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A Big Blow To Tourism

In the aftermath of the terrorist attacks, the local tourism industry faces grim prospects for the upcoming holiday season


September 20, 2001
Copyright © 2001 CARIBBEAN BUSINESS. All Rights Reserved.

Puerto Rico’s tourism industry, already in a slump because of a sluggish economy, may be entering one of its worst periods ever if frightened tourists and business travelers stay away in droves.

When there’s a major crisis on the U.S. mainland that impacts international travel, the tourism sector in Puerto Rico is affected. Tourism may not be the island’s greatest contributor to the local gross domestic product, but it is still a vital sector of the island’s economy---pumping $2.4 billion in visitors’ expenditures and providing 14,000 direct jobs.

Early last week, terrorist hijackers rammed two commercial jetliners into the World Trade Center in New York, toppling its twin 110-story towers. Another plane slammed into the Pentagon in Washington, D.C., and a fourth crashed outside of Pittsburgh.

"There’s no denying the short-term effects are going to be devastating for the tourism industry because after any airline incident, consumers suffer a fear factor over flying for a while," said Esther Cohen, a marketing consultant in New Jersey specializing in tour and travel. "Obviously it will impact Puerto Rico, but the good news is it will most likely affect the months of September and October, which are traditionally an off-season period."

The Tri-State area (New York, New Jersey, and Connecticut) has long been known as local tourism’s bread-and-butter market and is the most affected by the disasters. Puerto Rico has already lost market share on the east coast of the U.S., and the Tourism Co. was preparing to regain its 80% share in that region.

The concerns of many potential travelers now will be far greater than those in the aftermath of an accidental plane crash. These were full-blown terrorist attacks that are likely to ignite a war against terrorism all over the world, which could last more than just a few months.

As with many other sectors of the economy, sharp drops in hotel occupancy this summer have forced the island’s hospitality industry to ax its rates. Though many local hoteliers won’t admit to price-cutting per se--whether they call it promotional pricing or summer specials–even the elite players kept their rates low in an attempt to fill rooms. This summer, most of the major hotels witnessed up to 20% decreases in revenue, and occupancy rates were reported to be in the 40% range compared to the 50% occupancy obtained during the same period last year.

Major airlines serving the island have also reported second quarter (2Q) losses and expect 3Q and 4Q losses to be considerably larger due to the combination of a weak economic climate, high fuel prices, increased labor costs, and cutbacks in traveling by tourists.

Adding to that equation, the Puerto Rico Tourism Co.’s yet-to-be-launched destination campaign (originally scheduled to hit the TV waves in key U.S. markets on Oct. 15), which has been late in arriving–mostly due to political circumstances that delayed the appointments of the agency’s top management team–could soon become irrelevant with regard to this year’s winter ‘high tourism’ season, which runs Dec. 15 through April 15.

Puerto Rico’s tourism campaign may be pushed back even further

In the wake of the terrorist attacks last week, the Tourism Co. will have to decide if it should delay launching of the island’s destination campaign two to four weeks or wait until the market is ready. Traditionally, the Tourism Co. makes a big splash in New York City when a new destination campaign is unveiled.

Last week the Puerto Rico Hotel & Tourism Association (PRHTA) called a meeting to discuss "what, if anything, could be done to offset [low] consumer confidence in flying.

"New York is our strongest market and to delay the campaign is advisable," said Reinhard Werthner, president of the PRHTA. "We can put the campaign out there but it won’t have an immediate return. Right now, it could be a waste of money. We must wait until the country is ready to move on."

The Tourism Co. will have to wait until the U.S. government figures out what happened and who did what to cause this disaster. Everything right now is at a standstill. This crisis will have to be treated similarly to what happened during the Gulf War in 1991 (which contributed to a significant drop in tourist traffic), when the Tourism Co. began a series of public relations pieces in key U.S. cities; hotels and airlines slashed prices; and tourism writers were invited to inspect Puerto Rico as a safe destination.

Milton Segarra, designated executive director of the Tourism Co., said last week that the agency was taking appropriate measures by sending out their condolences regarding the tragedy.

"We plan to maintain effective communication with our stateside travel partners," Segarra added. "We also want to make sure we regain the confidence of our consumers. That is why the Tourism Co.’s advertising agency will be constantly monitoring their behavior."

As a result of the attacks, Puerto Rico’s metro area hotels reported a total occupancy rate of 83.7% last week. Stranded travelers represented 871 hotel registrations. By the same token, hotels reported 723 cancellations from potential visitors.

Although it will be a rough ride for the local tourism industry over the next few weeks, Werthner expects business as usual, come December.

However the future doesn’t look promising. In a new report, PricewaterhouseCoopers said the U.S. hotel industry would now suffer its worst performance in 33 years as terrorism fears mount. Revenue per available room, a measure of demand in the industry that takes into account average occupancy and room rate, will fall 3.5% to 5% this year, the worst performance in more than three decades.

No one in the local tourism industry expected a booming winter season this year, but they did expect it to be good.

According to the PRHTA, advance bookings at hotels for the months of November, December, and January appeared to be relatively good. Some hoteliers said bookings for those months looked better than last year’s.

The question it is still too early to answer is if there will be a long-term negative impact on Puerto Rico’s tourism industry as a result of the terrorist attacks on the mainland.

Industry experts do agree that the attacks will scare some people away from traveling, but they disagree about how long.

"Our industry is a nervous one," said Erin Benitez, executive vice president of the PRHTA. "Tourism is the first thing affected when people are feeling insecure. We will definitely feel an immediate short-term impact."

Travel wholesaler Greg Thorne of Inter-Island Tours in New York foresees vacationers staying closer to home because, he says, people are quite resilient.

"The Caribbean may weather the storm well in the long term," Thorne added. "I believe Puerto Rico has an advantage over other islands because of its U.S. affiliation. It is an easy-to-get-to destination that is closer to home for Americans compared to a trip to Europe."

Jean Holder, secretary general of the Caribbean Tourism Organization (CTO), said there was bound to be some fallout from the incident since the U.S. accounts for 50% of the region’s business.

"Obviously, there is going to be an immediate negative impact on our business due to the disruption and uncertainty caused by this kind of event," Holder added. "But we hope it’s not ongoing because then the ramifications will be considerable in a year when the Caribbean has not had a very good tourism experience."

Travel jitters could hurt air service

Esther Cohen, who has spent years selling Puerto Rico and has clients on the island, expects the fear of flying to transpire soon, due to heightening of security at airports.

"People will get used to the tougher air travel rules," Cohen said. "Tourists visiting Puerto Rico are sophisticated customers that understand heightened security."

The airports will have several new security procedures in place such as thorough searches of all planes and airports; no curbside check-ins nor luggage check-ins at hotels or other off-airport sites; only passengers can pass through security checkpoints to gates; a ban on all knives and other cutting instruments, including plastics; uniformed police patrolling airports; searches of flight crews, service personnel and vendors; hand-held metal detector checks of passengers, and armed sky marshals aboard airplanes.

Also, higher levels of surveillance, more stringent searches, and random identification checks of passengers and airport staff are expected. Passengers flying out of Luis Muñoz Marin International (LMM) Airport might be expected to arrive at the airport as much as four hours before their flights and those dropping passengers off will be subject to a rigorous inspection by local police authorities.

As another preventive measure, picking up and dropping off passengers through the car lane closest to the terminal will no longer be allowed nor will parking in areas near the terminal.

"Travelers will indeed see increased security measures at the airport," said Michael Luciano, district sales manager of Delta Air Lines in San Juan. "Most likely these measures will make travel uncomfortable, but it will give the needed security to the consumer."

Airline expert Michael Boyd of Colorado’s The Boyd Group says air travel is no longer going to be for the masses.

"Air travel is going to become far more restricted. No airplane is going to be allowed to leave the gate without being swept from nose to tail, and no one who comes near a commercial airliner is going to be allowed to carry so much as a pocket knife," Boyd said.

Despite the government’s promise of tough new security measures, last Tuesday’s skyjackings shattered many people’s confidence in air travel, and Puerto Rico, as an island, depends heavily on air service.

Airlines already in financial slump

Besides altering the way the airlines operate, the disaster could worsen an industry financial slump. Most carriers have lost money in 2001 amid slackening demand for travel because of a weak economy. Several analysts have said in recent weeks that the major carriers could lose $2.5 billion this year. Now numbers are flying in the $4.5 billion range.

Airlines will have to suffer revenue losses from canceled flights, as well as the extra expenses incurred in overtime costs and passenger accommodations.

According to economists of Simat, Helliesen & Eichner–a consulting firm specializing in commercial aviation–the U.S. carriers are estimated to lose $15 billion in revenue over the next 12 months.

In Puerto Rico, the size of the losses the major airlines are expected to incur due to the tragic events has not yet been determined.

Luciano expects Delta Air Lines’ 4Q 2001 results to remain stable compared to the same quarter last year. "We don’t expect any increase, but we do expect a good winter holiday travel season this year," Luciano said.

Enrique Cruz, managing director for American Airlines (AA) in Puerto Rico, on the other hand, says the island needs promotion, promotion, and more promotion.

"Puerto Rico, as a tourism destination, must be heavily promoted," Cruz said. "It shouldn’t be done right now, but no later than 30 days from now the island’s tourism executives should be ready to launch the destination promotion, full-speed ahead."

Cruz believes the island’s tour & travel financial slump will continue through the winter season. The AA executive is aware business will decrease, but he says he personally could not calculate how many millions of dollars were lost with the interruption of business during the two-day halt at the airport or the negative image left by the attacks on the industry as a whole.

The real damage, however, is likely to come in the months ahead, should business and leisure travelers curtail air travel while the airline industry spends heavily to increase security. These new measures are likely to make air travel far more time-consuming, inconvenient, and possibly more expensive.

Worldwide, the airline industry’s traffic grew just 0.5% in the first half of 2001, while seat capacity increased 4%. When capacity growth outpaces passenger traffic, seats are left empty. That means it will be harder for carriers to pass along higher costs resulting from tighter security.

Terrorist fears during the Gulf War also dampened air travel, but traffic patterns were nearly back to normal three months after the war’s end in early 1991. At that time, the U.S. airline industry carried 452 million passengers, down 13 million compared to 1990. Although the number of passengers bounced back in 1992, it was too late for Eastern Airlines and Pan American World Airways, which went out of business. Continental Airlines and Trans World Airlines all filed for bankruptcy, but after the war were able to recover business substantially.

Last Thursday, the Federal Aviation Administration (FAA) cleared the way for 23 out of 498 airports in the U.S. to reopen on Sept. 13 after a two-day halt of flights across the nation. LMM airport was one of 23 airports to be granted FAA authorization to reopen, following the strict security measures taken by the Puerto Rico Ports Authority personnel.

For airlines, recovery plans should be similar–but larger in scale--to what they employ after a hurricane or blizzard. The difference is that in those cases, usually only one region is paralyzed.

The Ports Authority estimates their losses during the two-day halt at LMM airport as close to $100,000 per day because business was running as usual inside the facility.

Europe’s leading airlines expect to post losses this year amid sharply reduced passenger volume following the terrorist attacks in the U.S. European carriers were preparing to resume transatlantic service last Friday following the reopening of U.S. airspace. These carriers were already suffering from lower transatlantic traffic as a result of the U.S. economic slowdown.

Sandra Medina, spokesperson for Iberia in San Juan, expects the company’s 4Q result to be stable, and she expects a good upcoming holiday season.

"We have had a good year, way above our projections," Medina said. She believes the psychological effect of fear of flying will pass. "Puerto Rico depends on airplanes to leave the island, so obviously this can’t last for long."

With air traffic across America halted, tour operators and travel agents have had to find new flights for passengers who were on board planes that were diverted from their normal routes and others that were cancelled.

"Business is dead. We are full of cancellations and now what are we suppose to sell?," said Bernice Cordero, owner of Markets & More travel agency in Hato Rey, the day after the attack.

The disaster occurred several weeks after travel agents in Puerto Rico and the U.S. were outraged over the latest round of commission cuts by airlines that instituted reduced caps for travel within the U.S. and Canada. Major cruise companies also implemented commission cuts on the air portion of the booked cruise. Fortunately for local travel agents, these cutbacks by the cruise lines are irrelevant.

"We are giving a higher priority in selling land tours and cruise ship packages," Cordero said.

Royal Caribbean International and Celebrity Cruises have also had their share of delayed departures throughout the ordeal. The company has been working with travel agents and ports authorities to ensure smooth sailing operations of both fleets. Royal Caribbean temporarily shifted from New York to the Port of Baltimore for its ship Zenith’s arrival and departures to Bermuda.

Most of the cruise ships were unaffected, but disruption of even one of the megaliners can create major problems. For example, Princess Cruise line’s Golden Princess’ 2,600 passengers were supposed to disembark in Istanbul last week. They were stranded until flights resumed. Other cruise lines were giving vouchers to passengers who couldn’t get to the ship because of canceled flights.

Photo captions:

1) Stranded passengers at Luis Muñoz Marin International Airport were forced to board buses or take taxis to evacuate the facility after it was closed by the Federal Aviation Administration immediately after terrorist hijackers rammed two commercial jetliners into the World Trade Center in New York, slammed another plane into the Pentagon in Washington, D.C., and crashed a fourth outside of Pittsburgh.

2) Passengers flying out of Luis Muñoz Marin International Airport might be expected to arrive at the facility as much as four hours before their flights and those dropping off passengers will be subject to a rigorous inspection by local police authorities.

3) Enrique Cruz, managing director for American Airlines in Puerto Rico, was busy last week making sure his company’s passengers were being accommodated on the buses provided by the Puerto Rico Ports Authority. Cruz believes the island will need heavy promotion to survive the upcoming winter high tourism season.

This Caribbean Business article appears courtesy of Casiano Communications.
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