Front Porch | Toward year-round sustainable growth in tourism
Many Bahamians are breathing easier today because the tourism sector, our largest economic sector by far, is beginning to show healthy growth again.
There are exciting new developments for cruise tourism, including new ports in line for Nassau and Freeport, promising many more tourists and more revenue for the private and public sectors.
Those who were concerned that the opening of Baha Mar would lead to a cannibalization of room rates and occupancies, are no longer as concerned now that occupancies and rates at Atlantis do not appear to have been affected as much as many feared.
But this is March, traditionally the best month of the year for Bahamas tourism for the past several decades. Our task now is to find ways to have March-like performance for many more months of the year.
Our tourism performance may explode if ways were found to have enhanced year-round sustainable tourism growth.
This is critically necessary when we look at levels of unemployment in The Bahamas, especially unemployment among young people. Our economy still has a long way to go to see even more robust growth and to significantly reduce unemployment.
When we look at the profitability of hotels and resorts the same sentiment applies. The fastest way to attract investors, domestic and foreign, to any segment of an economy is for it to become known that investors in The Bahamas enjoy reasonable levels of year-round profitability as compared to investments elsewhere.
These observations were reflected in the comments of the Minister of Finance K. Peter Turnquest even in the midst of the recent good news of a Moody’s upgrade of our outlook from negative to stable, a significant achievement.
Even as we added 25 percent more hotel rooms to the Nassau/Paradise Island inventory with the opening of Baha Mar, we need to increase occupancies by 25 percent at the same rates in order to get back to an even keel.
Average hotel occupancy is a good surrogate for the economic impact of tourism. With higher occupancies, more staff must be hired across the resort, more supplies are purchased by the resort, more transportation to and from the airport and around the island is required, more business is generated for retailers, independent restaurants, tour providers and others.
Consistent and predictable higher average hotel occupancies year-round is an essential guarantee for sustained periods of full-time employment in tourism. The Bahamas has been stuck at a certain average hotel occupancy for some time.
Our primary goal should be to increase demand for The Bahamas, thereby growing the average occupancy of our stock of accommodations which, over time, should also lead to increasing average room rates, the largest contributor to the profitability of hotel and resorts in The Bahamas.
Together, these factors lead to significant reductions in unemployment, significant increases in tax collection, increased profitability in the sector and robust expansion.
Once upon a time, not so long ago, unemployment rates in the United States and The Bahamas rose and fell with such synchronicity that it generated the familiar phrase: “When the United States sneezes, The Bahamas catches a cold.”
But beginning in 2009, there began a sudden, persistent and increasing separation between rates of unemployment between our two countries.
As unemployment rates continued to fall in the United States, unemployment rates in The Bahamas, uncharacteristically, began to rise to the highest levels ever seen. What happened?
A former tourism minister and leading regional tourism expert insists that one factor that accounts for most of the fall-off was the substantial loss of visitors from Florida from a peak of 350,000 per year to a trough of 240,000 per year coincident with the substantial increase in the price of an airline ticket from Florida to Nassau and from Florida to Freeport.
The former tourism chief argues that those increases arose with the introduction and addition of passenger facility charges to airline tickets, which was compounded by relentless increases in departure taxes.
The former minister highlights that the cumulative annual loss of visitors from Florida alone between 2006-2016 is equivalent to a loss of all visitors to Nassau/Paradise Island for one full year.
The state of Florida is critical to The Bahamas’ economy, as Florida has been our most important tourism source market for decades, reinforcing the power of proximity as a factor in tourism.
To wit: 50 percent of all visitors to Orlando come from the state of Florida; 25 percent of all visitors to Las Vegas come from Southern California; 40 percent of all visitor to Macao come from the nearby Chinese province of Guangdong. Proximity not only matters, proximity is a powerful factor in travel and tourism.
The price of airline tickets from Florida increased most significantly by the addition of fixed taxes of flat dollar amounts. Fixed flat dollar amount taxes have a disproportionate effect on total ticket prices for nearby markets.
The former minister offers the following example: For example, if the fare charged by the airline was $100 and the total fixed tax was $50, the total ticket price would be $150, and the fixed taxes represent 33 percent of the total ticket price. If the base airfare was $1,000 with the fixed tax still at $50, the total ticket price would be $1,050, and the taxes represent a mere 4.8 percent of the total ticket price.
Travelers with the $1,000 base fare might not notice the 4.8 percent increase, but travelers with the $100 base fare will see a substantial 33 percent increase in the price of an airline ticket.
The tourism expert continued: If in the same example the fixed taxes are raised by $60 – approximately the real number for The Bahamas – to $110, the total ticket price becomes $210 (100+50+60).
So the total ticket price rose from $150 to $210, representing a 40 percent increase in the total cost of that ticket. For the $1,000 base airfare, the new ticket price becomes $1,110 (1000+50+60), representing a mere 5.7 percent increase in the total cost of the ticket.
Airline ticket prices from Florida, our most important source market for decades, have increased substantially. Correspondingly, between 2006 and 2016, airline ticket prices for trips within the United States, including taxes, rose by only approximately six percent.
As a result, nearly every day, it is less expensive to fly the 2,200 miles from Miami to Las Vegas than it is to fly the 180 miles to Nassau or the 110 miles to Freeport. Leisure travellers have options and they often chose to exercise those options.
To make matters worse, by our own hand, we unilaterally conceded our most significant comparative advantage to our Caribbean competitors because our proximity to the United States is no longer reflected in airline ticket prices.
It does not matter that ticket prices from the United States to The Bahamas are often comparable to those to other places in the Caribbean.
What matters is that they are not lower as had been the case traditionally for decades. We unwittingly leveled the playing field and erased our most unassailable advantage.
What do we need to do to return to our unassailable advantage in order to achieve more sustainable year-round growth, expand our economy and significantly reduce unemployment?
Next week: Restoring Our Competitive Advantage.