GLOBAL REPORT—Heavily dependent on leisure travelers to maintain a healthy economy, hoteliers in the Caribbean expect major difficulties during economic downturns, which is what occurred throughout 2009 and 2010. However, things turned around significantly in 2011, according to PKF Hospitality Research. The average Caribbean hotel that participated in the annual PKF survey experienced a 10% increase in net operating income in 2011, the greatest annual increase since 2008.
The company surveyed between 50 and 55 branded properties, leaving out all-inclusive resorts because food-and-beverage costs are included in their rates, said Scott Smith, senior VP at PKF Consulting.
Although the recovery helped boost NOI, there were other factors that played a role as well, according to sources interviewed for this report.
Corporate travel demand up
Operators in the region saw demand from leisure travelers increase significantly during 2011, said Parris Jordan, managing director of HVS in the Caribbean. “You had more people visiting the Caribbean more than they ever had before.”
But Smith said corporate travelers are starting to make an impact as well. “Finally, we’re starting to see … good incentive groups, which tend to be the higher-rate corporate travelers.”
Those groups of 50 people to 75 people tend to stay in luxury properties such as Four Seasons Hotels and Resorts and Ritz-Carlton, and those brands will benefit from the increase in travel, he said.
Caribbean hoteliers can expect corporate guests will make a greater impact in their 2012 revenues—“probably more so than what you saw in 2011,” Smith said.
Mark Ferland, area VP of the southeast U.S. and Caribbean region for the Ritz-Carlton Hotel Company, said from 2010 to 2012 the company’s four Caribbean hotels and one in Mexico have experienced revenue-per-available-room growth, which can be attributed to an increase in corporate meetings.
“Corporate meetings … (have) grown significantly in the last two years—from incentive recognition events, training, product launches to sales meetings,” Ferland said.
Islands try to gain travel share
But not every island is reaping the benefits of a more stable corporate environment.
At the Hyatt Regency Trinidad, the meetings market has not grown at the same pace as in other Caribbean destinations, said Charlaine Montano, director of sales at the property.
“Trinidad remains a predominant corporate transient market,” she said.
Still, the staff has not given up on attracting more corporate travelers. Montano said her team conducts quarterly sales blitzes in the local market, targeting associations in the region. “(We) participate and collaborate with the (Trinidad & Tobago) Convention Bureau at international (meetings, incentives, conventions and exhibitions) trade shows, and work very closely with the Hyatt sales force worldwide.”
Improvements in the airline sector also are facilitating travel into the Caribbean from various parts of the world, Jordan said.
For example, American Airlines recently reduced flights and frequency to the market, which hurt the market, but JetBlue picked up much of those losses by adding more flights and new routes, he said. And the airline continues to look for more opportunities to serve the region.
Ritz-Carlton’s Ferland said increased airlift from hubs in the United States, such as Dallas, New York, Boston and Panama City, Florida, are having a positive influence at their properties.
“We are fortunate to have hotels in locations that offer strong airlift from U.S. mainland as well as certain international locations such as the U.K. (and) Latin America,” he said.
Still, inter-island connectivity continues to be a struggle, Jordan said. Local airlines need to better coordinate how to get travelers into the Caribbean so they can easily visit multiple islands in one trip without having the hassle of making connections in the U.S., he said.
Challenges remain
Although there has been improvement in some areas, challenges remain in others.
Utility expenses, in particular, are becoming more of a headache for hoteliers in the region, according to PKF. In 2010, properties saw an increase of 12.7% in utility costs, which will continue to rise.
On average, energy costs are 10% of revenue as opposed to 5% for Florida-based resorts, PKF’s Smith said. “That has been hurting the operators because they have no control over that,” he said.
“It’s very different from island to island,” Jordan said. For example, in Trinidad & Tobago, the cost of utilities is less than it is in the U.S., but in the Grand Cayman Islands and in the Dominican Republic, those costs are higher than in the U.S.
But for now, most have been able to offset those costs. “They make up for it because in the Caribbean labor tends to be less expensive and real-estate taxes tend to be nonexistent or marginal.”
Smith said some governments are giving tax credits for generating wind and solar power, which also has been helpful to some hoteliers. This is starting to happen in Puerto Rico, he said.
Looking ahead
While the market is showing steady increases in performance, its continued recovery is reliant on the recovery of the economies of source markets such as the U.S. and Europe, Jordan said.
Travelers are a lot savvier when looking for deals, he said, which is causing hoteliers on the same islands to get into aggressive price wars.
Coupling this with the lack of financing for renovations puts many hoteliers in a position where they have not been able to push rate as much as they would like, Jordan said.
For the month of August, the Caribbean reported a 10.3% increase in occupancy over the same period last year, a 4.6% gain in average daily rate to $153.59 and a 15.4% rise in revenue per available room to $101.17, according to data from STR, parent company of HotelNewsNow.com.
Even so, Jordan added, “I think most everyone is generally upbeat in the Caribbean this year and for next year as well.”