Wed | Sep 20, 2017

Discounting becoming the norm for hotels - New rooms, weakened currencies driving down revenue

Published:Wednesday | June 28, 2017 | 6:00 AMAvia Collinder
President of the Jamaica Hotel and Tourist Association Omar Robinson.

With hotel analytics firm STR reporting that room revenues within the Caribbean are still down due to discounting, the hotel lobby in Jamaica expects travel deals to remain a feature of marketing programmes as new rooms are commissioned into service.

An estimated 3,000 rooms are expected on the market during this year, with more hotel projects in the pipeline, increasing the likelihood that the competition for guests will continue to rein in the cost of vacations.

"Discounting is always going to be in our industry," said Omar Robinson, president of the Jamaica Hotel and Tourist Association (JHTA). "Even within our own destination as we grow the number of rooms, it becomes more competitive."

STR, the industry data source formerly known as Smith Travel Research, reported that Caribbean-wide hotel occupancy increased in each of the last three months, February to May. However, occupancy fell 0.1 per cent on an annual basis to 71.6 per cent as at May, while average daily rates declined by 0.2 per cent to US$227.63 and revenue-per available room, or RevPAR, also fell 0.3 per cent to US$163.05.

Those results follow anaemic performance in 2016 in which the Caribbean hotel industry reported negative year-over-year results in the same three key performance metrics. Occupancy fell 2.3 per cent to 66.7 per cent, while the average daily rate, or ADR, was down 0.3 per cent to US$201.50.

As a result, RevPAR fell 2.6 per cent to US$134.48. The absolute occupancy level was the lowest in the Caribbean since 2013 at 66.7 per cent.

STR surveyed 1,936 hotels comprising 244,614 rooms in the region. Of these, according to statista.com, Jamaica has just under 20,000 rooms. Minister of Tourism Edmund Bartlett said in April that 3,000 rooms will be added to inventory this year, including 1,000 which are new.

According to STR analysts, occupancy in the region was affected by the Zika outbreak and an active hurricane season, as well as weakened exchange rates for European and Canadian currencies.

At the same time, the number of rooms in the region grew by more than 2,700 in 2016, marking the third straight year with supply growth above one per cent, the researchers noted.

In Jamaica, the Ministry of Tourism is insisting that discounting, if it were to happen, would not result in an absolute fall in revenue this year.

"Data from one of the leading global online travel agencies shows that for the remainder of 2017, ADR will continue to grow at a healthy rate of around 4 per cent ahead of last year," Delano Seiveright, senior adviser/strategist to the Minister of Tourism, told Gleaner Business.

For 2018, ADR is also expected to grow at around 4 per cent, he said.

"For the period January to April, we have registered increases in all major markets over the corresponding period last year. Western Europe, for which we exclude the UK, is up 18.3 per cent. The UK on its own is up 5.3 per cent," Seiveright said.

In the same January-April period, Canada has notched a 5.7 per cent increase over the corresponding period last year, he added, while noting that Bartlett had put special effort into reviving this North American segment.

 

MARKETING STRATEGY

 

Robinson says discounting is essentially a marketing strategy used with effect as Jamaica and other islands continue to compete with such super destinations as Dominican Republic and Cancun, Mexico.

"There are high seasons within the season when you can charge more, but outside that there is always going to be discounting," the JHTA president said.

"You have other destinations with more exciting packages," he added. "When those prices go down it's a matter of the elasticity of supply and demand we can't just sit and say let's keep our prices."

Commenting on the foreign exchange impact, Robinson said that as hard currencies of source markets depreciate in value, hoteliers have to work harder to make holidays attractive.

"The Canadian dollar has devalued, the pound has also devalued as a result of Brexit. Those are issues which will affect visitors from those markets. In order to attract them, to spur their interest you definitely have to discount," he said.

The factors taken together means markets like Jamaica are more dependent on volume, which Robinson said is especially the case for the stayover trade during the summer season.

"You discount so you can drive your business. It is a numbers game," the JHTA president said.

avia.collinder@gleanerjm.com