Canadians have been so spoiled by low prices on sun vacations that we could be in for a big shock when the marketplace returns to sustainable pricing.
According to Lawrence Elliot, Group Vice President, Business and Corporate Affairs at Sunwing Vacations, rates for winter holidays this year are unprecedented. “I haven’t seen prices like these in about a decade. It’s absolutely incredible.” The question is; how long can this situation last? If you have been postponing your annual sun pilgrimage, read on.
In order to predict how pricing will net out over the next year or two, it’s important to understand why it’s so cheap right now. Much of it has to do with the U.S. market drying up. Hotels in Mexico and the Caribbean have seen occupancy declines of 25% to 50%, largely due to the absence of Americans and Europeans. Since the hotels need to fill at least 75% of their rooms to run efficiently, they are stimulating volume by passing deep discounts on to Canadian operators – which in turn are being passed on to consumers.
According to Elliott, “A room which normally retails for $125 per person, per night, is being offered at around $70.” Not only is this great news for Canadians, but the fact there are fewer tourists means restaurants, attractions and markets are less crowded.
But there’s a downside to bargain basement pricing. Hotels were barely covering costs last summer when occupancy was extremely low, and many all-inclusives were forced to cut back on amenities like a la carte restaurants. But according to Nancy Jackson, a Commercial Director for tour operators Nolitours and Transat Holidays, hotels are making a concerted effort to deliver on all of their promises over the peak winter period. “Hotels cannot afford to jeopardize their brand or reputation by reducing services and amenities when occupancy is low.”
Jackson says the Canadian consumer has been the big winner the last two seasons — “buying 5 star hotels for 2 and 3 star prices.” But in the longer term, Jackson says the tourist infrastructure may suffer, so it is in everyone’s interest for pricing to stabilize.
Steve Butchart, Vice President Sunquest Commercial, agrees with Jackson’s analysis, saying: “If this cycle continues, the quality will suffer.” But he also points out what may be a larger problem: “The downward pressure on pricing is creating false expectations for consumers.” In other words, it’s easy for consumers to grow accustomed to ever-lower prices, much harder when they quickly head in the other direction.
For instance, Signature Vacations’ recent ‘Deal of the Decade’ campaign is the direct result of negotiations with hotels for an allotment of rooms at deep rate cuts. Andrew Dawson, Signature’s EVP Commercial, says that once the rooms are snapped up and hotels begin to fill their quota, the rates go back up. “The hoteliers are being very pro-active in stimulating occupancy, but they won’t extend the same deals any longer. After February, they need to retain margins right up until Easter. Many are already sold out.”
Industry insiders stress that as soon as the U.S. economy begins to recover, we will see a domino effect on beach vacation prices. Using the example described above, revoking a discount of $55 per person, per night, will result in an increase of $800 per couple for a one week holiday.
As Sunwing’s Elliott says “Canadians are in for some serious sticker shock.”
By: Nina Slawek
Photo Credits: susispice.files.wordpress.com, PeskyMonkey