26 August 2008

Caribbean region facing serious problems

The Caribbean hotel industry faces what PKF Hospitality Research calls a Ã¢â¬Åâœchallenging future.Ã¢â¬~

After a soft 2006, most Caribbean destinations saw their visitation rates grow in 2007. In 2008, however, the combination of a slow US 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. He added:

"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," Mr 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," Mr Smith.

Report by David Wilkening