Published On: Fri, Aug 31st, 2012

Caution Required About Tourism Economy Growth

LONDON - Over the last several months there have been a number of reports that suggest that the Caribbean tourism economy is beginning to turn around.

They indicate that the sector is starting to see its first real growth since the crisis years of 2007/8, and that hotels may be moving into profit and taking on new employees.
If this is so it is indeed good news; but as those in the industry suggest, such information requires treating with caution.

Media optimism about tourism’s prospects principally stemmed from a press statement promoting the 2012 edition of ‘Caribbean Trends in the Hotel Industry’, a report for sale to professionals and investors, produced by PKF Hospitality, a US based consultancy and real estate firm.
Their release stated that the average Caribbean hotel that participated in its survey, experienced a 10 percent increase in net operating income in 2011; the greatest annual increase in profits since 2008. According to the company, the survey also showed that last year was the first since the recession when the Caribbean hotel industry had posted a positive annual growth in occupancy (up 1.0 per cent), an increase in average daily rate (up by 5.6 per cent), and as a consequence, an increase in revenue per available room up by 6.7 per cent.
Less technical, but also based on a self-selecting sample of hotels, was another report produced by Trip Advisor which looked at global trends in the tourism industry. This reported that twenty per cent of Caribbean hoteliers were considering hiring new staff in the next six months, but suggested less positively the region was the global leader in offering room discounts and a range of free services.
A further more analytical report from the International Monetary Fund showed that real GDP growth in tourism-intensive economies in the Caribbean was slowly picking up after a deep and protracted recession, and arrivals continued to recover, but at different speeds determined in part by weak employment conditions in the region’s main feeder markets for visitors.
Tourism industry professionals, however, paint a more nuanced and complex picture. They welcome and confirm the gradual upturn, but caution that it is a recovery from a low point in 2007/8 when arrivals and visitor spend collapsed as a result of the global recession. They point out that the more recent revenue and occupancy-based statistics they receive suggest that the sector is recovering slowly from a low base of profitability and income.

While occupancy rates in the first six months of this year have climbed back to levels last seen in 2007, they point out that the average daily rate and revenue per available room for hotels is still below the figures recorded then. This suggests, they say, is that the industry has a way to go before it can say it has recovered fully. They note too that the principal beneficiaries of recent growth are the larger chain hotels - both Caribbean and extra-regionally owned – as, unlike independent hotels, they benefit more from economies of scale, frequent discounting, larger marketing budgets and closer ties with tour operators and airlines.
Industry representatives also indicate that the recovery is far from even and some destinations such as Barbados, St Lucia and Antigua, that have remained heavily dependent on the UK and EU market, and have large numbers of independent and early start hotels, are suffering, and need still to achieve a more diversified market. They suggest too that any talk of regional recovery is further complicated by the fact that some destinations appealing to very different ends of the tourism market are doing very well with Cuba, the Dominican Republic, Aruba, and Jamaica all recording significant growth in the last two years. They caution even then, that any increase in revenues needs to be seen in the light of rapidly increasing costs for energy, food and beverages, taxes, and other operating costs.
For this reason industry representatives are keen to stress that closer analysis of recent figures and trends makes clear that there should be no reason for complacency, or for governments to see the industry as a cash cow offering a fiscal lifeline.
It is now almost universally accepted that tourism growth is central to Caribbean development and economic stability. For this reason there is an interest in and need for more accurate analysis of a kind that simply did not exist for tourism a decade ago. As a consequence, central banks, international institutions and Government have slowly been developing much improved tools to measure the industry’s performance so that its contribution no longer appears under the sub-set of ‘other’ in national accounting.
What would be most useful in addition, would be for the industry itself to offer more in the way of regular facts-based economic interpretation to better explain how different categories of hotel are faring and why, where markets are being diversified and whether this is resulting in increased profitability and employment. Caribbean tourism is recovering, albeit in a patchy manner, but many challenges remain. Over the next twelve months food and energy prices will increase significantly and tourism related tax increases, whether in the pipeline or already legislated for, will take effect. Global competition remains intense as other destinations including developed nations have come to recognise that stimulating tourism offers a quick way to generate growth.

In the longer term the issue of APD has not been resolved with the UK Government; a deeper recession in Europe could still devastate markets in the Eastern Caribbean; a war in the Middle East involving Iran, Israel and the US could reintroduce a fear of travel; regional issues related to airlift remain unresolved; new markets particularly in Latin America need opening up; China, with a middle class now exceeding the size of that of the US, remains a medium term opportunity; the cruise industry with its mega ships and the possible entry of the Chinese into this area of activity offers new opportunity; and the challenging issues of industry leadership all need to be addressed.
For all these reason the latest figures should not be regarded as a reason to relax and breathe easy.

David Jessop is the Director of the Caribbean Council and can be contacted at david.jessop@caribbean-council.org. Previous columns can be found at www.caribbean-council.org.

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