Hoteliers are generally optimistic that 2012 will bring a modest recovery to Caribbean tourism arrivals, but at a recent conference in San Juan, there was plenty of grumbling that for too long, hotels have been shouldering an unfair tax burden when compared to the cruise industry.
“These cruise ships are getting a free ride. I’m getting tired of the hotels paying all the taxes,” was a common complaint heard at last month’s Caribbean Hotel and Tourism Investment Conference, held at the Sheraton Puerto Rico Hotel & Casino.
In fact, one speaker after another decried the tax burden on hotels at a time when airfares are going up and many large construction projects are stalled due to lack of financing.
“There is no question that tourism is an export industry. Unfortunately in the Caribbean, tourism is still not treated as an export by many of our member countries. We hear of new policies that tax not only the private sector but also our visitors directly,” complained Josef Forstmayr, president of the Caribbean Hotel & Tourism Association.
“Increased taxation is regressive. It will result in less revenue for the hotel and attraction sector,” said Forstmayr, who’s also managing director of Jamaica’s Round Hill Hotel & Villas. “Our governments must make a serious effort to review their taxation policies on the tourism industry. Furthermore, we need tax incentives to attract the investment that is needed for the Caribbean to maintain its appeal and competitiveness as a world-class tourist region.”
Consumer spending at ‘all time high’
Adam Sacks, president of Tourism Economics, said consumer spending is at all-time highs and predicted a 3.6 percent increase in stopover visitors to the Caribbean this year, while hotel consultant Amanda Hite, president of Smith Travel Research, said the Caribbean’s 2,125 hotels (which contain a total of 231,278 rooms) experienced a 72.5 percent occupancy rate during the first quarter of 2012 (up 3.0 percent from Q1 2011) with an average daily rate (ADR) of $205 (up 7.0 percent), revenue per available room (RevPAR) of $148.69 (up 10.2 percent) and total room revenue of $3.09 billion (up 10.1 percent).
Yet absolute ADR, which calculated on a 12-month moving average now stands at $173.36, won’t recover from its peak of $201 for at least three years, she said.
“Supply growth has been in the luxury and upscale market, but demand growth is in the lower end of the market,” said Hite. “It’s going to be tough for those upper-end hotels to drive rates when you have so much supply.”
In fact, Panama showed the highest supply growth in the region (14.3 percent), while the Dominican Republic led in demand growth (13.4 percent). In Puerto Rico, by comparison, supply grew 1.1 percent and demand rose 2.3 percent. And in Jamaica, demand fell by 2.7 percent.
The Dominican Republic showed, by far, the biggest jump in hotel occupancy (up 13.4 percent) and ADR (21.7 percent) of all the countries covered in Hite’s survey. Barbados was second, with a 7.6 percent rise in occupancy and an 8.3 percent jump in ADR. In Puerto Rico, occupancy edged up by 1.2 percent and ADR rose by 3.9 percent.
Right now, some 55 hotel projects containing a total of 8,879 units are in the pipeline, planning or under construction. If all these hotels opened, Caribbean room supply would rise by 3.5 percent.
Bahamas, D.R. in construction mode
Of the five largest Caribbean projects under construction, two are in the Bahamas (the 733-room Grand Hyatt Baha Mar and the 310-room Mondrian Baha Mar); two are in the Dominican Republic (Cap Cana’s Secret Gems and Now Gems, each with 350 rooms), and one is in Aruba (the Ritz Carlton, with 320 rooms).
“Considering the slowdown of so many Caribbean tourism projects, this investment conference comes at a crucial time when investments are needed to design, build and even operate infrastructure,” said Ricky Skerritt, minister of tourism and transport for the twin-island nation of St. Kitts & Nevis.
“Future tourism success will require stronger partnerships between the public and private sectors,” he said. “However, too many of us are guilty of spending millions and millions of dollars on concrete, and too little on developing the capacities of our people.”
To that end, William Jonckheer, senior vice-president of the Caribbean Tourism Organization, said it makes no sense that cruise-ship passengers visiting his native Curaçao spend an average $50 a day while in port, while stayovers spend $175 a day. Yet the cruise ship companies don’t pay any taxes.
“I’m not talking just about Curaçao but the whole Caribbean,” he said. “There must be a level playing field. I’ve been in this association for 20 years, and I feel the pain of the hotels when they must pay room tax, departure tax and sales tax, but then the cruise industry comes into the Caribbean, not really investing or paying taxes for all the infrastructure that our islands need.”
Jonckheer pointed out that cruise ships calling on Alaskan ports pay a $30 head tax, and between $60 and $80 per passenger to stop in Bermuda.
Same tax rate across Caribbean
“We should discuss having one rate for the whole Caribbean,” he said. “The problem is that individual islands want the cruise ships because they’re important to the economy, but they don’t look at the long term.”
Last year, 16 ports around the world welcomed at least one million cruise-ship passengers. In the Caribbean, top cruise destinations were Cozumel (2.3 million); St. Thomas (1.9 million); St. Maarten (1.7 million); Jamaica (1.3 million); San Juan (1.2 million) and the Bahamas (1.2 million).
The ranking, contained in the 2012 Cruise Industry News Annual Report, was released just a few weeks after several San Juan news outlets reported that cruise-ship companies were no longer considering Puerto Rico as a homeport facility, representing potential losses of $27 million for the island.
Skerritt said he doesn’t have a problem with imposing taxes on the cruise ship industry. “My concern is leakages, how much procurement they do in the Caribbean, and how can they contribute to the development of our people,” he said. “We want them to employ more people and keep their ships in the Caribbean year-round.”
Forstmayr noted that in Jamaica’s case, Royal Caribbean Cruises Ltd. paid $25 million to develop a megaport in Falmouth; in return, RCCL was given a tax holiday on landing fees.
“Four thousand people coming off a ship in Falmouth is massive. Where the problem rests is the [cruise line companies’] ability to pressure governments into removing any kind of demands on them. They could move their ships somewhere else, and then it becomes a big issue. We need to do a lot better.”