ATLANTA, USA -- The average Caribbean hotel enjoyed an 18.6 percent increase in net operating income (NOI) during 2013, according to the newly released 2014 edition of Caribbean Trends in the Hotel Industry published by PKF Consulting USA (PKFC). This is the third year in a row that Caribbean hotels have experienced a double-digit increase in NOI and the highest annual growth in profits achieved since 2008.
“Caribbean hotels have unique operating challenges that result in relatively higher expenses,” said Scott Smith, MAI, vice president in the Atlanta office of PKFC. “Fortunately, recent increases in visitation to the region have resulted in top-line revenue growth that has overcome the high costs and resulted in strong growth in bottom-line profits.”
Revenues and Expenses
The Caribbean hotel industry is made up of a large number of resort properties, which creates the opportunity to earn profits from a variety of services and amenities. Rooms revenue (56.8 percent) remains the largest source of revenue for the properties in the Caribbean Trends sample, but significant contributions come from food and beverage sales (28.8 percent), as well retail and recreation outlets (12.7 percent).
“From 2012 to 2013, we observed healthy increases in both rooms and food and beverage revenue. On the other hand, we noticed a slight decline in other operated department revenues. Visitors to the Caribbean are not spending as much money on extra amenities, such as golf courses, casinos and spas, as they used to,” Smith stated.
In aggregate, total revenues for the survey sample increased by 4.4 percent in 2013.
In 2013, total operating costs for hotels in the Caribbean increased by 1.9 percent. Due to the 1.6 percent increase in occupied rooms, the greatest increase in expenses was observed in the rooms department. Conversely, the properties in the survey sample enjoyed a 3.4 percent decline in utility costs.
“Caribbean hotels have been at the forefront of green and sustainable practices, and we are starting to observe the benefits of their efforts in the form of reduced energy costs,” said Smith.
With revenues growing greater than expenses, Caribbean hotel profits were able to increase by 18.6 percent in 2013. However, a comparison to comparable properties in the United States finds that the higher costs of goods, services and utilities in the Caribbean does result in relatively lower profit margins. In 2013, Caribbean resorts achieved a 16.3 percent profit margin compared to a 21.4 percent margin for comparable US resorts.
New Hotel Construction
With profits growing, the Caribbean region is attracting the attention of developers from all around the world. As reported in STR, Inc.’s June 2014 Construction Pipeline Report, there are 27,690 rooms either under construction or planned for development in the region. In addition, several hotels are undergoing major renovations and improvements.
“While Caribbean hotel performance is showing improvement, the additional supply of hotel rooms could hinder the pace of recovery,” Smith noted. “There are some very large destination resorts on the horizon. It is hoped that these new, huge resorts will induce additional hotel guests to the region, as opposed to cannibalize existing lodging demand.”
The biggest new development to enter the Caribbean region in 2014 will be the 2,900-room, mega-resort, Baha Mar, in Nassau, Bahamas. Other new developments coming on line from 2014 through 2017 include the Westin Cozumel, RIU Palace Antillas (Aruba), Real InterContinental (Santa Domingo), Park Hyatt (St Kitts/Nevis), Kimpton (Grand Cayman), Belle Mont Farm (St Kitts/Nevis), and Third Turtle Resort and Marina (Turks and Caicos).
“In addition to these new hotels, I know of several previously abandoned projects that are starting to see the light of day that could enter the market in the next few years,” said Smith.
Airlift and Cruise Lines
Airlift continues to be a major issue for the Caribbean hotel industry.
“In order for new resorts in the area to thrive, the Caribbean is in need of increased non-stop flights and a reduction of airline taxes,” said Smith.
Airlift capacity to the Bahamas alone is being increased by 400,000 seats in anticipation of higher numbers of visitors to the Baha Mar Resort. In addition, airlines such as British Airways and American Airlines have increased their routes and added additional airplanes to accommodate the increasing levels of demand to the region.
Improving visitation to the Caribbean, combined with poor economic conditions in Europe, has caused several international cruise lines to move their ships from the Mediterranean to the Caribbean.
“Because of the increase in cruise capacity, several cruise lines are building their own private ports of call within the Caribbean to reduce the congested experience that occurs when several cruise ships converge on one island at the same time,” observed Smith.
The overall outlook in the Caribbean is positive, with hotel occupancy, average daily room rates and profits all expected to increase. While growth is welcome news, hotels in the region still lag pre-recession levels of performance. There also are issues such as airlift, rising expenses and increased competition from newly constructed properties.
“The challenges that Caribbean hoteliers will face in the future are multi-faceted. If handled poorly, the recovery could be further delayed. However, if handled properly, all participants in the region should enjoy continued healthy increases in performance,” concluded Smith.