Caribbean Hotels Face Several Threats in 2008

Caribbean Hotels Face Several Threats in 2008



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    ATLANTA,
Aug. 21 /PRNewswire-HISPANIC PR WIRE/ —
PKF
Hospitality Research (PKF-HR), an affiliate of PKF Consulting, today announced
that it has released its 2008 edition of Caribbean
Trends in the Hotel Industry
. 
The report finds that the Caribbean hotel industry faces some strong
challenges going forward.  After a soft
2006, most Caribbean destinations saw their visitation rates grow in 2007.  In 2008, however, the combination of a slow
U.S. economy, increased competition, rising energy costs, and threats of
reduced air service could result in lower levels of occupancy and profits for
the region’s hotel owners and operators.

 

    “Given the region’s dependence on
airlift, the most daunting issues facing the Caribbean hotel industry are the
rising cost of airfares and the announced cutbacks in air service,” said
Scott Smith, MAI, senior vice president in the Atlanta office of PKF
Consulting.  “Due mostly to the
rising cost of fuel, four of the five leading air carriers to the Caribbean
have announced cutbacks in service. 
Puerto Rico and the Dominican Republic could see as many as 26 percent
fewer flights in December of 2008 compared to December 2007.”  In an effort to maintain air service, the
Puerto Rico Port Authority is offering to reduce airport fees by 45 percent.

 

    Not only is the reduced air capacity a
concern, but so are rising airfares. 
“The Caribbean has always been attractive to price-sensitive
travelers.  If airfares continue to
rise, hotels may have to reduce their room rates in an effort to maintain the
Caribbean’s position as an affordable destination,” Smith said.

 

    Airlines are not the only mode of
transportation impacted by the rise in energy costs.  The relatively low cost of Caribbean cruises has made the region
the number one cruise market in the world. 
“Despite the strength of the market, we have seen shifts in the
cruise industry that have been influenced by the rising cost of fuel.  Cruises to more remote ports in the southern
Caribbean, such as Aruba, are being cut from itineraries due to the length of
the trip and fuel required to get there,” Smith noted.

 

    Energy Costs

    The rising cost of energy is not only
impacting transportation, it has perpetuated the high cost Caribbean hotels
have to pay for utilities, as well. 
Utility costs for the average property in the Caribbean Trends sample
were 7.3 percent of total revenue, or $8,341 per available room in 2007.  This compares to just 3.6 percent, or $3,868
per available room, for comparable U.S. resorts.

 

    In an effort to offset the rising cost of
energy, some Caribbean hotels have instituted energy surcharges.  Most people believe this is not a permanent
solution.  The buzz word in the region
is to “go green.”

 

    “To preserve the natural beauty of
the region, Caribbean resorts have had a long history of being environmentally
friendly,” Smith commented. 
“Hotel operators are now parlaying this experience into energy
conservation.  In addition to installing
cost-cutting equipment, such as efficient light bulbs, showers, toilets, sinks,
and air conditioning, Caribbean hoteliers are working with their local energy
providers to develop new sustainable technologies.  This will not only reduce the cost of operations, but improve the
overall economy of the island on which they operate.”

 

    New Competition

    Another challenge to Caribbean hotels is
the anticipated growth in competitive supply predicted over the next few
years.  Most major international brands
have extensive plans to increase their presence in the region.  The World Travel and Tourism Council
estimates that more than $100 billion has been committed to the development of
new hotels in the Caribbean over the next five to six years.

 

    “If you profile the hotel projects
that are currently under construction there, you’ll find a preponderance of
luxury and upper-upscale properties,” Smith observed.  “Like the recent trend in the United
States, most of these projects are resorts with a significant residential
component and first-class spa.”

 

    Caribbean properties will not just face
new competition from within the region. 
Hotel construction is flourishing throughout Latin America.  “Belize and Costa Rica are two markets
that are becoming increasingly competitive with the Caribbean as a vacation
destination for U.S. citizens, as well as travelers from Europe and South
America,” Smith said.

 

    Operating Costs

    For the third consecutive year, PKF-HR
compared the financial performance of Caribbean hotels with comparable U.S.
resorts.  The observations continue to
be consistent.

 

    “Historically, Caribbean hotels have
enjoyed the benefit of paying their employees relatively low salaries and
wages.  However, due to rising standards
of living among the islands, we have started to see a closing of the gap
between U.S. and Caribbean labors costs,” Smith noted.  Caribbean hotels continue to pay less
property taxes than their U.S. counterparts. 
This is attributable to the level of government subsidies
tourist-related businesses frequently receive.

 

    Utility costs are not the only expense
that is extraordinarily high for Caribbean hoteliers.  “Because of their isolated locations, hotels in the
Caribbean need to import the majority of their food and beverage items.  Accordingly, the profit margins in this
department are lower than would be expected within the United States,”
Smith observed.  “In addition,
Caribbean insurance costs continue to exceed the U.S. average due to the
constant risk of hurricanes.”

 

    To purchase a copy of the 2008 Caribbean Trends in the Hotel Industry report in PDF
format,
please visit the firm’s online store at http://www.pkfc.com/store, or call (866) 842-8754.  The report contains several data tables that allow Caribbean
hotel owners and operators to benchmark the financial performance of their
property based on size (room count) and ADR groupings.

 

    PKF Hospitality Research (PKF-HR),
headquartered in Atlanta, is the research affiliate of PKF Consulting, a
consulting and real estate firm specializing in the hospitality industry.  PKF Consulting has offices in Boston, New
York, Philadelphia, Washington DC, Atlanta, Indianapolis, Houston, Dallas,
Bozeman, Sacramento, Seattle, Los Angeles, and San Francisco.

 

     Contact:

 

     Scott Smith, MAI                    Chris Daly or Jerry Daly
(media)

     Senior Vice President               Daly Gray Public Relations

     PKF Consulting, Inc.                620 Herndon Parkway

     3475 Lenox Road, Suite 720          Suite 115

     Atlanta, GA  30326                 
Herndon, VA  20170

     (404) 842-1150, ext 233             (703) 435-6293

 

 

 

                             CARIBBEAN HOTEL
INDUSTRY

                               2007 Mix of
Revenues

   

                                              
                    
Percent Of

    Revenue Source                                               Total Revenue

    Rooms                                                             55.0%

    Food and Beverage                                                
26.5%

    Other Operated Departments                                        13.2%

    Rentals and Other Income                                          
5.3%

        Total Revenue                                               
100.0%

   

    Source: 
PKF Hospitality Research

 

 

 

                           CARIBBEAN HOTEL
PERFORMANCE

                         2007 Dollars Per
Available Room

   

                                                                 
Dollars Per

    Performance Measurement                                     Available Room

    Rooms Revenue                                                   $62,957

    Total Revenue                                                  $114,643

    Departmental Expenses                                    
      
$49,305

    Undistributed Expenses                                         
$32,380

    Mgmt. Fees, Property Taxes, Insurance                           $10,520

    Net Operating Income*                                          
$22,439

   

    * Note: 
Before deductions for capital reserve, rent, interest, income   

             taxes, depreciation and
amortization

   

    Source: 
PKF Hospitality Research

 

 

 

                            Caribbean Resorts
versus

                             Comparable U.S.
Resorts

                          2007 Percent of
Total Revenue

   

                                                  
Caribbean            U.S.

    Performance Measurement                         Resorts           Resorts

    Departmental Expenses                            43.0%             44.6%

    Departmental Profit                              57.0%             55.4%

    Undistributed Expenses                           28.2%             22.2%

    Income Before Fixed Charges                      28.7%             33.3%

    Mgmt. Fees, Property Taxes, Insurance             9.2%              6.9%

    Net Operating Income*                            19.6%             26.3%

   

    Number of Rooms                                    305               381

    Occupancy                                        72.6%             70.8%

    A.D.R.                                         $237.52           $218.87

   

    * Note: 
Before deductions for capital reserve, rent, interest, income  

             taxes, depreciation and amortization

 

    Source: 
PKF Hospitality Research

Caribbean Hotels Face Several Threats in 2008