Bahamas: Tourism Recovery

With tourism directly or indirectly contributing well over 50% to the Bahamas’ GDP, any contraction of the industry has a tangible impact on the country. Overall, the economy shrank by 5% in 2009, while unemployment climbed to 14.2%, according to Finance Ministry figures, with both lower GDP and higher jobless rates due to the weaker tourism sector.

While last year saw a 15% increase in the number of cruise tourists arriving in the Bahamas, this had failed to offset the 12.8% drop in air travel arrivals, with less than 1m stop-over visitors landing in 2009. While the 3.5m sea-borne tourists who visited the Bahamas last year helped prop up the economy, the fact that most ate and slept aboard their floating hotels meant their spending was mainly limited to shopping and sightseeing.

The steep drop in air travel arrivals and the subsequent decline in hotel bookings saw direct tourism industry earnings drop 10% to around $1.5bn, Zhivargo Laing, the minister of state for finance, said on January 14.

The sector’s fortunes are directly linked to the state of the US economy, with that country’s slide into recession leaving the Bahamas severely affected and tourism earnings reduced, Laing told delegates attending the Bahamas Business Outlook Conference.

“The combination of a more thrifty consumer and mounting unemployment in the US – our key market – has adversely impacted the performance of the tourism sector,” he said.

Looking forward, the minister said that although global indicators have in recent months pointed to a modest recovery, the pace of growth is expected to be relatively slow compared to recoveries in past recessions, and high levels of unemployment will be the norm for some time.

“This is especially so in the US economy, where the consumer remains heavily indebted and is displaying greater tendency towards savings,” said Laing. “It is anticipated that weakness in the tourism sector will persist in the near term, owing to the lacklustre performance of the stop-over segment of the market.”

While prospects are looking brighter for 2010, there are still many obstacles restricting the industry from taking full advantage of any uptake in the regional tourism trade and laying a solid foundation for the future, according to the tourism and aviation minister, Vincent Vanderpool-Wallace.

Unlike in other Caribbean countries, the Bahamas was not able to reduce room rates significantly during the recession due to high operating costs, the minister said while addressing the Bahamas Business Outlook Conference.

Due to the high operating base in the Bahamas, mainly a result of the cost of labour and utilities, the local hospitality sector was only able to implement minimal reductions in room rates, with the cuts being among the smallest in the region, Vanderpool-Wallace said.

In recent years there had been an average $100 increase in per-capita room rates, meaning that the sector had to target the high-end market in order to sustain itself, he said. However, these large overheads meant that in more difficult times, local hotels were severely limited in scope of discounts they could offer.

“If they had reduced rates to the level of their competitors they would have fallen into deeper levels of unprofitability,” said Vanderpool-Wallace.

However, looking ahead the prospects are more positive, with a steady increase in stop-over visitor numbers in the last four months of 2009, a trend the minister said had continued into the new year.

This improvement was borne out by a report issued by the Bahamas Hotel Association (BHA) and Ministry of Tourism in late January, which showed that hotels in New Providence posted a room revenue increase in December of almost 20% compared to the same month in 2008, while occupancy rates were up by some 3.5%.

The December results support a general trend of improvement that started in September and has continued with most properties experiencing an increase in occupancy, the report said.

“Hoteliers were most encouraged to see the level of improvements in the December average daily room rates, with increasing of 13.8% over December 2008, reversing a year of declines in every month except September, when a small improvement was experienced,” said the report.

However, while the year closed well, overall 2009 was a poor one for hotels on the Bahamas’ main tourist island. The average hotel occupancy rate in 2009 was 60.9%, down from 63.4% the previous year, with year-end room revenues down by 16.8%.

According to George Markantonis, the president and managing director of Kerzner Bahamas, the largest tourism operator in the country, the business and convention segment of the industry had fallen off and was not expected to recover until 2011.

“We are going to try to make that up with the leisure business, and towards that end we have a lot of promotions out in the market right now,” he said in an interview with the local press on January 25. “So I’m optimistic that 2010 is going to be better than 2009. But it is going to be even better in 2011.”

Having aimed at capturing the upper end of the Caribbean tourism market, and having priced itself accordingly, the Bahamas must now wait for the global economy – and more particularly North America – to regain momentum before returning to pre-recession heights.