Caribbean Hotels’ Profits on the Ropes
Caribbean hotel luxury
Before recession became a household word, hotels in the Caribbean were already experiencing a 16 percent drop in their bottom-line profits, the latest report from PKF Hospitality Research reveals.
According to Caribbean Trends® in the Hotel Industry, visitors to the Caribbean decreased by 4.0 percent in 2008. In turn, hotel revenues fell by 4.5 [...]
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Written by Travel News on August 11th, 2009 with
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Before recession became a household word, hotels in the Caribbean were already experiencing a 16 percent drop in their bottom-line profits, the latest report from PKF Hospitality Research reveals.
According to Caribbean Trends® in the Hotel Industry, visitors to the Caribbean decreased by 4.0 percent in 2008. In turn, hotel revenues fell by 4.5 percent. “Even though Caribbean hotel managers were able to cut expenses by 1.1 percent in 2008, it was still not enough to offset the 4.5 percent decrease in total revenue,” explains Scott Smith, MAI, senior vice president of PKF Consulting. “The net result was an average 16.0 percent decline in unit-level profits for the typical Caribbean hotel in 2008.”
Certainly the economic pattern of 2009 hasn’t improved those numbers one jot. Some things our hotelier friends can control; others are simply situations where they bite the bullet and pay, like utility costs and insurance rates. Those shot up 9.1 and 6.3 percent in 2008.
Classy digs
You can guess the immediate consequences: hotel construction has ground to a halt (an estimated 49 percent of lodging projects won’t get off the drawing board even), and the Four Seasons Great Exuma closed its doors altogether. Hotel managers are cutting staff, even though wages are already lower than U.S. minimums, and are looking at green energy options to save moola in that corner. Thankfully, some of the governments are subsidizing or waiving property taxes in an effort to help their islands’ number one source of income.
PKF breaks it down like this:
Caribbean Resorts versus Comparable U.S. Resorts
2008 Percent of Total Revenue
—————————–
Caribbean U.S.
Performance Measurement Resorts Resorts
———————– ——- ——-
Departmental Expenses 42.7% 43.8%
Departmental Profit 57.3% 56.2%
Undistributed Expenses 30.1% 24.1%
Income Before Fixed Charges 27.2% 32.1%
Mgmt. Fees, Property Taxes,
Insurance 7.0% 6.4%
Net Operating Income* 20.2% 25.8%
Number of Rooms 312 320
Occupancy 68.0% 70.1%
A.D.R. $221.28 $224.24
* Note: Before deductions for capital reserve, rent, interest, income
taxes, depreciation and amortization
And this is with crossed fingers that Mother Nature doesn’t go in there with a hurricane or two this fall and rearrange a few hotel walls along with the furniture.
The real long-term ramification, of course, is that hot deals to these resorts aren’t sustainable if people want to enjoy a relaxing, upscale vacation in the Caribbean in the next decade. But now that the 2-for-1s, free nights, airfare credits, and other perks have been in place for most of 2009, the danger is that travellers come to expect these prices as the norm. It will take a boring crash course in business economics to change that mindset — or another clever way to sell higher rates that are nothing more than the cost of doing business here in the first place.
Photography: dmap Travel Guide, davitydave
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Written by Travel News on August 11th, 2009 with
no comments.
Read more articles on Tips and Tricks.
