Caribbean islands slammed with double financial hit

A year ago, tourists lined up to eat at Conch Fritters, a downtown restaurant here known for its blackened grouper, conch chowder and other local specialties. Yet, on a recent midweek night last month, tourists were scattered among just a few tables.

Across the bridge on pricey Paradise Island, honeymooner Kim Sessa of St. Louis says she and her husband watched TV in their room rather than sip $13 cocktails in an empty bar at the sprawling Atlantis resort.

"We would've stayed if there was a pulse," Sessa says.

The Caribbean is facing its worst tourism downturn since the Sept. 11 attacks, due to a double blow from the world economic crisis and sweeping airline cutbacks, especially by the region's dominant carrier, American Airlines. Though carriers such as JetBlue expanded and American restored some capacity, January non-stop capacity between the regions remains 9% below last year from the Lower 48 to the Caribbean.

While some islands have other industries, such as banking or oil refineries to pick up the slack, the Caribbean relies on tourism more than any other region in the world — with two-thirds of visitors coming from the USA.

Vincent Vanderpool-Wallace, the Bahamas' tourism minister, says this downturn differs from the one that followed the Sept. 11 terror attacks. "This is much deeper," he says. "All sectors, all price levels are affected."

The fallout, however, varies by island and by several factors, such as proximity to the USA, the quality of airline service, where tourists come from and the size of tourists' wallets. Both the Bahamas and the Cayman Islands, for instance, rely on the USA for more than 80% of their tourists, yet the Cayman Islands — which caters more to wealthy visitors and divers, and people who tend to book further in advance — isn't hurting as badly as the Bahamas, which draws more mass-market, spur-of-the-moment travelers.

"Some countries have been more adversely affected than others," says McHale Andrew, executive vice president of the St. Lucia Hotel and Tourism Association. "It's not the same across the Caribbean."

According to the most recent statistics for St. Lucia, the number of visitors in November fell 10%, to 19,803, from 2007. The number of cruise passengers fell by 17%. Arrivals from the USA, St. Lucia's biggest market, dropped 36%, due largely to American's reduction in flights from San Juan, Puerto Rico.

Bookings to many Caribbean islands started falling noticeably last fall, as the U.S. stock market crashed and a broad swath of the USA's traveling middle class lost confidence in the economy. "People were too afraid," says Nancy Yale of Cruise Resort & World Travel in Fairfield, Conn. "They weren't even calling. They were paralyzed."

People who did make plans to fly to the Caribbean for Christmas were shocked by the airfares, driven by American's capacity reductions, she says. Instead of $500 or $600 a person, fares during the fall months soared to about $1,000 each.

By mid-December, even the budget Comfort Suites on Paradise Island found itself struggling, and its bookings for New Year's week were about half what they were in 2007, says Arthurita Butler, the hotel's general manager. "That pretty much goes right into March," she says. "And, of course, your entire business is based on January, February and March. … We have to brace ourselves for what may be a very depressing 2009."

Corporations and business groups also grew leery about lavish events planned for late 2008, as news of mass layoffs became commonplace.

Nassau's five-star Graycliff hotel, known for its wine cellar, lost Christmas parties for as many as 600 people from companies such as Morgan Stanley, says owner Enrico Garzaroli. And at the Atlantis, business groups canceled large meetings or moved them into 2009.

"People didn't want to be seen to be going out and having a five-day Bahamas convention, when in the meantime, you open the newspaper, and another 10,000 people are let go on Wall Street or Detroit," says George Markantonis, president of Atlantis.

With evidence of a downturn mounting for months, some Caribbean governments approved emergency ad blitzes, while others agreed to pay airline subsidies to add or retain service. Large hotels also took action. Strategies include:

•Cutting jobs. All-inclusive chain Sandals in December announced layoffs of 650 workers, or 7% of its payroll, at resorts in the Bahamas, Jamaica and St. Lucia. The Comfort Suites on Paradise Island laid off a fifth of its workers earlier this month following months of reducing hours to avoid layoffs. In December, the Atlantis — the Bahamas' biggest employer after the government — laid off 800 workers.

•Pitching deals. Consumers are finding airfare rebates, cut rates and resort credits at even the toniest getaways. The luxury CuisinArt resort in Anguilla, for instance, is offering a $500 resort credit to those who book a five-night stay through March 13. Ritz-Carlton is pitching resort credits through April ranging from $110 to $200 a day at its Jamaica, Cayman Islands, Puerto Rico and St. Thomas hotels. Through March 1, the Atlantis is selling a four-night package that includes a dolphin activity for as low as $499. The Nassau/Paradise Island Promotion Board is also offering $200 rebates to people who book air and hotel.

•Booking pop acts. The Atlantis is taking a cue from Caesars Palace in Las Vegas, which sold tickets to the popular Celine Dion show only to guests. On otherwise slow weekends, it's booking some Disney Channel acts such as the Jonas Brothers, who played the weekend after Thanksgiving and generated "thousands" of room nights, says Markantonis. Tickets cost $175, on top of the required room cost.

For parents, the trip and concert "turned into early Christmas presents," says Markantonis. The Atlantis booked them again for March, April and May. The concert's success showed that people are less likely to cut trips that revolve around children, he says.

•Tackling air service. The prospect of having fewer flights and soaring airfares scared tourism ministers. "The one thing we identified as the most significant threat was air lift," says Charles Clifford, the Cayman Islands' tourism minister.

The Cayman Islands government pumped $11 million into its tiny national carrier, Cayman Airways, to expand. It added non-stop service to two more U.S. cities, Chicago and Washington, D.C. In February, it plans to launch Panama service to tap Brazilian tourists and serve island residents who shop there. Airline subsidies pay, given the "overall economic contribution," he says.

Jamaica, which earned $2 billion from visitors last year, took another route. It signed a $4.5 million revenue guarantee deal with American in September to add service, such as Dallas-Montego Bay, as its national carrier, Air Jamaica, struggled.

"Our advance bookings are 15% below where we think they ought to be," Air Jamaica CEO Bruce Nobles says. The airline handles about half of Jamaica's tourists.

•Boost marketing. Large properties from Atlantis to Sandals took out ads on CNN and other national cable channels to boost visibility. Jamaica passed a tourism rescue package that boosted advertising dollars by $5 million, or about 20%, says John Lynch, chairman of the Jamaica Tourist Board. The board is posting Jamaica signs atop 400 cabs in New York, Chicago, Boston and Philadelphia. Last week, St. Lucia OK'd a $7 million marketing boost. And the Bahamas started a $12 million campaign.

Normally competitors, Caribbean tourism leaders are now discussing a united marketing campaign. They need one to help against Mexico's Riviera Maya, which has stolen market share by offering travelers a similar mix of sun, sand, sea, foreign culture and new resorts — often at lower prices, says hospitality consultant Parris Jordan of HVS.

Besides luring bargain seekers, the Riviera Maya region is targeting the wealthy, says travel agent Yale. A Mandarin Oriental opened a year ago near Mayan ruins and the Cancun airport. "People who used to thumb their noses at Mexico because they only go to Barbados are now saying, 'If I can get a better fare, maybe I'll go there,' " Yale says.

Airlines this month scheduled 12% more non-stop seats between the Lower 48 and Cancun vs. last year.

Much at stake

The stakes to salvage 2009 are especially high for the Caribbean, says Paul Cashin, Caribbean division chief for the International Monetary Fund. Countries such as Antigua and Barbados rely on tourism for about half their GDP, while it accounts for about 25% for others, such as the Dominican Republic and Grenada.

The downturn could prove especially devastating for countries such as Dominica, which has a fragile economy and a more fragile tourism industry.

In the last decade, Dominica — with volcanic peaks that disappear into the clouds and jaw-dropping waterfalls — has tried to sell itself to nature lovers and cruise ship passengers. But it lacks frequent air service and hotel chains that promote destinations. Now, tourism has slowed to the point where street vendors are panicking, says Norris Prevost, a Dominica Parliament member, who recently spoke with a group of women who feed their families by braiding tourists' hair for $2 apiece.

"They were frantic. It was about 2 p.m., and business was just dead," Prevost says. "The taxi people are complaining, too. Tourists are spending no money. This is really traumatic."

Caribbean tourism leaders hope that the discounts and other strategies could improve tourism, but it's not clear by how much or when.

Entrepreneurs Tellis and Sylvia Curry, who own a conch stand in Potter's Cay in Nassau, say that in the last several weeks they've had more Canadian tourists than usual, but fewer U.S. tourists. Sylvia Curry, a Boston native, says, "I'd think the bad weather would push people here."

That may happen, says Vanderpool-Wallace, the Bahamas' tourism minister. His country is noticing more last-minute bookings, especially for breaks such as Presidents Day weekend, as the Northeastern U.S. freezes over. Through March, "We are not as far behind," he says.

Like the Bahamas, St. Lucia's bookings are also failing to match the dire forecasts predicted late last year, Andrew says. Through March, U.S. bookings are down 5% — vs. last year's 11% decline. Still, some of the trips could've been before the economy sank, he says: "Bookings after April don't look, so far, very encouraging."

One of the problems with forecasting 2009 business is that economic uncertainty is changing consumers' buying patterns. Yale says that some clients are calling for last-minute trips after hearing about discounts and cheaper airfares.

The growth of low-fare carrier JetBlue has helped. In December, JetBlue controlled 12% of the scheduled, non-stop seats from the Lower 48 to the Caribbean, vs. 8% a year earlier, which made it the second-biggest carrier in the region after American, which had 35%.

"When American made that decision (to cut service), it certainly influenced our choice to backfill," says Marty St. George, a JetBlue executive.

Some of the region's most exclusive hotels haven't lost their optimism. Garzaroli still expects to fill the Graycliff, which sells $4,000 glasses of cognac, with those least affected by the economic crisis: the super wealthy.

"There are plenty of wealthy people," he says. "Instead of eating caviar, they eat foie gras."

Barbara Hansen reported from McLean, Va.

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