Caribbean tourism development, statistics & information ...



|TOURISM EXECUTIVE BRIEF |

|June/July - 2007 |

Caribbean Tourism Organization ()

THE ECONOMY AND BUSINESS OUTLOOK

USA

As we approach the end of the second quarter, and what a tumultuous one it has been, we find that we have exhausted our usual clichés to describe a market that is trading up and down every few days in wild three-figure swings. It’s been a good quarter, nevertheless, with the Dow Jones Industrial Average rising well over 1000 points in spite of growing investor nervousness about the housing market collapse and its effect on mortgage-linked securities.

The recent near-collapse of two large hedge funds and a lot of saber-rattling about several others is increasing the unease as the critical housing market continues its downward spiral unabated. Sales of previously-owned homes fell in May to their lowest level in four years and new home sales for the month were also expected to show a decline. High home inventory in most parts of the country coupled with rising interest rates is likely to prolong the slump for many months to come. Fed Chairman Ben Bernanke says “the housing market is likely to remain a drag on economic growth for somewhat longer than expected” as housing accounts for about 23% of the US economy. Not the least of these concerns is the rising level of defaults among sub-prime mortgage borrowers and the number of Americans likely to lose their homes because of late mortgage payments rose to a record in the first quarter on both prime and sub-prime loans.

While the stock market rally continues in stuttering fashion, higher gas prices (up 10.5% in May) and declining wage are still taking their toll among lower to middle-income family households. Prices for staple household purchases including food rose sharply again last month while the average weekly earnings for workers in non-management jobs, adjusted for inflation, fell for the second consecutive month. This has clearly had a big impact on consumer confidence as demonstrated by the Reuters/University of Michigan’s most recent consumer sentiment readings released in mid June. The index declined to its lowest level since August last year as Americans’ perception of the outlook for increased inflation worsened. Seemingly in conflict with the reality, retail sales actually rose in May and there is still resilience in consumer spending among middle-upper to upper-income families and the economy created a higher-than-forecast 157,000 new jobs. Sales of luxury goods and services including travel were higher than lower-end items. Vacation business from the US to most foreign and domestic destinations remains weak with some notable exceptions, particularly among upscale properties, cruise products and packages.

Summer sales are already much in evidence. US airlines have dropped their cheapest fares for domestic travel in many holiday markets for the summer to levels which are 8% to 15% below last year due to reduced demand and increased competition from the low-cost carriers. Florida is one Caribbean-competitive market with unusually low fares this summer.

The big cruise lines including market leaders Carnival and RCCL are also launching a major price move on Caribbean cruises for the summer and fall. Agents tell us that a 7-day cruise on a top-brand ship can be had for under $400 a person. Big advertisers like Liberty Travel with a multi-million dollar budget have launched Caribbean-on-Sale campaigns in major markets in the Northeast. We will be watching closely to see if these promotions move the needle in the weeks ahead. Travel prospects for the Caribbean and South East coastal US resorts are not being helped by the alarmist reports about a powerful hurricane season ahead that are increasingly seen and heard in the media and our bellwether agencies and wholesalers are growing daily more concerned by consumer reaction.

Transatlantic travel is still the big competition for our region in the summer months, particularly among the upscale travelers that are dominating the market now and even the youth market in spite of the weak US dollar and passport issuance delays which have caused thousands of cancellations and delayed trips according to the European Travel Commission. However, earlier concerns about a slowdown voiced by the ETC only a month ago have dissipated as Europe’s peak season got off to a better-than-forecast start in May with the top nine transatlantic carriers reporting an average increase of 4.3% over 2006.

The Passport issue is getting worse and the finger of blame is being pointed widely in Washington. Senator Patrick Leahy, a co-sponsor of the bill to postpone passport requirements for land border and seaport crossings until June 1, 2009 in the latest phase of the WHTI, said recently “the administration is walking blithely toward a cliff with this program and they’re threatening to take millions of Americans with them.” The State Department has suffered a further indignity by calling for thousands of employees based in overseas consular and embassy posts to volunteer to return to the US to help with the backlog. The head of the Travel Industry Association which represents all components of the $700 billion travel industry in the US has joined the chorus of official complaints from business and organizations like CTO and CHA in asking the Department of State and Homeland Security for relief, but in all probability any relief will be limited to land and sea crossings.

CANADA

This is the first in a two-part look at the Canadian travel market which is growing in importance with a strong economy, an improving currency and a surge in demand for outbound vacation travel. A strong Canadian dollar is good news for travelers contemplating a visit to the Caribbean this year and the positive exchange rate is also good news for Canadian operators and airlines. The cost of fuel and room nights is typically purchased in US dollars although revenues are collected in Canadian currency. At the end of May the loonie had reached a value of 92.4 US cents and it may go higher if the price of crude oil continues its predicted climb.

If we look back at last winter as a barometer for the direction of outbound pleasure trips, we see an increase of 11.49% for such trips over the same period a year ago to 5.5 million. Even more significantly, pleasure trips to non-US destinations including the Caribbean have grown by double digits each month during the period with the largest growth starting in January while travel to the US cooled off. However, all of Canada is not equal and consumer confidence is much higher in British Columbia and the Prairie Provinces. The following report is taken from The Conference Board of Canada’s quarterly economic forecast by province and can be helpful for promotional planning purposes among Canada’s best prospects.

• Overall the Canadian economy is forecast to grow by 2.8% this year and a strong 3.4% in 2008.

• All the Atlantic Provinces will fare well. Newfoundland and Labrador continue a strong comeback in mineral production. Stronger natural gas production and growth in the financial sector lifts Nova Scotia. New Brunswick and Prince Edward Island have major capital projects and growth in manufacturing.

• Alberta’s prospects remain bright and real economic growth should be a solid 4.1% in 2007 in spite of weaker drilling activity.

• British Columbia has outstanding job creation, particularly in mining and construction, while provincial tax cuts are further stimulating consumer demand.

• Large multi-year capital projects, a healthy primary sector and a vibrant domestic economy enhance Manitoba’s prospects.

• Saskatchewan has recently experienced net positive interprovincial migration and is expected to have stronger economic growth as a result.

• Quebec will enjoy firmer economic growth this year, fuelled by a hefty pay equity settlement and a positive investment outlook.

• The industrial sector is still challenged in Ontario where the slowdown in the US economy is a concern for manufacturers. Outbound travel from Ontario has been weaker than from most other provinces in Canada in the first quarter. However, Ontario is expected to turn the corner into positive territory in 2008.

• Next month, we will take a closer look at the travel industry in Canada; online bookings and how they are affecting tour operators; and exactly where Canadians are traveling in the greatest numbers outside their country.

EUROPE

1. Online travel Market

Two recent reports from the Carl H. Marcussen Center and US market research firm E-Marketer offer somewhat different results and forecasts for trends in European online travel sales. Marcussen’s numbers are quoted in euros and are significantly higher. E-Marketer’s are given in dollars but we don’t know the conversion formula used. Marcussen predicts total online sales of 46.8 billion euros for 2007 rising to 54.8 billion euros in 2008. These reflect year-over-year increases of 22% and 18% respectively. In 2006, the breakdown of the European online travel market showed air travel accounting for 56%; accommodations 16%; package tours 16%; rail 8%; car rentals and ferries 4%. Direct sellers accounted for 69% of the total. According to E-Marketer, The UK is the largest online market in Western Europe accounting for 45%; however, Germany, Spain and Italy are growing at a faster pace. Thomson has also released its own online booking report in which it claims that 60% of its holidays are being sold online.

In an interesting development, Thomson says that most consumers are putting together their own components for do-it-yourself packages. Taking advantage of this trend, Thomson is developing a web filtering service for each of its holiday segments. It has already added a luxury button to Thomson.co.uk and will soon have similar buttons for family vacations, spa holidays and couples.

2. The UK Market

Respected commentator on the travel scene, Jeremy Skidmore, was quoted in the June 25 edition of online newsletter Travelmole that “It’s (the UK’s) one of the worst booking periods in living memory.” He was speaking of companies selling package holidays and went on to say “people are booking late, but they’re still booking holidays and plenty of them. The statistics show that more people book more holidays more often than ever before. Of course, millions are happy to make their own arrangements.”

Jeremy went on to say that there is tremendous overcapacity among the airlines, driven largely by the growing number of low cost carriers. He concludes that it’s no longer the tour operators calling the tune but the airlines while the consumer benefits with “a diet of ludicrously cheap holidays.” One of the largest and most successful of the no frills airlines Ryanair has made it clear that its strategy in a tough marketplace is to be even more aggressive and that its ambitious growth program can only be delivered by heavy discounting. Ryanair’s CEO Michael O’Leary says that those carriers with the deepest pockets who keep offering the cheapest prices will survive the crisis. EasyJet was quick to follow and has launched is own in-house tour program which it says will consign the traditional European tour operators’ holidays “to the dustbin of history.”

3. Germany

There is good news and bad news out of Germany, where booming online sales are taking a heavy toll on the traditional distribution channels in a similar situation to the UK. According to the latest annual survey of German travel agents, by leading industry magazine FVW, as many as 773 retail agencies closed their doors in 2006. There are now only 11,866 full-time travel agencies in Germany compared to 15,000 just eight years ago. FVW says they are competing in a “stagnating market” with falling commissions and increased competition from direct sales and online retailers. German agencies increased their combined revenues by only 0.7% last year to 20.8 billion euros.

The top agency chains last year were Rewe Touristik incorporating Atlas, DER and Derpart; followed by the QTA and TMCV consortia and TUI Leisure Travel.

Now the good news! German consumer confidence rose to a six-month high in June and led to an increased willingness among consumers to boost their spending. Market research company Gfk Ag’s monthly confidence index rose to 8.4% suggesting that consumer spending may increasingly contribute to economic expansion in a market which has been largely driven by exports and company investment.

If this willingness to spend continues, it bodes well for outbound tourism prospects from Germany no matter how they book their holidays.

We note here a potentially interesting development from Lufthansa which announced this month that it is planning new long-haul flights from airports other than its twin hubs in Frankfurt and Munich. This is a similar strategy to that Delta has successfully employed to expand its international routes by serving cities that differentiate it from the competition. Lufthansa is likely to choose Berlin, Hamburg and Stuttgart as probable departure airports – all sizeable population centers. The new routes will serve points in Asia and the US starting in the summer of 2008.

AIRLINE AND AVIATION NEWS

1. European Airline Consolidation Update

We have written before about the impact of potential consolidation of national carriers in Europe as a direct result of the new open skies treaty between the European Union and the US. The big three carriers – British Airways, Air France/ KLM, and Lufthansa remain firmly at the apex of negotiating and deal-making, much of which is behind the scenes. Iberia is still very much in play and Lufthansa has discussed a potential bid with the British private equity firm Apex Partners Worldwide which could trump a similar deal between British Airways and TPG. Lufthansa is likely to intrude even further into BA’s backyard if it buys the 20% holding in British Midland from SAS which put those shares on the block earlier this month. Lufthansa already owns about 30% of bmi which holds the second largest number of those coveted slots at London’s Heathrow.

Still another possibility for Lufthansa to up the ante at Heathrow and further challenges to BA could come about if Lufthansa buys the 49% of Virgin Atlantic now held by Singapore Airlines and said to be up for sale. The combination of bmi, Lufthansa and Virgin Atlantic would account for nearly 20% of existing Heathrow slots compared to BA’s 41.4%.

Lufthansa has had success with its earlier acquisition of Swiss International Airlines in 2006 and the improving economic picture in Germany would seem timely for further acquisitions.

Not totally out of reason, given recent history and the merger of Air France and KLM, would be a linkup of BA and Lufthansa themselves, creating an even larger behemoth. Stay tuned.

In still another European arena, the Italian government’s efforts to auction off its beleaguered national carrier Alitalia seem to have run into more roadblocks. Russian state-owned Aeroflot announced it was pulling out the auction and the Italian government is rapidly running out of options. Bidders have been asked to submit final offers to the Italian government by July 2 with a mission statement as to how they would turn the ailing carrier around. Don’t hold your breath. Finally, the European Regulatory Commission has blocked the acquisition of Aer Lingus by Ryanair claiming such a merger would create a monopoly in the Irish market.

2. Delta Airlines

In what truly is an amazing turnaround story from a carrier that seemed destined for a hostile takeover or worse only a few short months ago, Delta is showing resurgent financial strength and the ability to make big investments as it continues to expand its more profitable international routes. Delta says it is in negotiations to order as many as 125 of Boeing’s new 787 jetliners to replace its Boeing 767s over a long period of time. The 787 is longer-range and more fuel-efficient than the aging 767s. It will make its first public appearance in July and the first 787 is scheduled to start airline service with Japan’s All Nippon Airways next May. Delta also plans to spend an average of $1.2 billion a year over the next three years on existing aircraft refurbishment, airport improvements including new baggage handling equipment and a new computer system – see below.

Delta has already revamped its website in partnership with New Orleans-based company iSeatz which has provided Delta with a technology solution to expand the array of non-air inventory that can be booked together with Delta flights. iSeatz has also provided Delta with new vendor relationships that include inventory for over 60,000 hotels, major car rentals and more than 3,000 activity products at Delta destinations. Like the phoenix, Delta has risen from the ashes and is doing it in style.

3. JetBlue Airways

JetBlue continued its own resurgence under new CEO David Barger as it boosted its second-quarter operating margin estimates as decreases in its fuel costs offset flat passenger revenues.

In a filing with the Securities and Exchange Commission, the carrier said it would generate a second quarter operating margin, a measure of profitability, from 9% to 11%. This is good news for those of our destinations already served by JetBlue and for their potential expansion into the Region.

CRUISE NEWS

Carnival Corp provides all our news stories for the cruise segment this month.

Carnival reported a slight gain in its second quarter profits as the strength in its European operations and sales offset weakness in the Caribbean. The world’s largest cruise company reported a $390 million profit on revenues of $2.9 billion, up 9% from 2006. It claimed that pricing was improving for the second half of 2007 and into 2008 but that does not accord with the rock-bottom sale prices we are told are being offered in the US marketplace.

Earlier this month, Carnival announced that it planned to base its newest and largest ship, the 3,006-passenger Carnival Splendor in Southern California after its inaugural service operating the company’s first Northern Europe cruise program begins in July next year. The Splendor will briefly operate Caribbean sailings prior to its move out west to its new home. Carnival’s West Coast cruises will employ three ships sailing year round out of Long Beach and San Diego plus a fourth with seasonal itineraries out of San Diego. Finally, Carnival Corp will transfer a ship from one of its 10 cruise brands to launch a new cruise line being jointly formed by Carnival and German tour operator TUI. The joint venture will set sail in 2009.

POSTSCRIPT

A number of our readers undoubtedly will have seen a prominent article in the New York Times by a writer who attended the Investment Conference in Curaçao. It addressed massive new resort development within the region at a time when demand for the Caribbean is softening and competition globally is increasing. The article which appeared just before Caribbean Week in New York was generally fair and balanced with quotes from CTO’s Secretary General and CHA’s President among others from the region. However, one negative source about the decline in the Caribbean’s public image stood out like a sore thumb to your editor. The article illustrated the Caribbean’s competitive problem by quoting just-released rankings from the online travel community site TravelAdvisor of the top 10 destinations worldwide with “the hottest beaches and the coolest nightspots.” Amazingly, while Miami’s South Beach and Spain’s Ibiza topped the list, not a single destination in the Caribbean made it. Why be concerned at this one aspect of an in-depth story that had some positive notes? Here’s why: TravelAdvisor has attracted a lot of attention of late in the consumer and trade press – all very positive on its credibility and value to the public in planning a trip and its influence is beyond doubt. Trip Advisor has doubled its reviews and opinions to 10 million in just one year demonstrating the new power of social networking on the Web.

PC World says that nothing quite measures up to TripAdvisor which appears regularly in their best-of-web stories and their surveys find that many consider it the pre-eminent web 2.0 travel site because it has successfully parlayed user-added content into a rapidly growing business. TripAdvisor says it has 20 million monthly visitors to its site and rising rapidly from consumers who tap into others experiences to help plan their own trips more efficiently. We have always known that word-of-mouth was the most effective form of advertising and now the power of direct advice from someone like you who has actually been where you want to go is available in a macro format.

TripAdvisor is by no means the only game in town and there are a growing number of imitators out there playing catch-up like TripConnect which offers similar social networking opportunities with friends who sign up or with other members with similar interests. Some sites let you share photos and videos.

These are powerful forces which we cannot ignore and make it even more necessary to maintain quality products as we become increasing naked to consumer scrutiny around the world – like it or not.

Industry Performance in 2006 & 2007

Performance in 2006

Tourist arrivals to Caribbean destinations grew only marginally, by 0.02 percent in 2006.

One major reason was the sharp fall-off in visitation to Cancun reflecting the impact of their October 2005 hurricane. Cancun, which is one of the region’s largest destinations, recorded a 25.6 percent decline in their tourist arrivals (a decline of around 546,000 tourists) in 2006. Although there was evidence of a re-direction of some of this traffic to other destinations in the region (e.g. Jamaica), the net effect on overall business to the region was negative.

None of major markets did particularly well. As Table 1 below shows, the region recorded small increases from the United States and Canada, with moderate declines from Europe and other markets. Cruise passenger visitation also grew very slowly, by a marginal 0.9 percent.

|Table 1: Visitor Arrivals to Caribbean Destinations - 2005 & 2006 (thousands) |

|Main Markets |2005 |2006 |% ch. |

|United States |11,352.8 |11,490.8 |+1.01% |

|Canada |1,788.7 |1,810.3 |+1.01% |

|Europe |5,498.5 |5,402.0 |-1.76% |

|Other |3,573.2 |3,516.3 |-1.59% |

|TOTAL |22,213.2 |22,219.4 |   +0.02% |

|Cruise Passenger Visits |18,996.0 |19,153.1 |+0.09% |

Performance in 2007

Based upon the available data, CTO estimates that the number of tourists visiting Caribbean destinations during the Winter months (January-April) of 2007 increased by an estimated 1.4 percent when compared with the same period in 2006. The region recorded a sharp decline (-5 percent) in tourist arrivals from the United States during this period while registering good growth from Canada (8 percent), Europe (4.5%) and other markets. Reduced demand and WHTI were major contributors to the US performance, while the Cricket World Cup contributed to increased intra-Caribbean travel. Cruise passenger visititation increased by an estimated 6 percent. In sharp contrast to 2006, overall tourist arrivals to the region were boosted by an upsurge in tourist visitation to Cancun (up 42.8 percent through June) as this destination rapidly returns to full operation.

|Table 2: Visitor Arrivals to Caribbean Destinations – Winter 2007 |

|MAIN MARKET |Winter Tourist Arrivals (thousands) |

| |Winter (Jan-Apr) |% change 2007/2006 |

| |2006 | 2007* | |

| United States |4,330.0 |4,115.0 | |

| | | |-5.0% |

| Canada |1,019.0 |1,130.0 | |

| | | |8.0% |

| Europe |1,963.0 |2,050.0 | |

| | | |4.5% |

|Other |1,123.0 |1,255.0 | |

| | | |11.7% 12.6% |

|TOTAL |8,435.0 |8,550.0 | |

| | | |1.4% |

| |

|CRUISE PASSENGER ARRIVALS ('000) | 8,169.0 | 8,577.9 | |

| | | |6.0% |

|* CTO estimates; based on available country reports; includes rounding errors |

Table 3 (below) provides a summary performance of individual destinations so far in 2007, while Table 4 (on the following page) provides a breakdown of tourist arrivals by major markets and shows the sharp difference in the performances of these markets.

|Table 3: Tourist (stop-over) Arrivals and Cruise Passenger Visits in 2007 |

|Destination |Tourist Arrivals |Cruise Passenger Visits |

| |Period |Tourists |% Change |Period |Cruise |% Change |

| | | |2007/06 | |Passengers |2007/06 |

|Anguilla |Jan-Mar |24,974 |22.2 |- |- |- |

|Antigua |Jan-Jun |135,564 |-1.2 |- |- |- |

|Aruba |Jan-Mar |187,027 |9.8 |Jan-May |266,464 |-10.7 |

|Bahamas |Jan-Apr |543,341 |-8.5 |Jan-Apr |1,121,083 |-3.5 |

|Barbados P |Jan-Jun |295,916 |2.8 |Jan-May |306,951 |15.6 |

|Belize P |Jan-Mar |77,756 |2.4 |Jan-Apr |340,904 |8.7 |

|Bermuda |Jan-May |107,083 |5.6 |Jan-May |75,584 |8.9 |

|British Virgin Islands |Jan-Mar |108,527 |0.9 |Jan-May |311,368 |17.6 |

|Cancun (Mexico) ** |Jan-Jun |1,118,573 |42.8 |- |- |- |

|Cayman Islands |Jan-Jun |163,086 |8.4 |Jan-Jun |1,079,790 |2.6 |

|Cozumel (Mexico) ** |Jan-Feb |57,075 |35.1 |Jan-Mar |874,074 |30.7 |

|Cuba |Jan-Apr |895,307 |-8.3 |- |- |- |

|Curacao |Jan-Apr |90,471 |9.5 |Jan-Apr |176,392 |14.6 |

|Dominica |Jan-Apr |26,000 |-3.6 |Jan-Mar |141,243 |-6.2 |

|Dominican Republic * |Jan-May |1,778,103 |0.5 |Jan-Apr |204,591 |9.2 |

|Grenada |Jan-May |56,437 |8.6 |Jan-May |162,710 |16.1 |

|Guyana |Jan |8,933 |9.5 |- |- |- |

|Jamaica |Jan-Mar |427,252 |-2.1 |Jan-Mar |411,622 |1.3 |

|Martinique P |Jan-Apr |201,244 |5.1 |Jan-Apr |46,781 |-16.3 |

|Montserrat |Jan-Jun |3,587 |-4.9 |Jan-Mar |102 |- |

|Puerto Rico |Jan-Feb |258,392 |-9.7 |- |- |- |

|Saba |Jan-May |5,290 |-1.4 |- |- |- |

|St. Lucia |Jan-May |125,998 |-9.2 |Jan-May |320,387 |52.3 |

|St. Vincent-Grenadines |Jan-May |40,463 |-2.8 |Jan-May |96,085 |52.2 |

|US Virgin Islands |Jan-May |331,028 |-2.1 |Jan-Jun |1,023,111 |0.3 |

|* Non-Resident Air Arrivals **Non-Resident Hotel registrations only - No cruise arrivals reported |

|SOURCE - Data supplied by member countries and available as at August 2, 2007 |

|Table 4: Tourist Arrivals by Main Market - 2007 |

|Destination |Period |United States |Canada |Europe |Other |

| |

|BARBADOS |NEW YORK |LONDON |CANADA |

|One Financial Place |80 Broad Street, 32nd Floor |22 The Quadrant |2 Bloor Street West, Suite 2601 |

|Collymore Rock |New York, NY 10004 |Richmond |Toronto, Ontario |

|St. Michael, Barbados |USA |Surrey, TW9 1BP, England |Canada M4W 3E2 |

|Tel: 246-427-5242 |Tel: 212-635-9530 |Tel: +44-208-948-0057 |Tel: 416-935-0767/1-866-997-0096 |

|Fax: 246:429-3065 |Fax: 212-635-9511 |Fax +44-208-948-0067 |Fax: 416-935-0939 |

|ctobar@ |ctony@ |ctolondon@ |ctotoronto@ |

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Industry Performance Summary 2006 & 2007 – Page 8

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