The combined factors of a slow U.S. economy, increased competition, rising energy costs, and threats of reduced air service are affecting levels of occupancy and profits for the region’s hotel owners and operators.

In a report published by PKF Hospitality Research, the combined factors of a slow U.S. economy, increased competition, rising energy costs, and threats of reduced air service are affecting levels of occupancy and profits for the region’s hotel owners and operators.

“Given the region’s dependence on airlift, the most daunting issues facing the Caribbean hotel industry are the rising cost of airfares and the announced cutbacks in air service,” said Scott Smith, MAI, senior vice president in the Atlanta office of PKF Consulting. “Due mostly to the rising cost of fuel, four of the five leading air carriers to the Caribbean have announced cutbacks in service. Puerto Rico and the Dominican Republic could see as many as 26 percent fewer flights in December of 2008 compared to December 2007.”

In an effort to maintain air service, the Puerto Rico Port Authority is offering to reduce airport fees by 45 percent. “The Caribbean has always been attractive to price-sensitive travelers. If airfares continue to rise, hotels may have to reduce their room rates in an effort to maintain the Caribbean’s position as an affordable destination,” Smith said.

Airlines are not the only mode of transportation impacted by the rise in energy costs. The relatively low cost of Caribbean cruises has made the region the number one cruise market in the world. ‘Despite the strength of the market, we have seen shifts in the cruise industry that have been influenced by the rising cost of fuel. Cruises to more remote ports in the southern Caribbean, such as Aruba, are being cut from itineraries due to the length of the trip and fuel required to get there,’ Smith noted.

The rising cost of energy is not only impacting transportation, but also the high costs involved with utilities. Some Caribbean hotels have instituted energy surcharges, while most are busy instituting energy-saver programs and initiatives across the board.

“To preserve the natural beauty of the region, Caribbean resorts have had a long history of being environmentally friendly,” Smith said. “Hotel operators are now parlaying this experience into energy conservation. In addition to installing cost-cutting equipment, such as efficient light bulbs, showers, toilets, sinks, and air conditioning, Caribbean hoteliers are working with their local energy providers to develop new sustainable technologies. This will not only reduce the cost of operations, but improve the overall economy of the island on which they operate.”

Utility costs are not the only expense that is extraordinarily high for Caribbean hotels. Due to somewhat isolated locations, hotels in the Caribbean tend to import the majority of their food and beverage items. Also, insurance costs continue to rise due to the constant risk of hurricanes.

New Competition
However, with these challenges ahead, Caribbean hoteliers are still planning bigger and better resort locations for future guests. This prospect sounds positive, however, the new competition poses an equal threat to its own benefits. Most major international brands have extensive plans to increase their presence in the region. The World Travel and Tourism Council estimates that more than $100 billion has been committed to the development of new hotels in the Caribbean over the next five to six years.

New hotel construction is flourishing throughout Latin America, as well, with Belize and Costa Rica becoming increasingly competitive with the Caribbean as a vacation destination for tourists across the globe.