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Weak Economy, Possible War In Iraq, And Fear Of Terrorism Shaped Island’s Tourism Industry In 2002


December 26, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

Puerto Rico’s tourism industry continued to contend in 2002 with the economic slump, the drumbeat of war in Iraq, lingering fears of terrorist attacks, and the resulting hassles in air travel.

Fortunately, the island has been able to weather the storm better than competing tourist destinations in the Caribbean, which rely more on leisure travelers. Nevertheless, Puerto Rico’s room revenue and hotel occupancy are still below 2000 levels, and there is a much greater supply of travel opportunities than there are travelers, creating what the industry calls a "distressed inventory."

Contributing to the inventory surplus is the fact that travelers are booking their trips closer than ever to their departure date, either because they are nervous or because they know unsold inventory will be on sale.

According to the Puerto Rico Tourism Co., hotel occupancy was 61.8% in fiscal year (FY) 2002, compared with 66.7% in FY 2001 and 70.7% in FY 2000.

Resolving the problem

Puerto Rico and other tourist destinations continue to offer discounts to help fill hotels, but that chips away at the hotels’ bottom lines. The hotel industry, which had already been struggling with a slow economy in 2001, cut rates drastically after 9/11 in an attempt to attract the relatively few people who were traveling. What the move instantly created was a buyer’s market.

To help boost registrations at local hotels, in 2002 the Puerto Rico government launched a year-round campaign to persuade residents to vacation on the island. Fly Free, another promotion, offered two free airline tickets to tourists who booked a five-night minimum hotel stay on the island. It produced thousands of room nights after 9/11.

Restructure or die

The aviation industry experienced a collapse in pricing power, a fundamental shift in the buying behavior of business travelers, and fierce competition from low-cost airlines.

The 9/11 attacks, while devastating, weren’t the root cause of the financial crisis gripping major airline carriers. The crux of the problem is a combination of excessive costs in relation to carriers’ current and projected revenues, an imbalance between the supply and demand for available airline seats, and an inability to boost airfares.

In their struggle to survive and restore their operations to financial health in 2002, major U.S. airlines have axed thousands of jobs. In addition, some unions representing many of the industry’s employees have committed to work with management to help the carriers compete more effectively with low-cost rivals.

The airline industry is undergoing a transformation. The rule of the day is reduction, reduction, and more reduction. Earlier in the year, American Airlines--Puerto Rico’s dominant carrier--unveiled the first in a series of short- and long-term strategies to help the carrier to profitability.

All U.S. carriers are looking for the simplest ways to cut both costs and the number of flights. To avoid this, the local government decided to extend its landing fee incentive into 2003, permitting major commercial airlines serving San Juan to continue with their strategic plans.

Top local headlines in 2002

Several other major events took the spotlight in 2002, such as the departure in December of Milton Segarra as executive director of the Tourism Co.

Segarra was appointed to replace Ramon Cantero Frau as secretary of the Department of Economic Development & Commerce. The young yet experienced hotelier Jose Suarez took over the reins at the Tourism Co. Suarez, who worked for Wyndham International, was one of the first beneficiaries of the Puerto Rico Hotel & Tourism Association Scholarship Fund.

The year also saw plans for construction of the $372 million Puerto Rico Convention Center in Isla Grande resume in early November. The local Circuit Court of Appeals had revoked the Planning Board’s site plan resolution for the convention center in June, sending the Tourism Co. back to the drawing board. The court’s decision favored petitioner Empresas Fonalledas, which in May 2000 filed a Planning Board Resolution Revision challenging the board’s approval of the project as presented.

Empresas Fonalledas claimed the amount of designated commercial & office space seemed to belie the fact that these applications would be ancillary to the convention center. The company claimed the designated space suggested the intention to develop a full-fledged commercial center. If so, given its tax-exempt status, the convention center would compete unfairly against Plaza Las Americas, the island’s largest shopping center, and against retailers in the Old San Juan area.

Also in November, the Puerto Rico Taxi Federation held a demonstration to protest the Tourism Co.’s plan to assume responsibility for regulating the island’s tourism-related ground transportation. The Tourism Ground Transportation Law, to be introduced in the Legislature, seeks to stimulate competition between ground transportation providers as well as to improve existing services and increase transportation options for tourists.

In April Puerto Rico hosted a Tourism & Transportation Forum to gain input from industry leaders on strategies and actions that must be implemented to increase tourism on the island, in preparation for the opening of the new Convention Center in 2005.

Vancouver-based InterVISTAS Consulting Inc., which specializes in travel & tourism, came up with a five-year plan to double the size of Puerto Rico’s tourism industry. The 200-plus-page document, the island’s so-called Tourism Master Plan, identifies 14 major strategies and over 120 call-to-action initiatives that promise to give Puerto Rico a 20% market share of international visitors to the Caribbean.

In January, Green Isle Partners Ltd. SE, owners of the Ritz-Carlton San Juan Hotel, Spa & Casino, tried to enter into an operational agreement with Wyndham Hotels. Green Isle sought to terminate the Ritz-Carlton San Juan’s existing management contract with Marriott International, parent company of the Ritz-Carlton brand.

However, the Government Development Bank (GDB) sold its $85 million Afica bond debt for the Ritz-Carlton San Juan to New York brokerage firm Donaldson, Lufkin & Jennette (DLJ) and Credit Suisse First Boston in September. Now, instead of the GDB owing money to Banco Popular (the trustee of the hotel’s bond issue), which in turn pays bondholders, the debt has been transferred to DLJ. DLJ was the owner of the former San Juan Grand Beach Resort & Casino in Isla Verde.

Also in January, the Tourism Development Fund, a subsidiary of the Government Development Bank, filed a civil suit in the Commonwealth of Puerto Rico Superior Court in San Juan against Martineau Bay Resort SE (majority partners of Martineau Bay Resort in Vieques) to seek control over the still unopened property.

It wasn’t until August that the government confirmed that it was negotiating with Raffles International, the hotel management subsidiary of Raffles Holdings Limited, to take over the operation of Martineau Bay Resort. To date, the government has yet to sign an agreement with Raffles and no deposit has been made.

They Said It This Year

"Who says the recession in the States has officially ended? The continuing downward trend in the stock market, combined with the weak dollar, continues to squeeze the hospitality sector."--Daniel Hughes, vice president of Hilton International.

"We are going to maintain our position, which is to build a world-class convention center, and no individual or private interest is above that goal." --Milton Segarra, former executive director of the Puerto Rico Tourism Co.

"We have been the ‘Shining Star,’ the ‘Continent’, ‘Sounds of Puerto Rico,’ and now ‘You’re Not Dreaming, You’re in Puerto Rico.’ It’s time we developed a slogan that can transcend political parties and, for that matter, executive directors."--Rick Newman, president of the Puerto Rico Hotel & Tourism Association

"The port of Mayaguez is more of an industrial area than a tourism facility. Where do you take passengers in Mayaguez for a tourism experience? Right now, there is no demand to visit Mayaguez."--Michael Ronan, associate vice president of destination development for Royal Caribbean International

"An incentive works only if you want to stay. In this case, I would say Puerto Rico is wasting its time trying to entice cruise lines with incentives. Instead, it should concentrate on beefing up its product offerings."--Giora Israel, vice president of strategic planning for Carnival Corp.


This Caribbean Business article appears courtesy of Casiano Communications.
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