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- Trehl Plaza, Tonique Williams-Darling Highway (Harrold Road)
- Nassau / Paradise Island, Bahamas
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.