PKF Consulting USA
Thursday, August 22, 2013
Thursday, August 22, 2013
Scott Smith MAI
According to PKF Consulting USA, LLC’s (PKFC) 2013 edition of Caribbean Trends® in the Hotel Industry, the average Caribbean hotel that participated in the survey enjoyed a 10.9 percent increase in net operating income (NOI). This is the second year in a row that Caribbean hotels have experience a double-digit increase in NOI. This is the highest growth in profits that Caribbean hotels have seen since 2008.
While this continued profit growth is encouraging, the Caribbean is still not back to its pre-recession levels. Recovery in the Caribbean is slow moving, and lagging behind the recovery seen in the U.S. This is a mixed-message for a region whose economy depends primarily on the tourism industry.
Unique Operating Environment
The Caribbean hotel industry is made up of a disproportionately large number of resort properties, which creates the opportunity to earn profits from a variety services and amenities. Properties in the Caribbean Trends® sample reported the highest level of revenue growth (+6.4%) in other operated departments, meaning that visitors to the Caribbean are spending more money on extra amenities such as golf courses, casinos, and spas. This is in contrast to U.S. resorts where operators struggled to generate revenue beyond the rental of guest rooms.
Unfortunately, Caribbean hotels have higher operating costs than comparable U.S. properties. For example, in 2012 the average Caribbean hotel incurred 20.1 percent greater food and beverage expenses than the average U.S. hotel. This is attributable to the fact that importing the necessary food, equipment, and supplies to the region is very costly. Utilities continue to be a large expense in the Caribbean as well. Many Caribbean nations lack the infrastructure to produce cost-efficient energy, and this is clearly reflected in the report. Utilities grew by 5.0 percent from last year, and are 164.8 percent higher than the cost of utilities in comparable U.S. properties.
The overall outlook in the Caribbean is a positive one with occupancy, ADR, and profits all increasing. While growth is welcome news, hotels in the region still lag pre-recession levels of performance. There are also issues, such as airlift, rising expenses, and increased competition from newly constructed properties. The challenges that Caribbean hoteliers will face in the future are multi-faceted. If handled properly, all participants in the region should enjoy continued healthy increases in performance. If not, the recovery could be extended.
Scott Smith MAI is Senior Vice President in the Atlanta office of PKFC. To purchase a copy of the 2013 Caribbean Trends® in the Hotel Industry report in PDF format, please visit the firm’s online store at www.pkfc.com/store, or call (855) 223-1200. The report contains several data tables that allow Caribbean hotel owners and operators to benchmark the financial performance of their property based on room-count and ADR groupings.