Tough Reinvestment Decisions For Resorts

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Many Bahamian hotels are facing "difficult reinvestment decisions" after deferring needed upgrades to their properties over three years of recession, although the Bahamas Hotel Association's (BHA) president yesterday said the industry was "hopeful" 2011 full-year room revenues and nights sold would be up over 2010.

Stuart Bowe, responding to Tribune Business's questions, said the return of the much-missed group business during the latter half of 2011, coupled with an increase in leisure travel, should propel both indicators ahead of year-over-year comparisons.

However, competition from other destinations meant the market was soft from a pricing power perspective, yet the Bahamian hotel industry was also having to contend with increasing business costs at the same time.


Mr Bowe also confirmed to this newspaper that the hotel industry's overall occupancy rates were "still lagging behind the increases we are seeing in ADR [average daily room rates] and RevPar [revenue per available room]".

The BHA president told Tribune Business that three years of recession, from 2008 to present, and the impact on the Bahamian resort sector's profits, revenues and cash flows, meant that many had delayed upgrades and refreshment of their products and properties.

"Most hotels are still struggling to 'catch up' and are paying down outstanding obligations," he explained. "Many have put a hold on major capital improvements over the past three years, and now are faced with making difficult reinvestment decisions.

"The Bahamas Hotel Association has advocated for at least a temporary removal of the investment requirement for properties to qualify for duty relief to stimulate upgrades in furnishings, equipments and the overall properties.

"This is essential to our long-term competitiveness, in particular for many small hotels located in the Family Islands."

To have investment incentives, such as import duty exemptions on materials required for the upgrades, reinstated, current government policy is that the work required must be worth at least 25 per cent of the specific hotel's market value.

This causes tremendous difficulty for smaller Family Island hotels which, although only having, say, 20 rooms, may be sitting on beachfront land worth several million dollars. As a consequence, it is extremely difficult for them to meet the exemption threshold through upgrades that have to be worth a high six-figure sum and upwards.

Difficult

Turning to the Nassau/Paradise Island resort industry's performance to date, Mr Bowe said that when it came to matching early 2008 comparatives prior to the Lehman Brothers collapse, "there are factors beyond our control". As a result, it was difficult to predict how long the sector's recovery would take.

Mr Bowe described these as "primarily the global economic recovery, and the price of fuel and air travel. However, we are seeing much stronger advanced group bookings for 2012, which is an encouraging sign".

"With the return of group business and an increase in leisure travel, we are hopeful that we can end the year slightly above 2010," the BHA president added. "At this point in time, we are projecting that June will be on par with June 2010, and hopeful that July and August will see some improvement over last year.

"While our rates have improved marginally over recent months, they are still below pre-recession levels, yet our cost of business has increased. As market conditions permit, hotels will continue to review rates for competitiveness and make upward adjustments when possible, but it remains a highly price-competitive market."

For the 14 major Nassau/Paradise Island hotels, May's collective occupancy was 61.1 per cent, compared to 60.9 per cent the year before, and for the first five months of 2011, the Nassau/Paradise Island resort industry generated a 66.8 per cent occupancy rate compared to 67 per cent in 2010.

The ADR for the year-to-date was $255.25, compared to $253.42 the year before, with room nights sold and room revenue down 0.2 per cent and 0.6 per cent respectively.

Still, the Nassau/Paradise Island hotel industry still has a ways to go to match early 2008 comparatives.

A joint BHA/Ministry of Tourism statement last week said: "Comparative figures for May 2008 show a 64.4 per cent occupancy and $236.61 ADR. Room nights sold, along with room revenue in May 2011, were 11.3 per cent and 17.5 per cent below 2008 levels.

"Comparative figures to the end of May 2008 show a 72.5 per cent occupancy and $321.52 ADR. Room nights sold, along with room revenue for January to May 2011, were 11.1 per cent and 29.4 per cent below 2008 levels."

Asked to explain the variation in hotel performance during May, Mr Bowe added: "These things are often affected by movement in group business, or the extent to which rate discounting occurs."

The Tribune
Thursday, July 14, 2011

Last Updated on Thursday, 14 July 2011 14:49