Caribbean hotels hurt by recession, but less than U.S. counterparts

CARIBBEAN The Caribbean lodging industry felt the full negative impact of the global recession in 2009, posting double-digit declines in revenues and profits, but island hoteliers did significantly better overall than their U.S. counterparts.

Hotels in the Caribbean Trends survey conducted by Colliers PKF Consulting USA reported an 11.9% decline in total revenue from 2008 to 2009. Leading the dollar decline in revenue was the 13.6% drop in RevPAR, the result of a 3.7% drop in occupancy and a 10.1% decline in ADR.

“It is evident that Caribbean hotels and resorts suffered one of the worst declines in profitability during 2009,” said Scott Smith, the Atlanta-based senior vice president of Colliers PKF Consulting USA. “Being a global destination for leisure and incentive group travelers, as well as intraregional commercial demand, the worldwide recession resulted in significant declines in hotel performance.  It may still be hurricane season in the Caribbean, but fortunately we are starting to see the stormy economic seas begin to calm in 2010.”

With fewer guests staying at Caribbean properties, all other sources of revenue posted declines as well. Food and beverage revenue fell 13.7% in 2009, while revenue from all other operating departments declined a relatively modest 5.3% Caribbean hoteliers responded by cutting costs an impressive 10.5%. Unfortunately, this was not enough to overcome the 11.9% revenue drop.

“Due to climate, population, natural resources, and government involvement, Caribbean hotel managers have some unique operational advantages and disadvantages compared to their U.S. counterparts,” Smith said. “In general, labor costs and property taxes tend to be less in the Caribbean. However, the cost of supplies, insurance, and utilities are frequently higher than in the U.S.”

Despite relatively low wage rates, labor costs are the single biggest item of Caribbean hotels’ expenses. Therefore, operators had to implement staffing cuts and wage reductions to keep departmental expense ratios in line. In total, labor-related expenditures were reduced by approximately 11% in 2009.

The largest expense reduction was achieved in the utilities department. By using energy-efficient light bulbs, toilets, sinks and showers, Caribbean hoteliers were able to cut utility costs by 21.2% in 2009.

The only expense item to rise in 2009 was insurance costs. During the year, premium payments increased 5.3%. “Despite a relatively calm hurricane season in 2009, insurers still fear the threat of hurricanes,” Smith said.

With Caribbean hotel revenues declining at a greater pace than expense cuts, net operating income in the Colliers PKF sample declined 18.2% in 2009. While this is a significant decline, it is considerably less than the 35.4% drop in profitability reported in the consulting firm’s U.S. survey.

 “As with the United States, we are clearly in the beginning stage of what should be a period of improving operating performance for the Caribbean lodging industry. Our estimates of demand and ADR growth are strong through 2013. However, one cannot ignore the depth of the 2009 recession and what was occurring in the real estate and financial markets. This is going to be a protracted revival for hotel operators and an even longer recovery for property owners,” Smith said.