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Needed: More Rooms

Puerto Rico continues falling behind in hotel development


March 10, 2005
Copyright © 2005 CARIBBEAN BUSINESS. All Rights Reserved.

Shortage of hotel rooms limits growth of tourism in Puerto Rico

It has been 20 years since American Airlines began developing the San Juan hub and with it, the world’s largest passenger carrier contributed to opening up Puerto Rico to the world.

Airline officials had hoped the decision to establish American Airlines’ Caribbean hub in Puerto Rico would be followed by major growth in the island’s tourism industry. Not so, says Peter Dolara, senior vice president of American Airlines for the Caribbean and Latin America, who traveled to Puerto Rico recently to meet with new governor, Aníbal Acevedo Vilá.

Dolara was emphatic in stressing the point that Puerto Rico continues to lose business to competing islands such as the Dominican Republic (D.R.), with nearly 60,000 rooms; Jamaica, with over 24,000; and Cancun, with over 26,000 rooms; compared with fewer than 13,000 in Puerto Rico. With 42,000 hotel rooms, Cuba has also surpassed Puerto Rico by far and threatens to become a major competitor for mainland-based tourists, once the Castro regime is gone.

"We stressed to the new governor that American has the seats to sell and we have enough influence with the wholesalers and retail travel agencies to push for more traffic to Puerto Rico, but there are not sufficient hotel rooms available on the island," Dolara told CARIBBEAN BUSINESS during an exclusive interview.

"American currently brings customers to Puerto Rico and sometimes has to fly them to another island for the night and pick them up in the morning because there are no rooms available here. We don’t even have enough rooms to lodge our crew members."

American took off; Puerto Rico stayed behind

Since 1985, when American announced it would establish its Caribbean hub operations in the Luis Muñoz Marín International Airport (LMMIA), the airline has invested over $350 million in Puerto Rico. By 2005, American Airlines employed 2,439 on the island with an annual payroll of $125 million.

American Airlines began with just 11 flights a day and 185 employees in 1971 and, in 2004, the airline moved five million passengers to and from San Juan. American currently operates 15 gates at LMMIA with more than 50 flights a day to 21 destinations. Together with its affiliate, American Eagle, the airline company operates 110 flights a day from San Juan to 39 destinations, connecting Puerto Rico to major cities worldwide.

Two decades ago, when American began developing the San Juan hub, there were 7,702 hotel rooms in Puerto Rico and 8,562 rooms in the D.R. By 2004, the number of hotel rooms in Puerto Rico had increased by 5,162 to 12,864. During the same period, rooms in the D.R. increased by 48,605 for a total of 57,167 hotel rooms in the neighboring country by the end of 2004, and there are about 3,000 more rooms now under development and construction.

What happened in Puerto Rico? Politics, government bureaucracy, and extensive delays in the permitting process, as well as a lack of a master tourism-development plan, have all contributed to the limited growth of Puerto Rico’s tourism industry.

"If Puerto Rico seeks to attract more air transportation service, the island will have to develop more rooms," Dolara stated. "We work with people in the travel industry who know Puerto Rico well and can help bring in more business to the island. We know the major travel agencies and operators and are in touch with them continuously. However, if we work with them to bring in more tourists, the tourists will have nowhere to stay."

The demand for more hotel rooms is expected to increase substantially in Puerto Rico when the new Convention Center, with over 40,000 square feet of meeting space and an exhibit hall consisting of 158,000 square feet, opens for business later this year. The Convention Center will open with a capacity of 7,000 people with expansion space planned for future development that will hold conventions of up to more than 20,000 people. Although a 500-room Sheraton hotel will be built next door to the Convention Center, financing for the $175 million project has yet to be completed and the property will not be ready until 2008 (CB Feb. 17, 2005).

Dolara indicated that he wants to work closely with Gov. Acevedo Vilá and the Puerto Rico Hotel & Tourism Association to promote Puerto Rico and win back some of the business we may have lost. The senior vice president of American Airlines said he would personally dedicate his efforts to increasing the number of seats, schedules, and new international routes from the San Juan hub. "American Airlines is committed to Puerto Rico," he said. "We love the island and the Caribbean and are here to stay."

Passenger airlines are the mainstay of tourism, and Dolara says American is already planning to increase its service from Puerto Rico to Los Angeles, as well as adding new international routes to Panama, Costa Rica, and Bogotá, Colombia.

Tourism: An opportunity for economic growth

Tourism is the world’s largest industry, and it is projected to continue growing throughout the 21st century, according to the World Travel & Tourism Council (WTTC). The WTTC estimates that tourism sustains more than one in 10 jobs around the world, providing employment for 255 million people globally, and is expected to generate another 130 million more jobs by 2006.

Growing wealth in many developing countries will also continue to produce more tourists as vast numbers of people in these countries join the middle classes and have more income. Chinese tourists are also expected to contribute substantially to the growth of global tourism over the next decade. By the end of the 21st century, the WTTC projects more people will travel more often, to a wider range of international destinations.

The trends are already apparent. In 1950, the top 15 global tourism destinations accounted for 97% of all international arrivals, a share that had declined to 62% by 1999 as more countries competed for tourists. Global tourism has increased at an average of 7.7% per year since 1950 when 25 million tourists traveled the world. By 2020, according to WTTC, world tourism is predicted to reach 1.18 billion international travelers.

Tourism is a labor-intensive industry that generates substantial outside investment. According to WTTC, Puerto Rico’s tourism industry already generates 83,186 direct and indirect local jobs. It projects that by 2014, tourism could represent $19.3 billion a year and 121,534 jobs in Puerto Rico, if we develop the industry further.

The WTTC’s employment figures differ from that of the Puerto Rico Planning Board. Official figures released by the Planning Board show that the tourism industry generated about 59,000 direct and indirect jobs during fiscal 2003. Over 4.4 million visitors came to the island during fiscal 2003 and spent $2.6 billion.

With faster, larger aircraft circling the globe; the reduction of barriers to travel imposed by nations such as China on their own citizens and visitors; globalization of the media contributing to people’s awareness of the world outside their own countries and the Internet are expected to lead to continued global tourism growth.

As the Commonwealth government of Puerto Rico scrambles to deal with its fiscal crisis, and the island’s manufacturing sector continues to reduce employment on the island, the potential for the tourism industry to become a major economic force must gain greater importance in the private and public sectors, not just among tourism industry leaders.

Newly appointed Tourism Co. Executive Director Terestella González says the strategy of the new administration is to strengthen and maintain the level of competition following the Tourism & Transportation Strategic Plan adopted by the industry in 2002. The plan is a five-year initiative to promote the local tourism industry.

"The strategic plan includes enhancing infrastructure, access to air transportation, and promoting education regarding the impact of tourism on the island’s economy. We are very much aware of the need to bring more flights to Puerto Rico, develop new routes, and expand the regional airports, which is one of our priorities," González said. "Our goal is to jumpstart the development of 5,000 new hotel rooms, as requested in the five-year strategic plan." The 5,000 rooms will generate an economic impact of $1.02 billion and create 5,000 jobs, according to the Tourism Co.

Although González insists the Acevedo Vilá administration places enormous importance on tourism, the new administration’s goal is to add just 600 new rooms in 2005, 800 in 2006, 1,100 in 2007, and 2,500 in 2008. This means that by the end of the administration’s four year term, Puerto Rico will still only have reached about 18,000 hotel rooms.

"At present, there are 18 projects with 2,201 new rooms under development for an investment of $680 million," added González. "They will be carried out with lots of organization and a lot of work. When I first sat in this chair, I began analyzing the strategic plan and concluded that it is a realistic goal and it is possible to achieve it."

Retaining the Tourism & Transportation Strategic Plan, adding 5,000 hotel rooms, and transforming Puerto Rico into the Caribbean capital were some of the campaign promises Gov. Acevedo Vilá made to the tourism industry during his run for office. Other promises Acevedo Vilá made were to strengthen educational programs for potential tourism professionals and develop new attractions as part of his initiative called "Puerto Rico: Capital of the Caribbean," including a Caribbean theme park, an Imax theater complex, an aquarium, a natural history museum, bike and jogging trails, five new public beaches, and the Salsa hall of fame.

The Tourism & Transportation Strategic Plan is the result of a comprehensive study promoted by the industry in Puerto Rico with the active participation of its various sectors. Its main objectives are to establish a bold new vision of tourism in Puerto Rico and to position the island as a preferred Caribbean destination by the year 2020. To achieve its aims and objectives, the plan consists of 14 strategies and over 120 initiatives for the tourism industry.

Among the strategies are the development of new products and attractions to increase the island’s appeal as a tourism destination; increase and diversify the island’s room inventory to attract a broader range of tourists; promote development of facilities and services in each region; preserve historic sites, protect the environment, upgrade the existing infrastructure, and build new facilities to meet users’ current and future demands. The plan also calls for reasserting San Juan’s position as an international gateway by attracting new air services and streamlining processing of passengers.

"The specifics regarding the execution of the 2002 Tourism & Transportation Strategic Plan don’t exist as of now, but I am working on them in relation to this administration’s political platform," González explained. "Roundtable sessions to discuss the plan will begin in April."

With the plan already in its third year and the number of hotel rooms increasing from 12,768 in 2002 to 12,864 in 2004, barely 96 extra rooms, the executive director of the Tourism Co. admits that the permitting process has contributed substantially to the lack of growth and the delays in Puerto Rico’s hotel sector.

"The costs of operating in Puerto Rico are also higher, and the development process takes more time because we have to abide by local and federal rules and environmental regulations," she said.

Tourism Development Plan

Unlike other destinations where tourism has become a major economic force, in Puerto Rico there has never been a master plan to guide the industry’s growth. Tourism development has centered mostly on specific hotel and resort developments throughout the island promoted by the private sector without any overall industry plan.

In destinations such as Cancun and the D.R. where tourism has become a major economic sector, the growth has been part of a master development plan. In these destinations, tourism is not only about building self-contained resorts or hotels where everything is controlled within the properties for a positive visitor experience. It is also about delivering the necessary infrastructure, roads, ports, and marinas to support the industry as well as developing and maintaining local attractions; cleaning streets, public areas and beaches; providing safety and security to visitors and locals alike; protecting the environment and natural resources; and having reliable transportation systems to contribute to an overall positive experience.

A master tourism-development plan is what transformed Cancun, Mexico, from a small fishing village with 120 residents 35 years ago into an international tourism force. Cancun had all the assets to make it a successful tourism destination: a peninsula extending out into the Caribbean, 300 days of sunshine, white sandy beaches, a lagoon with tranquil waters for all kinds of aquatic sports, and historic monuments–all within a short flight from the U.S. The only thing missing was a tourism infrastructure.

Consequently, a master plan was developed by the Mexican government, which included an airport; the first resorts; an entertainment center for food, amusement, and shopping; and a village for the local workers in what was once a desolate area and now has over 500,000 residents. Today, Cancun is an economic success story with over 26,000 hotel rooms that received over 2 million visitors in 2003.

However, Cancun’s incredible growth over the past three decades didn’t just happen. The National Tourism Promotion Fund (Fonatur by its Spanish acronym) selected the location as a development site that would help strengthen Yucatan’s sagging economy. Fonatur created the master plan and supervised the orderly development of the hotel zone and the city. The result is Mexico’s leading tourist destination and one of the most famous vacation destinations in the world located in the Caribbean Sea and now strongly competing with Puerto Rico.

"One of our major goals is to implement a plan similar to Fonatur in Puerto Rico. We have talked about it for years. The island needs more organized development and intelligent planning," González pointed out. "The Fonatur model is an instrument that will certainly facilitate the development of the industry in Puerto Rico. We have discussed this with the Land Administration regarding the development of a master plan for the land. In this effort, we have to be very proactive and work in unison with the Planning Board, Regulations & Permits Administration, and the Department of Natural & Environmental Resources."

In an effort to combine the development strategies of different public and private agencies so as to give them active participation in the development of the industry, the Tourism Co. has launched Turismo por todos y para todos (Tourism by everyone and for everyone) project.

"As part of this project, we envision the development of mini economic development offices throughout the island where agencies such as the Economic Development Administration, Puerto Rico Industrial Development Co., and Tourism Co., among others, will offer valuable information to small and medium business developers and provide education services regarding the impact of tourism on local employment," explained González, who served as a tourism consultant during the administration of Gov. Sila Calderón.

González foresees major opportunities for growth in the area of ecotourism. "During the last administration, I served as Tourism Co. consultant and worked in the design of ecotourism for Puerto Rico. We created a special Fondo de Garantía [Guarantee Fund] to provide support for small developers. This year, my plan is to increase the fund so that ecotourism developers may take advantage of it. Far from limiting the fund to lodging developers, we are helping developers of tourist attractions such as restaurants, stores, art galleries, museums, and aquariums," she said.

"The ecotourism plan as a whole is a midterm goal. I am aware of the need to diversify our offer as a tourist site, and I believe ecotourism is the best way of combining the development and protection of natural resources. Thus, we are interested in bringing in the megaresorts but we take very seriously how they impact the environment," González stated.

The tourism director strongly believes in an open dialogue with environmentalists and will take into consideration their claims and worries and will press developers to comply with the guidelines that protect the environment. "I am also very receptive to dialogue with developers; I believe in sustainable development and meeting a balance within the interests of both sides. I don’t support fanaticism from any side," she added.

Tourism industry must achieve maximum potential

However, questions remain as to whether tourism will be able to reach its maximum potential in Puerto Rico. Tourism needs help in development and promotion of the industry. Individual hoteliers or restaurants, or even small towns, don’t have the resources to finance an international advertising campaign that would ultimately benefit them all or to develop the amount of rooms necessary.

"Working hand in hand with mayors from all municipalities is a goal that I have already initiated. I have met with many mayors who are visionaries and who have shown immense interest in boosting their local tourism. These are Ponce, Comerío, Villalba, Isabela, Aguadilla, Las Marías, and Caguas. I expect to be meeting with all the mayors in Puerto Rico," González said.

Like the entertainment industry, tourism sells an experience, a way for people to enjoy their free time. Airlines, hotels, travel agents, and tour operators work hard and invest substantially in establishing their brands so that customers will learn to associate them with a pleasant experience.

"We want Puerto Rico to be known as a destination with varied options such as ecotourism, adventure activities, agrotourism, and more," says González. "In the exercise of comparing Puerto Rico to other fast-growing tourism meccas, we are sure that our island offers the opportunity to explore beyond the resort. In the D.R., it is unlikely that tourists leave the resort. Puerto Rico has a democratic government that offers security and the infrastructure to provide tourists with the complete island experience."

There is no doubt Puerto Rico has the air access, attractions, climate, and capability to provide visitors with a unique tourism experience. What is needed now is the hotel rooms to host these visitors. The Tourism Co. plans to begin by working with existing properties on the island. "We plan to expedite the endorsement of existing lodgings, which presently can’t take advantage of our services, and through this initiative we will be increasing the number of hotel rooms available in Puerto Rico," stated the tourism director.

Tamara Estrada del Campo contributed to this story.

Puerto Rico Lodging History

Fiscal Year*: Number of Hotel Rooms

1985: 7,702

1986: 7,706

1987: 7,715

1988: 7,587

1989: 7,806

1990: 7,838

1991: 7,897

1992: 8,415

1993: 8,581

1994: 9,519

1995: 10,251

1996: 10,265

1997: 10,869

1998: 11,848

1999: 11,102

2000: 11,928

2001: 12,353

2002: 12,768

2003: 12,788

2004: 12,864

*July 1 to June 30

Source: Puerto Rico Tourism Co.

Lodging History

Year: Number of Hotel Rooms

1985: 8,562

1986: 9,862

1987: 12,043

1988: 15,997

1989: 18,478

1990: 19,043

1991: 21,510

1992: 24,410

1993: 26,801

1994: 29,243

1995: 32,846

1996: 36,273

1997: 40,453

1998: 44,665

1999: 49,623

2000: 51,916

2001: 54,034

2002: 54,730

2003: 56,378

2004: 57,167

Source: Central Bank of the Dominican Republic

Hotel Developments in Puerto Rico

Hotel: Municipality / Number of Rooms

Passion Fruit: Fajardo / 12

Crow's Nest: Vieques / 48

No name (owners of Casa Isleña): Rincón / 10

Sheraton Four Points Candelero: Humacao / 125

Hotel Océano: San Juan / 12

Hacienda el Jibarito*: San Sebastián / 20

Chateau Cervantes: San Juan / 12

Old Villa Arena Hotel (Ramey): Aguadilla / 78

Old Hospital in Punta Borinquen (Ramey): Aguadilla / 160

Magdalena Bed & Breakfast: Condado / 20

Lucía Beach Villa: Yabucoa / 15

Campomar Hotel & Restaurant: Toa Baja / 65

Condado Trío: San Juan / 319

Condo Hoteles (Condado Trío): San Juan / 367

Inn on the Blue Horizon (expansion): Vieques / 58

Villa Montana (expansion): Isabela / 40

Sheraton (Convention Center): San Juan / 548

W Marriott Dos Mares: Fajardo / 350

*First agrotourism hotel in Puerto Rico

This Caribbean Business article appears courtesy of Casiano Communications.
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