many tourist dollars as possible. While he laid off 25 per cent of his corporate event planning staff (due to an anticipated 25 per cent drop in corporate business this summer), he kept his sales team intact – directing them to work extra hard at digging up leads, strengthening their connection with hotel partners and adjusting the web strategy to really speak to the independent travellers who would be likely to go whale watching or ziptrekking.
While Canadian Outback Adventures – because it’s a service-oriented business with relatively low fixed costs – can scale back services and luxuries to accommodate the new economy, many high-end resorts aren’t in that position. King Pacific Lodge – a fly-in, 17-room floating resort 520 kilometres north of Vancouver – offers an exclusive location (adjacent to Princess Royal Island, home of the spirit bear) and a privileged experience.
Here, a three-night stay in the least expensive room will run you $4,750 per person. In the first quarter of 2009, King Pacific saw a 25 per cent drop-off in corporate bookings. But for King Pacific’s president, Michael Uehara, paring back services is not an option: there’s a reputation to uphold and high customer expectations to meet. He’s looking instead at lowering labour costs directly related to client volume (such as housekeeping and kitchen staff) and is considering shortening the season by one or two weeks to cut operating costs.
Complicating things for Uehara, however, is the fact that, since 2002, the resort has also been operating a triple bottom line, sharing its profits with the local community and select environmental charities. While some might see this type of commitment as expendable in an economic crisis, Uehara vehemently disagrees. He sees it as an opportunity to shift the business paradigm even further. “We have to be imaginative about moving forward,” says the Hawaii native. He believes this recession has people thinking beyond material things and appreciating what their money can do for the greater good – completely in line with his triple-bottom-line philosophy.
In the meantime, he has rooms to fill this summer, so Uehara has decided to get creative, introducing a promotion that ultimately won’t devalue the King Pacific experience. He’s offering returning guests who book at full rack rates a donation of $1,000, dedicated in their name, to one of the charities the resort supports. Alternatively, guests can use that sum as payment for lodge services such as spa treatments or excursions. While it’s too early to say if the plan will work, Uehara says he’s preparing for a 2009 summer season at 98 per cent capacity, instead of the usual 150 per cent (capacity is based on one person per room, not the room’s maximum capacity).
FOR MANY TOURIST-DEPENDENT BUSINESSES, the summer of 2009 is being viewed as a bump along the road toward Tourism Nirvana: the 2010 Games. Tourism B.C. is projecting that when the estimated three billion TV viewers and 1.5 billion online users see what we have to offer during the Games, it will translate into sustainable tourism growth for years to come. It estimates an eight per cent increase annually through to 2015, bringing total tourism revenue to $19.6 billion annually (from $9.6 billion in 2003) – and agency president Rod Harris believes his organization has a plan to realize these goals. “We are working closely with the host broadcasters, like NBC and CTV, to make sure that we’ve got sufficient content, as well as contests, to let the world know what’s so attractive about British Columbia,” he explains.
If the world does show up in droves post-Olympics, however, it likely won’t be by boat. In March Holland America announced the closing of 20 cruises originating in Vancouver, and 13 days later Carnival Cruises announced a decision to move nine cruises from Vancouver to Seattle starting in the summer of 2010. And Tourism Vancouver expects these won’t be the last ships to sail away, estimating that, due to cruise-ship rerouting to the more economical and accessible Washington port, approximately 260,000 fewer visitors will stop over in Vancouver starting next year, stripping an estimated $120 million from B.C.’s economy.
Even Tourism Vancouver itself, whose fortunes rise and fall with those of its members, is not immune to the economic downturn. Stephen Pearce, the organization’s spokesperson, says Tourism Vancouver is expecting a 10 to 15 per cent drop in revenue in 2009, and in January had to eliminate 14 jobs through hiring freezes and layoffs – a 20 per cent cut in staffing.
Still, Pearce remains cautiously optimistic about the region’s prospects, noting that his organization hosted 85 event planners from around the globe in early April to showcase the new convention centre – one of the concrete, albeit expensive, legacies of the Games – and present Vancouver as the “it” conference destination.
“I think we have a couple of big wins here for Vancouver that [the Olympics and the convention centre] are going to act as catalysts for us,” he says. “But at the end of the day, it’s going to come down to the consumer feeling comfortable enough to make the decision to travel. Until they are comfortable that their mortgages are secure and that they are going to have jobs, they are not going to travel with the same capacity as they did in the past.
“Not that there aren’t going to be opportunities,” he adds hopefully. “But those opportunities are going to be different, and it won’t be business as usual. Though in tourism, it’s never business as usual.”