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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.
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.
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.
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.
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.
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.
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.
The world's largest online travel company is reporting more than 50 percent of its Caribbean portfolio represents small hotels, creating tremendous benefits for the region.
"It's becoming Expedia's fastest growing segment of business for the Caribbean, according to Marco Taglitti, the company's vice president of lodging for Latin America & the Caribbean.
Taglitti admitted to Guardian Business that the inventory of small hotels in The Bahamas is a bit less than other destinations in the region, but the country's growth rate is in line with the rest of the Caribbean. Out of the 90 hotels that Expedia currently offers, only 25 of them are considered to be small.
"The Bahamas doesn't have available rooms like Dominican Republic or Puerto Rico. I think Bahamas ranks fourth after Dominican Republic, Puerto Rico and Jamaica. This is driven by the number of rooms available," he shared.
"However, we are looking forward to more rooms being available in The Bahamas. Based on the growth number that we're seeing, we think that we can keep selling The Bahamas very well."
Roberta Garzaroli, director of public relationships for Graycliff Hotel & Restaurant, said that Expedia has allowed the establishment to reach the next level due to the exposure and rate strategy.
"We appreciate their partnership and what the brand represents for us," she said.
Taglitti pointed out that small hotel partners are defined as hotels with 50 rooms or less. Overall, the company has 30 percent year on year increase in that sector.
In the Caribbean, small hotels make up more than 50 percent of Expedia's Caribbean portfolio and 74 percent of all 2012 Caribbean acquisitions.
"For the Caribbean, the segment is the fastest growing. The numbers are pretty favorable because with a channel like Expedia, small hotels have immediate access to an audience that they wouldn't normally have access to without Expedia," Taglitti shared.
The increase, Taglitti said, is a trend that the company has been noticing for the past two to three years for the entire Caribbean and Mexican market.
"We are seeing an increase. We started to notice after this crisis, I think maybe there is a correlation. We have seen our customers become more price sensitive. Since then, we have seen a growing interest for hotels," he explained.
"Our objective is to have a full range of products to meet the needs of our customers."
Meantime, the Expedia executive also confirmed that 2012 was a great year for The Bahamas, as the room nights portion of Expedia's business grew by 40 percent and continues to show promise in 2013.
More than 50 million travelers visit Expedia group travel sites each month, which includes more than 140 branded sites in 70 countries.
Nassau, The Bahamas -- August 1, 2011 - Baha Mar Ltd. announced today that they have signed a series of management agreements with Hyatt Hotels Corporation, which will operate and manage Baha Mar's planned 700-room Grand Hyatt convention hotel, Morgans Hotel Group, which will operate and manage Baha Mar's planned 300-room luxury lifestyle hotel under the Mondrian brand, and Rosewood Hotels and Resorts, which will operate and manage Baha Mar's planned 200-room luxury hotel.
BARBADOS - Passionate about tourism, Adrian Loveridge, a British expatriate living in Barbados and owner/operator of the Peach and Quiet Inn, views value-added tax (VAT) as "a fairly sensible way of collecting taxation".
He said the key for the tourism industry though are the rates applied and issues with the timeliness of government's refund mechanism.
During a question and answer session with the governor of the Central Bank of Barbados, Loveridge suggested that the government may need to keep a closer eye on how much of the VAT revenue on sales of vacations in Barbados made outside of the country by some of the larger hotels and resorts is being returned to the government's coffers.
Like quite a number of other Barbadian business people this newspaper spoke with last week, Loveridge said that getting VAT refunds from the government has been a problematic area, with some properties going as long as four years without receiving significant funds owed.
"The government has been very tardy," Loveridge stated.
This, he said, can often arise when hotel properties undergo renovations during the quiet summer months. He said some businesses expend major sums on upgrading their facilities, on which they pay out VAT, only to find that the VAT they collect on their sales over the coming months fails to match that paid out, leaving them in a deficit position which the government is not willing to refund them for.
In such cases, hoteliers have "got no revenue and the only other option is to go into overdraft to pay overdraft rates while government is owing you money, and that further compounds the problem," advised Loveridge in an interview.
However, Loveridge said he is not against VAT because it simplified matters. What he does care about is what rate it is charged at, and how well it is administered.
Barbados, a Caribbean island of around 285,000 people which depends primarily on tourism and international business and financial services for its economic wellbeing and which is struggling to turn around a burgeoning debt problem, has more than a few things in common with The Bahamas.
Loveridge started the Peach and Quiet Inn with his wife 25 years ago, and is now in his 15th year in tourism, having worked in 67 countries around the world as a tour operator, travel agent, tour director and hotelier.
"It's the only thing I know anything about," he quipped.
Commenting on VAT in the Barbadian tourism context, Loveridge said: "In the case of Barbados it replaced a whole pile of other taxes with one tax.
"But it has to be a sensible rate of VAT. I've seen VAT implemented in Europe, in the UK and in Barbados and to me it's actually a fairly sensible way of collecting taxation but it's the level of VAT that you do.
"Once you start going anything above 10 percent I think it's a huge deterrent. Tourism is a very competitive product, there are destinations coming out all the time and growing in importance, so you have to remain competitive.
"You can be a little bit more expensive but you have to give good service and value for money to allow people to come away and feel like they've got value for money, and it gets to a point where government imposes so many taxes that it ceases to exist because people look at the bill and say 'Well how on earth could it get to that kind of price'?"
One area in which Loveridge was adamant was the need to apply a flat rate of VAT across all tourism and tourism-related services. In The Bahamas, the government has proposed that a 10 percent VAT will be charged on all accommodation and room-related transactions, while a 15 percent rate would apply to other services such as tours, rental cars or even restaurants just outside of the main hotel property - such as in Atlantis' Marina Village; something hoteliers such as Atlantis President and Managing Director George Markantonis expressed opposition to.
"That's a huge mistake," Loveridge said. "Keep it at the same level for everything.
"But I think it's differential. Why should it be more expensive, tax wise, to eat a meal or rent a car than it is to stay in a hotel room?
"Keep it even and keep it at a rate where the government's got revenue to maintain infrastructure, the police force, etc, but keep it at a sensible level.
"What I would like to see in Barbados in terms of VAT is to treat tourism as an export and keep it at one level, so 7.5 percent for everything, whether you rent a car, go into a restaurant, stay at a hotel or villa, and the attractions and activities. Government needs the revenue but don't make it excessive; give us a competitive advantage over other places."
The government recently recognized this argument and during a year when Barbadian stopover tourist arrivals fell the most in the region - second only to The Bahamas - last year it announced it would adjust the rate back down from 8.75 percent to 7.5 percent, the rate first applied on the sector when VAT came into effect in 1997. And it said it would extend this rate to direct tourism services.
However, Loveridge said it later backtracked on that commitment when it determined it would be too costly to government revenue, and implemented a more conditional access to the rate for certain non-hotel related services, in which businesses must prove - among other things - that at least 75 percent of its revenue comes from foreign exchange.
The concessionary rate does not apply to standalone restaurants, activities or attractions, and for smaller properties it will be a major hurdle.
"It's a very complex procedure," he said.
Loveridge said he views VAT as at least "partially" responsible for a decline in the Barbadian tourism industry, which has seen 37 hotels close in the past 20 years; a figure he said is above any other Caribbean country. It has also been affected, like other countries in the region, by the implementation of the APD passenger tax by the British government, and substantial rises in utility costs.
In a recent interview with Guardian Business, Governor of the Central Bank of Barbados Delisle Worrell said he takes the "fairly radical stance" that despite its relative success as a revenue-raising measure, VAT is an "anti-tourism tax" that hurts tourism-based countries, is "horribly complicated" for both businesses and the government to administer, and it is for this reason that he thinks Barbados would be better off replacing it with a "simple sales tax".
Asked about Worrell's proposal, which the government is not officially said to be considering, Loveridge agreed: "Really I think it's a more logical thing to have (a sales tax).
"If it's at a certain level the average visitor is intelligent enough to know if it's below 10 percent, they can see we are getting a safe environment, the roads are being paved, they'll pay it because they are used to paying it in other places.
"If it goes above a sensible level they'll say well why should I pay it?"
His comments suggest that even after almost 17 years in existence, VAT is still a work in progress in Barbados, but also a policy measure that is not in itself considered to have been a nail in the coffin of the industry. However, recent adjustments to the policy indicate that managing VAT in a down economy, as The Bahamas will be doing, has proven more challenging than it has in the past.
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.
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