• by Karl Greenberg , August 10, 2009

The Caribbean is getting hit by more than weather -- resorts and hotels are feeling the economic ebb tide. According to PKF Hospitality Research (PKFHR), an Atlanta-based firm, Caribbean hotels experienced a 16% dip in profits last year, on average. And the firm's 2009 version of "Caribbean Trends in the Hotel Industry" forecasts that this year will be no better.

Like automakers, the Caribbean hotel groups are leaning on incentives and regional advertising to drive visitor traffic and packages. The firm says the economic situation depressed revenue by 4.5% in 2008, per PKFHR.

Scott Smith, SVP of the firm, says hotels and resorts can contribute up to 40% of an island nation's GDP. "Typically, the larger the island or bigger the population, the less of GDP the resorts or hotels represent." He says the Dominican Republic has the most tourists per year of any Caribbean island, with some 2.5 to 3 million visitors per year.

The firm, which tracked changes in operating revenues and expenses for Caribbean hotels from 2007 to 2008, also says the economic climate has forced postponement of new hotels and forced others into insolvency -- even higher-end hotels serving a segment of the market that has traditionally been cushioned. The firm says the Four Seasons Great Exuma has been forced to close due to the drop in reservations.

Of the 105 projects constituting 22,136 rooms under development in the Caribbean this year, only 54 of them are under construction, per PKF -- which says it is likely the remaining 51 projects will be delayed until the economy turns around.

And hotels have also had to cut operations. The firm says Caribbean hotel managers face more difficult challenges than their U.S. counterparts because many hotels are located on islands without natural resources, goods, and services, especially for high-end resorts and hotels.

Smith says things are worse year-to-date than they were last year. "It isn't that American tourists are traveling less; rather, they have deferred travel or opting for a drive-to vacation, as opposed to having to get on airlines."

He says the timing was about as bad as it could be for the Caribbean, for which winter in the U.S. is the big tourist season. "The downturn, news of layoffs, and crashing credit markets, all happened during the Caribbean's peak travel period: January, February and March." Smith adds that while things might now be turning around for the economy, it's a bit late for the islands, which see a big drop in tourism with hurricane season in the wings. "Last year saw an increase in fuel costs -- now that's come down and the economy may be turning around, but it's the end of the season -- pretty much everyone has written off the remainder of 2009 and is wondering what they will do for 2010," he says.

He adds that group-deals are also down, as corporations have less money to spend on exotic meeting locales, and those that do have the money are toning it down, post AIG.

Smith notes that the financial perfect storm for island hotels makes for great deals for travelers. "Everyone's discounting rates for the remainder of the year, offering 'stay three nights, get a fourth free' and things like $200 vouchers for spas or food," he says. Pack your bags.