In a throwback to comments made many months ago by Kerzner International CEO Butch Kerzner, the International Monetary Fund warns in a new statistical report on The Bahamas about the dangers of certain hotel properties going head to head for the same market.
“The strategy of targeting the upscale market has been successful in recovering average expenditure per stayover visitor, but it is not free of risks,” the report says. “The Bahamas should be cautious about building up excess capacity that could lead to a price war among operators and, in the end, jeopardize this strategy.”
The IMF indicates that since the market for luxury vacations is a limited segment of the overall tourism market, there is a risk of saturation.
“This risk may not yet appear to be significant given the pipeline of luxury tourism projects that have been proposed to the Bahamian authorities, but this also underscores the importance of not distorting private investment decisions by government incentives,” it says.
The Government of The Bahamas is banking on several large-scale investment projects to further boost economic performance.
Late last year, Kerzner International announced that it was further boosting its investment in the planned billion-dollar Atlantis Phase III project, which will target high-end visitors. Its One&Only luxury Ocean Club resort has also received a facelift.
Prior to that, Mr. Kerzner had warned that there could be a “bloodbath” if the developers of Cable Beach and Kerzner International went after the same market.
He later said that Kerzner was focused on doing what it has to do to gain more business and was not really concerned about what the Cable Beach group has planned.
After tense and rocky negotiations earlier this year, the government and the Baha Mar Development Company announced a $1.2 billion redevelopment of the Cable Beach Strip.
The IMF also indicates that the Caribbean vacation may be a product reaching maturity.
Its report says, “According to the World Travel and Tourism Council, Caribbean travel and tourism activity are expected to grow at an annual average rate of 3 1/2 percent from 2006 through 2015, the lowest of all the regional averages.
“This contrasts strongly with the projected real growth rate for South Asia of 8 percent and for Southeast Asia of 6 1/4 percent. The fact that The Bahamas is in the Caribbean region represents itself a risk as it may be selling a mature product.”
The IMF also pointed to other risks and vulnerabilities associated with tourism, reiterating points that have been raised repeatedly in the past.
It noted that the continued heavy dependence on tourists from the United States may be risky if there is a significant slowdown or a major disruption caused by terrorist attacks.
The IMF said a way to reduce such dependence would be to broaden the base of customers of The Bahamas, particularly to countries with high growth and low or negative correlation with the U.S. cycle.
Although regressions with annual data do not capture the effect of hurricanes in a given year, monthly data indicate that they do have a negative impact, the report says.
“For example,” it says, “hurricanes Frances and Jeanne in September 2004 seem to have had a large impact on stayover arrivals in that month and afterward. Although hurricanes are unavoidable, polices that enforce adequate building codes and preparedness for the event can help to minimize damage and speed recoveries.”
The IMF points out that despite a weak performance in terms of stayover arrivals, The Bahamas has been able to recover in terms of tourism expenditure. Although the real expenditure is at the same levels as in the beginning of the 1990’s, this represents a major recovery from the depressed levels of the mid-1990’s.
The most important factor in explaining this recovery has been overseas demand, especially from U.S. tourists, the report says.
“Relative prices vis-a-vis competing destinations appear to have an impact on stayover expenditure, though they are unimportant in terms of stayover arrivals: low prices of competitors reduce stayover expenditure, but do not affect stayover arrivals, a finding that is consistent with a strategy based on achieving a certain level of occupancy rate. Higher oil prices positively impact both expenditure and arrivals,” it says.
By: Candia Dames, The Bahama Journal
