How Cuba and Zika Are Impacting Caribbean Performance

ATLANTA—CBRE Hotels Americas Research announced that the average Caribbean hotel experienced a 10.2 percent increase in gross operating profit (GOP) during 2015, according to its newly released tenth edition of Caribbean Trends in the Hotel Industry. This is the fourth consecutive year that Caribbean hotels have seen a double-digit increase in GOP.

Over the course of 2015, the Caribbean hotel and tourism industries saw growth in all major metrics except occupancy. Hotels in the Caribbean experienced growth in ADR, RevPAR, total operating revenue and profits in 2015 even in the face of declining occupancy. Data in the Caribbean Trends in the Hotel Industry report was aggregated using the 11th edition of the Uniform System of Accounts for the Lodging Industry (USALI) to ensure the comparability and accuracy of the report.

“There are a number of significant events from 2015 that will continue into 2016 and have a significant impact on Caribbean tourism, from the reopening of Cuba to American visitors to the Zika virus, economic uncertainty to the opening of new hotels, the expansion of the Panama Canal to the establishment of new and increased airlift to the Caribbean islands. Overall, Caribbean hotels are continuing to perform well, but still lag behind U.S. hotels performance,” said Scott Smith, managing director, CBRE Hotels’ Consulting.

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Revenues, Expenses, and Profits
Total operating revenue for the hotels in the Caribbean Trends sample increased by 6.0 percent from 2014 to 2015. Revenue grew in all four revenue generating departments. Rooms revenue, the largest source of revenue for hotels in the Caribbean, increased by 3.8 percent, the result of a 0.9 percent rise in occupancy and a 2.6 percent jump in average daily room rates (ADR). After lagging for several years, food and beverage revenue for Caribbean hotels grew at a greater pace (5.2 percent) than rooms revenue.

The Caribbean hotel industry has lagged behind the United States hotel industry in terms of speed of recovery from the 2008-2009 economic crisis. Therefore, while there are signs of greater growth in revenues, there also is an observable increase in expenses that are associated with the higher levels of business. Labor costs in the region have risen across all departments. Fortunately, the increases in labor costs partially are offset by sharp declines in utility costs as a result of lower oil prices worldwide. “Because of years of high energy costs in the Caribbean, hotels in the region had to adopt green and sustainable practices out of necessity and cost efficiencies, and now they are industry leaders in sustainability” said Smith.

Caribbean hotel operators were able to convert their 6.0 percent increase in revenue to a very healthy 10.2 percent increase in GOP. “In 2015, there was a strong correlation between ADR level and the ability to increase GOP. Across ADR ranges, as the ADR level increased, the rise in GOP increased, as well. This correlation is symbolic of the faster recovery in the higher-end hotels,” said Smith.

Impacting Events
“Two major events impacting the Caribbean hotel industry are the reestablishment of diplomatic relations between the United States and Cuba and the spread and potential impact of the Zika virus. Each will affect the region and hospitality industry differently and to different degrees,” Smith remarked.

Cuba
The top story in the Caribbean hospitality industry is the reestablishment of relations between the United States and Cuba. The opening of relations between the two countries has provided opportunities for a new market for the U.S.-based hotel companies. Starwood and Marriott have both secured deals to manage hotels on the island in the next few years. While European hotel chains have maintained operations in Cuba during the U.S. embargo, U.S. hotel companies stand to make a significant impact in the Cuban economy from the potential explosion of American tourism. Even before the arrivals of Americans, it is the second most popular tourist destination in the Caribbean, behind only the Dominican Republic, with 3.5 million tourist arrivals in 2015.

Zika
The Caribbean is the one of the most tourism dependent regions in the world, thus travel related diseases like Zika have the potential to negatively impact the economies and tourism reputation of Caribbean countries. According to the Caribbean Tourism Organization (CTO) and Caribbean Hotel and Tourism association (CHTA), there are already reports of travel cancellations in the Caribbean due to Zika. According to the World Bank, countries and territories in the region that have been affected by Zika stand to lose a combined $63.9 billion in revenue from international tourism.

“The Caribbean is set to reap the benefits of tourist growth in 2016, despite the obstacles facing the region from Zika and from political and economic issues. Cuba is opening to tourism from the United States, the Panama Canal has expanded for shipping and cruise traffic and new hotels are being completed throughout the region to accommodate the influx of tourists” Smith concluded.