GLOBAL REPORT—While the Caribbean hotel industry hasn’t reached its full potential in terms of performance, the region is on its way to recovery, according to sources. And that road to recovery is sparking interest from brands.
Despite strong performance in 2014 that continued through August 2015, the Caribbean hasn’t yet realized its full potential. Both average daily rate and revenue per available room in 2014 actually surpassed their prior peaks, according to STR, the parent company of Hotel News Now.
ADR for the region was $219.32 in 2014, up 7.2% over 2013, surpassing the previous ADR peak in 2007 ($207.40). RevPAR in 2014 was $148.63, a 9.5% rise over 2013 that surpassed the previous RevPAR peak in 2007 ($138.02). Occupancy in 2014 increased 2.2% to 67.8%. By comparison, occupancy hit 70.1% and 68.8% in the peak years of 2005 and 2006, respectively.
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“The Caribbean continued to suffer for several years after the 2008-2009 downturn. But the region’s prospects have improved lately as the islands’ hotel inventory has become more diverse,” said Tom Potter, SVP of operations for Latin America and the Caribbean at Hilton Worldwide Holdings.
The region’s recovery has continued into 2015, according to STR, as through November 2015, occupancy rose 2.2% to 69.3%; ADR increased 4.6% to $222.66; and RevPAR rose 7.1% to $154.41.
A Caribbean brand Renaissance
While expensive-to-operate full-service resorts previously dominated, multi-brand companies such as Hilton and Marriott International have begun expanding their limited- and select-service brands in the region—brands that don’t include costly-to-operate amenities such as spas, championship golf courses, elaborate swimming pool complexes, multiple food-and-beverage outlets, and extensive meeting and event facilities.
“Our objective has been to work with owners on developing the brand that makes the most sense to the particular island, site, target guest, labor model and so on,” Potter said. “A luxury brand might still make sense for a beachfront site. But downtown or at the airport, a focused-service brand or extended-stay brand might be the best choice.”
During 2015, Hilton Worldwide added full-service resorts in Aruba and the Bahamas, while two independent resorts in Jamaica joined Curio, Hilton’s soft brand. The pipeline includes two hotels in Santo Domingo, Dominican Republic: a Hampton Inn by Hilton at the airport and an extended-stay Homewood Suites by Hilton downtown.
Meanwhile, Marriott International has seven Courtyard by Marriott hotels in the Caribbean. At the opening of the most recent Courtyard in Jamaica in November, Tim Sheldon, Marriott’s president of Latin America and the Caribbean, said the Caribbean generally is underserved regarding cost-efficient mid-tier product.
As with Hilton’s Curio, Marriott also is seeing success signing up independent resorts for its Autograph Collection. In November, Sheldon announced that a resort in Cap-Haïtien on Haiti’s north coast would join the soft brand, joining Atlantis on Paradise Island in the Bahamas and a resort on Scrub Island in the British Virgin Islands.
The resort budget crunch
The one cloud on the Caribbean horizon has been profitability, which has continued to grow at a slightly slower rate than in peak years. When it comes to spa and golf operations as well as F&B, however, the numbers start to become problematic, according to analysts.
“Departmental expense growth in 2014 was slightly greater than revenues for the year, total revenue increasing 5.3%, while department expenses grew at 5.6%,” said Joseph Rael, senior product manager for financial and profitability analysis at STR Analytics, the sister company of HNN.
Departments overseeing such features as the spa and golf course, for example, saw an 11% increase in expenses in 2014, resulting in decreases in those departments’ profits for the year. Resorts continue to invest in spa upgrades to remain competitive, while golf course managers continue to invest in course maintenance, especially when the upgrades are environmentally friendly.
Passing on these higher costs can be problematic. For leisure travelers, the charges levied for spa treatments and greens fees may simply have become so high that even luxury guests don’t perceive the value concerning the cost. For corporate group attendees, companies that before the recession might have picked up the tab for multiple spa visits and rounds of golf now have become more budget-conscious.
Food-and-beverage operations in the Caribbean likewise have come under greater scrutiny.
“F&B revenues grew at a relatively modest 3.3% in 2014, slowing total revenue growth for the region,” Rael said.
Historically, many food and other types of items had to be imported onto Caribbean islands from the mainland, which dramatically raised costs. Today, that’s less of a concern.
“In today’s globalized world, you can source pretty much whatever you require for a high-end luxury product on almost any island,” Potter said.
Operational challenges, considerations
Operationally, all-inclusive resorts—considering their underlying business model—monitor F&B and other costs closely. Marriott resorts in St. Thomas and St. Kitts, along with other destinations in the region, are not exclusively all-inclusive, but offer all-inclusive packages.
For a company like AMResorts, on the other hand, all-inclusives are a mainstay. In the Caribbean, it operates them in the Dominican Republic, Jamaica, Curaçao and the U.S. Virgin Islands (as well as Mexico and Central America) under six brands, including Secrets Resorts & Spas and Sunscape Resorts & Spas.
Javier Coll, EVP and chief strategy officer of AMResorts’ parent company, Apple Leisure Group, said he considers operating expenses—including import costs and staffing costs—a challenge in the Caribbean.
“Depending on the market, location and other factors, we’ll adapt the all-inclusive concept accordingly to either luxury five-star or upscale four-star,” he said.
Casinos are a popular feature at numerous Caribbean full-service resorts. Three examples are the Hilton Aruba Caribbean Resort & Casino, which opened in July, and Marriott’s Renaissance brand resorts in Aruba and Curaçao. However, the casinos are typically managed by independent, third-party operators, so expense control isn’t the resort’s direct concern.
“They can be a valuable amenity, but we’re not involved in any way,” Potter said.
Environmental concerns go beyond golf course management. Energy conservation is a high priority, if for no other reason than it translates into cost savings. Coll cited energy costs as a prime concern, and as AMResorts sees more bookings in markets like the Dominican Republic during its “low season” in the hot summer months, energy costs can rise dramatically.
Sheldon said the new Courtyard in Kingston, Jamaica, was 30% more energy efficient than comparable buildings, thanks in part to the use of solar panels.
Using brand power against OTAs
Lastly, when it comes to generating a greater return on their marketing dollars, Caribbean resorts find themselves in much the same boat as properties in other regions: trying to maximize the value of the distribution channels at their disposal, which includes coming up with a proactive strategy for working with online travel agencies.
Given the number of independent resorts in the region, many family owned for generations, joining a soft brand like Hilton’s Curio or Marriott’s Autograph Collection provides access to all their distribution channels, including the Hilton HHonors and Marriott Rewards loyalty programs, while still retaining their independent status.
Resorts like Curio’s pair of “Jewel” properties in Jamaica (the Jewel Paradise Cove Resort & Spa in Runaway Bay and Jewel Dunn’s River Beach Resort & Spa in Ocho Rios) and Autograph Collection’s Atlantis benefit from being able to offer guests loyalty program points for their stays as well as allowing them to redeem points acquired for stays elsewhere.
Hilton and Marriott benefit in another sense as well: They’re able to offer their program members additional redemption options. When Atlantis became part of the Marriott Autograph Collection brand in 2014, Marriott President and CEO Arne Sorenson said, “It’s a key destination our guests will want to visit.”
With all of Hilton and Marriott’s distribution channels at their disposal, independent resorts will have a leg up on negotiations with the OTAs. Not only is there likely to be less excess inventory available, but they won’t be sitting across the bargaining table from the OTAs by themselves. Rather, they’ll have all the negotiating leverage of a big brand company behind them.