Poll Shows Over Half Of Hotels Unprofitable In 2013

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More hotels failed to turn a profit in 2013 than were able to do so, with slipping profitability last year reversing a four-year trend of improving income in the Bahamian tourism industry, according to the Bahamas Hotel and Tourism    Association, whose president yesterday expressed “great concern” about the decline in hotel performance.

On the brightside, the industry is more positive than it’s been since 2007 about its outlook, with 97 percent of hotels reporting that they expect better performance in the coming year. In 2010, 74 percent of hoteliers had a negative outlook for the year ahead.

This optimism is also translating into an expectation among the majority that they will either maintain or pick up their hiring in the coming year, with 34 percent expecting to increase employment in 2014. 19 percent said they would likely decrease employment levels.

With a survey of 31 hotels of all size levels taken in January showing that 47 percent of all properties recorded a net loss last year, up from 33 percent in 2012, and 41 percent in 2011, high utility costs, constraints on price increases and investments in capital projects were named as major contributing factors. 47 percent of hotels turned a profit, while six percent broke even.

Constraints on pricing also hamstrung efforts to realize greater profitability, with the majority – 59 percent in 2013 kept prices and rates the same or lower than in 2012. In 2014, 59 percent expect to increase prices.

In a memo to members, Stuart Bowe, President of the BHTA, also highlighted challenges relating to the composition of visitor arrivals, noting that “more needs to be done to increase visitor stopover numbers” given that their expenditure is 20 times more than that of cruise guests, on average.

“The multiplier effect of stopover visitor expenditure is crucial to all stakeholders in our economy,” he said in the report to members.

His statements and the survey’s findings echo those of the 2014 State of the Industry report issued by the Caribbean Tourism Organization this month, in which the Bahamas was one of eight nations in this region to suffer a year-over-year decline in stopover arrivals in 2013.

For the 10 months to end-October, stopover arrivals were off 5.3 percent year-over-year. Only Barbados, with a 5.5 percent drop, suffered a greater decline than the Bahamas.

In an interview after the release of the BHTA’s findings, Bowe told Guardian Business the BHTA expects to see some increase in the level of stopover visitors to The Bahamas this year, driven in the short term by “more aggressive marketing, additional airlift, and more groups and special events business”, adding that the industry is “working on all of these fronts.”

He said that there are “many positive indicators” which underscore the industry’s increased optimism going into 2014, but “how VAT has been proposed” means it is set to impact the industry’s “value proposition and competitiveness.”

Touching on issues of profitability, pricing, occupancy, employment, capital spending and outlook, the survey showed that profitability declined despite revenues being up – with 51 percent reporting 2013 revenues that were higher than the previous year. Profitability was also down despite the fact that only 26 percent saw a decrease in occupancy in 2013 while 35 percent saw occupancies rise.

Besides challenges in the industry overall relating to costs and a reduction in stopover arrivals, capital spending in expansion and rehabilitation projects was one more discretionary factor contributing to the dampened profits, the BHTA report showed, and one which should help to provide returns to the resorts going forward.

After holding off during the worst part of the downturn on capital investments, many resorts engaged in upgrades to freshen up their offerings to guests in 2013. 38 percent of those surveyed told the BHTA they had increased their capital spending, while 25 percent spent less, and the rest maintained earlier levels.

Looking ahead to 2014, 34 percent said they anticipate spending more on capital projects than last year.

Molly McIntosh, Sales Manager for the Green Turtle Club Resort and Marina, said the resort experienced significant cost increases in 2013, but felt it had to hold off on price rises due to the weak demand.

“All of our expenses went up, and then there’s the prices of airline tickets which for the Out Islands are so prohibitive.

“We were able to package it together and use the $250 instant rebate (promotion through the Ministry of Tourism for visitors staying at certain resorts for a minimum number of nights). That saved us, but as far as the profitability the problem was that everything went up; the electricity went up, the cost of employment, all these different fees like NIB – and then the staff needs to be paid a fair wage – but we can’t raise prices because we don’t want to discourage people who are just starting to come.”

McIntosh said she is among those who expects better things for 2014.

“Most all of our customers from the States, so when they’re feeling good and wanting to spend money then we do well. I think people in the States are tired, they’ve had enough, and they’re saying ‘To heck with it, we’re going on vacation,’ that helps us, as long as we’re n the right price range.”

Like tourism officials such as Director General of Tourism, David Johnson, McIntosh said that affordable airlift is the single most important factor determining how resorts such as hers

n the family islands fare going forward.

In the report, Bowe said that there is a “high level of confidence” about the future being expressed by hoteliers, but the BHTA is hearing repeated concerns about the need for additional and more affordable airlift, recent and impending tax programs, high utility costs, and competition from lower cost destinations.

He noted that small hotels and family island properties are particularly vulnerable.

“That is why we’ve advocated for special consideration for them on matters related to Hotels Encouragement Act incentives, taxation policies, and small business development support,” he added.

Alison Lowe
The Nassau Guardian
Published: February 14, 2014