First among nations: Canada’s path to becoming a tourism superpower

Revamping tourism, especially hospitality, can provide Canada great economic gain

Image supplied by: Alexander Mirza
Alexander shares his research surrounding Canada’s GDP problem and tourism strategy.

It’s time to connect the dots across investments in hospitality to make Canada a tourism superpower.

Canada is at an inflection point. According to the Organization for Economic Cooperation Development’s (OECD) forecasts, Canada’s GDP will grow at a lackluster 1.4 per cent, among the worst performing advanced economies. While the government is working to mitigate Canada’s resource curse, their policies have thus far failed to break it.

The technology sector accounts for 6 per cent of Canada’s GDP and Canada is losing its share in tourism, which accounts for 2 per cent of the nation’s GDP and employs twice as many Canadians. Given an 80 per cent decline in Chinese arrivals worth $2.5 billion, Canadian tourism won’t surpass pre-pandemic levels until 2025.

In 2019, Ottawa released a report titled Creating Middle Class Jobs: A Federal Tourism Growth Strategy, which acknowledged the Canadian tourism sector wasn’t reaching its full potential. The report set targets to increase Canada’s tourism GDP to $61 billion by 2030 and improve Canada’s World Economic Forum tourism ranking from 13th to 7th by 2030. The report recommends several initiatives to keep the Canadian tourism industry aligned with international best practices, including those of the United States and France.

While Canadian policymakers see the potential in tourism, Canada lacks a winning strategy to capitalize on this industry. The power play starts with taking back control of the $26 billion dollar “cash cow” that’s critical to national security—the accommodations sector.

Today, there’s no Canadian-owned hotel brand that’s a top choice of hotel owners and listed on the Toronto Stock Exchange. The only hotel Real Estate Investment Trust is American Hotel Income properties, which owns hotels in the U.S., and there’s no Canadian travel technology company with any scale.

Foreign chains represent 60 per cent of hotels in Canada, and the top three international chains account for 70 per cent of the standardized and generic hotel pipelines, most of which are concentrated in Canadian big cities.

International hotel chains have never designed brands for Canada, such as extended stay segment hotels, that could be capable of reducing Canada’s housing shortage. They‘ve failed to develop properties in Vancouver, a city that generates $4 billion and thousands of jobs from tourism, and maintains high hotel demand and exorbitant accommodation costs.

Chinese companies own over 100 hotels across Canada. Bill Gates’ Cascade controls Four Seasons Hotels and its management is no longer Canadian. In 2015, Marriott acquired Delta Hotels from B.C. Investment Corporation and assigned the management to a foreign operator. In 2016, Fairmont was acquired by France-based AccorHotels.

Canada’s hotel owners are incentivized to franchise foreign brands because they get better financing terms from lenders. Creating a new hotel brand requires investing more equity into the deal and additional research and development costs. By contrast, there are 65 hotel chains from Mexico to Sweden with over 50 hotels in their home country that range in value from $500 to $37.5 billion USD.

The Canadian accommodations segment generates $2.7 billion with profit margins of 11 to 15 per cent. The accommodations segment faces unprecedented challenges in generating positive cash flows with rising operating costs. With limited opportunities for refinancing in a high interest rate environment, free cash flow generation remains elusive.

Despite 190,000 temporary foreign workers who disincentivize employers to improve working conditions, the industry still faces a shortage of 300,000 workers. Sixty per cent of the workforce are women and 30 per cent visible minorities, but women and minority groups represent only 14 per cent and 11 per cent of property executives respectively. In the meantime, Small and Medium-Sized Enterprises (SMEs) lauded by policymakers as being over 50 per cent women and immigrant-operated still need debt restructuring and financing.

To effectively overhaul the hospitality sector, there are five areas that need to be addressed: a new generation of work/live hotel brands, tax relief for hotel owners, hospitality content requirements, investment in new tourism hubs, and enterprise zones for Indigenous tourism.

The highest priority for Canada is to build a new generation of brands that carry the Canadian flag with Canadian-owned assets. Ottawa could amend the Canadian Investment Act to limit foreign ownership of Canadian hotel assets and brands to 49 per cent.

This can be accompanied by new financing incentives for the creation of hotel real estate funds and trusts. Sustainable hotel brands that use artificial intelligence should be eligible for the $7 billion in the Strategic Innovation Fund.

Secondly, the Canadian hotel industry needs tax relief. Travellers pay $4 billion in consumption taxes, including provincial, federal, municipal, tourism and destination taxes, which must be rationalized in exchange for hotels eliminating junk fees.

The orthodoxy that government spending on advertising drives revenue must be challenged by using data science and analytics to find solutions. Hundreds of millions are being wasted in cliché destination marketing that has made Canada the subject of memes on social media.

Third, the federal government should legislate Canadian content requirements for hospitality programming, similar to the music industry, where the Canadian Radio-television and Telecommunication Commission (CRTC) requires songs to meet certain criteria to be considered Canadian. Hospitality requirements in Canada must also go beyond furniture, fixtures, and equipment, and encompass food and beverage, technologies, and human resources.

Marketplaces should require a certain percentage of suppliers be Indigenous business owners, and general managers of hospitality companies be Canadian. Furthermore, hiring skilled refugees can reduce dependence on temporary workers, while having a positive social impact on communities.

Fourth, provincial governments can engage industry stakeholders to establish hospitality hubs. Canada’s experience with Meta and Google—who refused to pay local news content providers and subsequently left the market—is a risk that tourism should never face. The Business Development Bank of Canada can prioritize investments in human resource technology platforms that address the largest problem cited by Canadian SMEs: recruiting and training skilled employees.

Fifth, new regulations are required to achieve Canada’s goal of achieving net-zero emissions by 2050. With no definition of net-zero, hotels obtain meaningless certifications such as those from Leadership in Energy and Environmental Design that falsely inform travelers of their sustainability practices.

Embodied carbon, the term that encapsulates all the greenhouse gases emitted during both renovation and construction—contributes 21 per cent of emissions compared to 1 per cent for operations.

Canada’s tourism industry is producing 6.4 percent of world Greenhouse gas emissions (GHG), which is three times its national GDP contribution. However, the hotel industry is generating 20 times this impact. New regulations could require modular construction that employs parametric prefabrication, allowing for flexible outputs, reduced supply chain costs, and reduced construction waste by tenfold for a new build.

The case studies of Saudi Arabia’s Vision 2030, Norway’s EV cruise ships and Australia’s  Indigenous tourism are benchmarks. The Red Sea project includes an archipelago of 90 islands, using 100 per cent of its energy from renewable sources on site with plans to become the largest certified nature reserve where light pollution is prohibited. The potential is evident.

It’s time for Canadians to take back control of their hotels. Many of the foundations are in place, but bold steps forward and reallocation of resources is required for Canada to reach its potential and become “first among nations” in tourism.

Alexander is an Artsci ’92 and MA ’93 alum.


Canada, economy, hospitality, tourism

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