Caribbean hotels see 18.6 percent increase in net operating income

Net operating income for the average Caribbean hotel increased 18.6% in 2013, according to a report by PKF Consulting USA.

The 2014 edition of PKF’s Caribbean Trends in the Hotel Industry reported that last year marked the third in a row that the region’s hotels saw double-digit percentage growth in net operating income, and it was the highest annual growth in operating profits since 2008.

However, the report also noted that while hotel occupancy, average daily room rate and profit are expected to further increase, hotels in the region still lag prerecession levels of performance.

“Caribbean hotels have unique operating challenges that result in relatively higher expenses,” said Scott Smith, member of the Appraisal Institute and a vice president in PKF’s Atlanta office.

“Fortunately, recent increases in visitation to the region have resulted in top-line revenue growth that has overcome the high costs and resulted in strong growth in bottom-line profits,” he said.

Rooms rates accounted for 56.8% of total revenue, the largest source of revenue for the properties in the sample. Food and beverage sales accounted for 28.8% of total revenue, and retail and recreational outlets another 12.7%.

PKF noted a drop in visitor spending on extras, such as golf courses, casinos and spas, from 2012 to 2013.

Total revenue for the survey sample registered an overall increase of 4.4% last year.

Operating costs for Caribbean hotels in 2013 increased 1.9%, much of it in rooms overhead.

Ecofriendliness pays off

However, utility costs declined 3.4% for the properties in PKF’s sample.

“Caribbean hotels have been at the forefront of green and sustainable practices,” Smith said. “We are starting to observe the benefits of their efforts in the form of reduced energy costs.”

Although operating profits jumped 18.6% in 2013, the higher costs of goods, services and utilities in the Caribbean relative to the U.S. resulted in lower relative profit margins, according to the report.

In 2013, Caribbean resorts registered a 16.3% profit margin, compared with a 21.4% margin for comparable U.S. resorts.

With profits growing, the region is attracting developers from around the world. As of June, 27,690 hotel rooms were either under construction or planned for development in the Caribbean region, according to STR’s June 2014 Construction Pipeline Report.

Smith warned that the additional supply of hotel rooms could hinder the pace of recovery.

“There are some large destination resorts on the horizon,” he said. “It is hoped that these huge resorts will induce additional guests to the region as opposed to cannibalizing existing lodging demand.”

The biggest developments in terms of room count include the 2,900-room Baha Mar resort in Nassau, slated to open next spring, although the recently announced Singulari project in Antigua could top Baha Mar’s room count when completed.

Airlift continues to be a priority and a concern.

“In order for new resorts in the area to thrive, the Caribbean needs increased nonstop flights and a reduction of airline taxes,” Smith said.
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Follow Gay Nagle Myers on Twitter @gnmtravelweekly.