Tourism may see even better days by 2012

Dennis Morrison, Contributor

In the midst of all the uncertainty about the world economy and its effects on spending, consumers appear to be determined not to give up travel as an important item on their agenda of leisure activities. According to official figures from the World Tourism Organization (WTO), international tourist arrivals grew faster than they had projected [+4.5 per cent] in the first half of 2011.

South America, which has stood out as a strong performer economically since the recession, registered spectacular growth in tourist arrivals (15 per cent), helped by the robustness of the region's economies. Even in Europe, which has been bogged down in a new round of financial crisis, travel increased above forecast. The WTO also indicated that it expects tourism earnings to show further improvement this year, although not fully reflecting the increase in arrivals.

For the Caribbean, with the most heavily tourism-dependent economies, this may signal better days ahead, with some destinations expected to show significant improvement this year. If we are to go by the number of stopover arrivals, Barbados, Cuba, Cayman Islands and Curaçao, in particular, performed well, exceeding the pace at which international arrivals grew in the first half of the year. Figures for stopover visitors to The Bahamas and Jamaica are only available for the first four months (unlike secretive communist Cuba) and, therefore, their performance cannot be assessed.

Top performer

Cuba, the second-largest Caribbean destination, was the best performer, receiving 10.6 per cent more visitors over the January to June period, more than twice the rate of increase of international arrivals and the fastest in the region. This was due, in no small measure, to the fact of its diverse source markets. These include Latin America, a broad range of European and Asian countries, as well as Canada, where economic recovery has been strong.

Barbados has also experienced an uptick in tourism activity, which has had a positive impact on its economy. An increase of 6.3 per cent in stopover arrivals in the first half of the year contributed significantly to the speeding up of the recovery that began in 2010 and the 2.1 per cent GDP growth recorded in the period. The resumption of tourism-related investments also helped the construction sector to regain some ground after the slump of 2008-2010. The extent of the discounting of hotel rates meant that foreign-exchange earnings did, however, increase in line with the growth in visitors.

In Jamaica, steady growth in tourist arrivals, even at discounted rates, has helped sustain economic activity, particularly in the northern parishes during the recession. Expanded capacity of good-quality and competitively priced hotel rooms came on to the market in time to meet the pressures brought on by the global crisis. As a result of the growth in arrivals, foreign-exchange earnings and employment held up better than in most destinations.

Tourist spending squeezed

Nonetheless, the industry has complained about the pressures from this period of discounted rates. And the feedback from business people at all levels is that tourist spending in shops and attractions has also been squeezed. Further, there is the World Bank finding of a low rate of retention of tourism expenditure in the local economy that is not likely to improve in the near term. What, then, are the future prospects of the industry?

If we are to go by the outlook of Caribbean hoteliers, it may be 2012 or 2013 before their profitability will improve significantly. A recent hotel-benchmarking survey by KPMG in the Caribbean concluded that profitability was down in 2010, compared with 2009, even as occupancy levels went up. This was reported to be due mainly to a decrease in discretionary spending by guests (people watch every dollar) and increase in costs (utilities, management fees, etc). The majority reported net operating losses, but were moderately optimistic that things would improve in 2011. The broad expectation is that real improvements are likely to come in 2012 and 2013.

While the industry does, no doubt, have to cope with consumer pressure to keep its prices in check, it appears that its major challenge is to improve competitiveness. This is the main driver of profitability in business in these times. It is obvious that investment to improve energy efficiency and management of other costs is vital, but this is not happening. Considering the incentives it enjoys throughout the region, the industry should be performing better and contributing more to the local economies.

Dennis Morrison is an economist. Email feedback to columns@gleanerjm.com.