Recession deals big blow to bottom lines of Caribbean hotels
Caribbean hotel profits declined 16% in 2008, and further deterioration is expected in 2009, according to numbers released Monday by PKF Hospitality Research.
PKF blamed the global economic recession, and said that a 4% drop in visitors led to a 4.5% decline in hotel revenue.
"Even though Caribbean hotel managers were able to cut expenses by 1.1% in 2008, it still was not enough to offset the revenue drop," said Scott Smith, senior vice president of PKF Consulting. "The net result was an average 16% decline in unit-level profits for the typical Caribbean hotel last year."
Caribbean hotel managers face unique challenges when trying to reduce expenses to offset declining revenue, Smith said.
"Because many of the Caribbean islands are small, they lack the natural resources, goods and services necessary to operate the extensive, high-end resorts prevalent throughout the region. This serves to increase operating costs," he said.
Labor costs are the biggest expense for Caribbean hotels as they are for U.S. properties, often forcing hotel managers to implement layoffs and salary cuts during a recession.
However, an abundant workforce and wages lower than those paid to U.S. hotel workers helped to lighten the labor expense ratio at many Caribbean properties, according to the report.
Although Caribbean hoteliers caught a small break with property taxes, which averaged 0.7% of total revenue in 2008 versus 3.7% for U.S. hotels, utility and insurance costs jumped 9.1% and 6.3%, respectively.
"Going green has become a cost-saving trend in the Caribbean," Smith said. "While utility costs may be high right now, I expect that the use of sustainable technologies will help reduce energy costs in the future."
The report compared the performance of Caribbean resorts with U.S. resorts comparable in size, occupancy and average daily revenue.
While Caribbean resorts in the sample had 4.9% higher revenue than comparable U.S. resorts due to revenue earned from recreational offerings and casinos, expenses were 12.8% higher.
The recession also impacted resort construction. Problems with obtaining necessary financing, coupled with a slowdown in deposits from the pre-sale of residential units, rendered many business models unviable, according to Smith.
In some cases, the solvency of existing hotels has been affected by the recession. The Four Seasons Great Exuma was forced to close earlier this year due to the economic downturn.