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Caribbean governments killing the hotel sector 'golden goose'
Each of the Caribbean hotel investment conferences held in April and May this year included sessions to encourage closer cooperation between the public and private sector but, immediately prior to the Caribbean Tourism Summit in mid-June, the governments of Jamaica and of Antigua and Barbuda announced significant new airport arrival taxes, with a new hotel occupancy tax also added in Jamaica. The Caribbean hotel industry's greatest fear now is that other governments will follow.
These extra charges target the region's highest spending visitors - the stay-over guests. While everyone understands the difficulties that island governments currently face in trying to balance their own budgets in times of world economic uncertainty and with increasingly youthful populations, it is a fact that much of the region's hotel industry is in deep financial crisis and has been for some considerable time. The region's largest employer and biggest direct and indirect taxpayer cannot be "the cow you take to market and milk it twice".
Today, most lower and middle market Caribbean hotels, which have significant bank loans, are in default to some degree or other. Energy and water costs on many islands are as high as US$40 per day per occupied room - with little actual utility cost differential per day per room between budget hotels charging US$80 a night and luxury resorts charging US$800 a night.
Reservation systems, like Expedia, and tour operators continue to negotiate aggressively low hotel room rates, such that Smith Travel Research projects that average room rates in the Caribbean will not recover back to 2007 dollar levels until 2014.
My own research suggests that lower end hotels will not even achieve that level of rate recovery. More tour operators are pressuring hotels for all-inclusive rates, where meals become part of the tour operator's "commissionable" package, but Caribbean hotel restaurants are already incurring operating losses in the face of escalating world food prices. Inevitably, hotel refurbishment and marketing budgets continue to be cut.
Prior to this year's two hotel investment conferences, I researched opinions from the hotel sector, relative to its perceived needs from Caribbean governments, and the following points summarize the concerns and suggested requests.
Hotel taxation
Review taxation structures for new and existing hotels, "in their role as the region's biggest export industry and foreign currency generator". Many hotels currently require major re-investment and are struggling with bank debt and increased operating costs.
Without new thinking, continuing low levels of inward investment in the sector and a downward spiral of standards are resulting in a consequent loss of global competitiveness for the overall Caribbean hotel product. At least a certain percentage of hotel taxation should go directly towards generic Caribbean global marketing in order to create world class campaigns of adequate scale.
If taxes are reduced on the hotel sector - the current principal direct/indirect "tax cow" - governments should seek to derive compensating levels of tax revenue from the following alternative targets: much higher cruise ship port fees; effective taxation of private condo/villa rental income; a wider property tax base; corporation tax increases paid by a wider range of businesses; abolish duty-free concessions for car rental companies. Governments should also take steps to re-invigorate and grow the region's agriculture and fishery industries as major components in sustainable economic activity - for export and for direct supply to the hotel/restaurant sector and to other local consumers.
Duty-free incentives
Governments should simplify and improve duty-free import concessions for refurbishment of existing hotels and for development of new hotels - but also expand them to include incentives for furnished condos and villas, providing that those units are in a hotel managed formal rental program that generates taxable income on island.
This latter action will speed up the recovery of the leisure real estate market, provide construction work, ultimately generate additional tax revenue and create new fresh resort inventory with extra earning potential for the region's hotel companies. In general, current fiscal incentives are significantly better in many Central American tourism destinations than in most Caribbean countries.
Food cost
In the light of rising world food prices, there is a need to eliminate import duties for hotels on all food items - not available from local sources -- and governments should actively encourage the growth potential for local food supply.
Utility costs
Reduce utility costs through part/full privatization of existing electricity companies in order to finance investment in better infrastructure: the proposed gas pipeline from Trinidad or on-island LNG trans-shipment facilities; replacement of old diesel generators with efficient gas turbines, hydro, wind and tidal generators.
Similar privatization of water companies should be undertaken for greater efficiency through re-investment in updated and extended infrastructure. Given likely increases in long-term energy and water demand, this is a safe investment for the region's social security funds, insurance companies, unit trusts, credit unions and private conglomerates - many of them still too risk averse to invest directly in the Caribbean hotel industry.
Human resources
Re-invigorate human resources within the hotel sector and improve the industry's profile as a career choice. Governments and the hotel sector should cooperate in developing and resourcing better, larger management and operative level training facilities throughout the region. Speed up and expand CSME to effectively allow CARICOM citizen managers and specialists to work anywhere within the region. In the meantime, expeditiously grant medium-term work permits for other skilled personnel from outside the region - where their expertise helps to drive world class standards and disseminates their specialist knowledge.
Air services
All stay-over visitors to the Caribbean (except yachtsmen) arrive by air. Greatly increased UK airline and regional airport taxes continue to have a significant negative impact on air travel to, and within, the region. The UK's APD tax was highly discriminatory and costly for the Caribbean but lobbying by the public and private sector has been completely ineffective to date and must be more vigorously pursued with the UK government.
The Caribbean Diaspora in Britain can be a powerful lobby at the next UK general election, if the APD issue is successfully communicated to them. The region now faces additional potential negative effects from the proposed European Union's airline "carbon tax" and must avoid further increases in regional airport taxes.
Almost all Caribbean-based airlines are currently loss making but their ticket prices (including taxes) are some of the highest in the world per seat/mile. The private and public sector across the region should work together to help create, finance and under-write a viable pan-Caribbean international and regional carrier, which will genuinely "partner" with the rest of the Caribbean tourism industry. Meanwhile, the cruise sector, which operates in the region virtually tax free and increases its "Caribbean hotel market share" year on year, must also be forced to make its fair share contribution to government tax revenues in the region.
I do not pretend that this commentary from the Caribbean's hotel sector represents a panacea, but the region's most vital industry is on a slippery slope, with a significant part of it in danger of being decimated by strengthening world-wide competition.
It seems very likely that middle market hotels on the islands with a lower cost base, like the Dominican Republic and Cuba, will survive. Highly likely too that the region's luxury resorts will survive, but what are the survival chances for some of the rest of the Caribbean's hotels, particularly older properties with significant debt finance? Some of the dominoes are already falling.
Governments and the hotel sector should communicate quickly and effectively to act together with the greatest sense of urgency. Arguably, the French market has already left for the Indian Ocean and most of the Germans for South East Asia. And some people still think, "These islands market themselves!"
o Robert MacLellan is CEO of MacLellan & Associates, the largest hospitality, tourism and leisure consultancy based in the Caribbean. He has 18 years experience in the hospitality industry in the Caribbean and was a cruise ship hotel officer and vice president, hotel services, of a cruise line earlier in his career. Printed with the permission of caribbeannewsnow.com.
Room revenue up for Nassau/P.I. hotels
Room revenue for Nassau/Paradise Island hotels may have finally eked past 2010 levels due to strong April and May performances, offsetting a disappointing January fall-off.
NASSAU HOTELS TO 'HOIST' ADR
By NATARIO McKENZIE
Tribune Business Reporter
nmckenzie@tribunemedia.net
THE Nassau/Paradise hotel industry is aiming to "hoist" average daily room rates (ADRs) in 2012 to drive further room revenue increases, as nights sold and room revenue in December 2011 increased by 5.1 per cent and 6.5 per cent respectively year-over-year.
According to preliminary statistics released by the Bahamas Hotel Association (BHA) and the Ministry of Tourism and Aviation, the 14-major New Providence hotels showed continued improvement in December, with "increases in several key metrics".
Room nights sold increased by 5.1 per cent and hotel room revenue by 6.5 per compared to December 2010, ...
Hotel occupancy spikes 9 in Nov.
November proved to be a strong month for hotels in New Providence, according to preliminary statistics, jumping nearly nine percentage points compared to the previous year.
Weather puts chill on hotel occupancy
Around 1200 hotel room nights in The Bahamas have been lost over the last four days, as prospective visitors battled brutal winter conditions that grounded many flights out of the United States.
The room loss estimate is net of those additional room nights picked up because some travelers were not able to return home either, according to Frank Comito, executive vice-president of the Bahamas Hotel Association (BHA) in an interview with Guardian Business yesterday.
“It is unfortunate in any situation, but particularly right now as we’ve been showing some positive signs during the past year, but we’re hopeful that the impact will be minimal,” said Comito.
Local hot ...
GB hotel taxes slashed by 50
Hotel occupancy tax reductions being made by the government in Grand Bahama isn't the solution to all of the island's tourism challenges, according to the head of the Chamber of Commerce.
Instead, John Swain told Guardian Business that airlift remains the crucial factor.
While the hotel occupancy tax reductions is a great move by the government to help foster growth, having the sufficient airlift to fill those rooms will be key to ensure that hotels on the island can fully capitalize on it.
"Those concessions are welcomed and I think that would give the spurt of growth that Grand Bahama needs," Swain said. "It would allow for hotels to offer better rates and it certainly would increase tourism activity in Grand Bahama. However, there hasn't been any information about decreases in landing fees and that's very important in terms of getting more visitors to the island. I hope that the government is looking on how that could be reduced."
Swain's comments come after Prime Minister Perry Christie revealed the hotel tax changes coming for Grand Bahama during the 2012/2013 Budget Communication on Wednesday.
"For existing properties in Grand Bahama, hotel occupancy tax is being reduced by 50 percent for five years for all properties filing returns under the newly introduced electronic reporting system," Christie said. "And to assist in ensuring the success of new hotels, hotel occupancy tax will be likewise reduced by 50 percent for 10 years."
While Christie briefly touched on the hotel occupancy taxes, State Minister for Finance Michael Halkitis explained the objectives of the tax reduction.
"It is important to note that cap on real estate on real property tax and hotel occupancy tax are specifically designed to stimulate the Grand Bahama economy, attract tourists, create jobs and stimulate the construction of new hotels," Halkatis said after the Budget Communication. "The benefits, of course, would be more revenue, more jobs and more new business opportunities for Bahamians."
The challenge, according to Swain, is getting airfare down to a reasonable price that can be more affordable for visitors to travel to Grand Bahama. He said a less expensive ticket would provide more incentive for individuals to fly there. The difficult part to explain, he added, is the fact that tickets from New Providence to Fort Lauderdale are cheaper than the Freeport route to the Florida destination - given that Grand Bahama is closer to the United States.
Swain added that prospective investors must have enough confidence in an increase in airlift to start a development there, otherwise it will not work out like expected.
According to the latest statistics for March 2012 on Tourismtoday.com, air arrivals to date into Grand Bahama stood at 32,164 - a 21.9 percent jump year-on-year. However, that figure is minor compared to air arrivals in New Providence during the same period, which stood at 274,007.
Swain is confident that a feasible plan will be created to ensure that airlift will bring enough visitors to fill those hotel rooms. The newly created Ministry of Grand Bahama - which has been allocated $3.19 million - will have its hand on making sure those goals are reached.
"If we are able to reduce the cost of coming to Grand Bahama down and encourage more people to come here, then I think the potential is great for stimulating tourism on the island," Swain said. "If you can marry that with the concessions given by the government, then this economy can take a turn for the better.
Bowe: Various challenges impacted hotel sector in 2012
The hotel sector was impacted by highs and lows in 2012 according to the head of the Bahamas Hotel and Tourism Association (BHTA). BHTA President Stuart Bowe told Guardian Business that while the sector moved in a positive direction overall for 2012, direct and indirect obstacles affected the flow of operations for hotels in the country.
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