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Caribbean sees solid growth; braces again for Cuba, Zika

Hilton's El San Juan Hotel in Puerto Rico
Hilton’s El San Juan Hotel in Puerto Rico

U.S. hotel companies circling in the waters off Florida’s coast might notice a few things when they survey what until recently was utterly forbidden territory.

First, a conveniently located country edged with white-sand beaches, drenched in sunshine and culture, and bursting with seemingly endless revenue opportunities. Second, an awful lot of Meliás, among other international brands.

Cuba is one of many islands in the Caribbean, and it’s not virgin territory – but it is the largest, and the one with the most immediate potential upside. Its domination of the headlines, at least in the U.S., is only part of the story of the region.

‘Very strong’

“The market continues to be very strong in the Caribbean despite the challenges,” said Parris Jordan, vice president at HVS New York and managing director of HVS Bahamas. Challenges primarily include the Zika virus, which grips a swath of the Caribbean and Latin America. The Caribbean reversed six consecutive years of ADR and RevPAR growth in the first half of 2016, Jordan said, but demand rebounded. “When the numbers started to decrease – and it was overblown a bit – the investors saw those numbers decline and decided to take a step back,” said Jordan, who advocates a longer-term perspective.

While companies acknowledged small hits to group business, the virus hasn’t appeared to stymie development. Hilton has nearly 20 properties with more than 6,800 rooms open, and 10 hotels in its pipeline as of September, representing 1,500 rooms. “We have great expectations for St. Thomas, St. Kitts, the Dominican Republic, Aruba and Dominica,” said Juan Corvinos, a managing director for development in the region.

Wyndham Hotel Group plans Wyndham Grands in Barbados and Nevis, both opening in 2019. It also has a deal to bring its second Tryp to the region in Trinidad, and it’s looking to plant a flag in Jamaica.

In 2016, Marriott International signed hotels in Antigua, Dominica, Puerto Rico, Jamaica, Trinidad and Tobago, and the first Courtyard resort in Aruba. Of Starwood’s brands, a Ritz-Carlton Reserve and St. Regis are coming to Bermuda, and a Ritz-Carlton is coming to Turks and Caicos, said Alejandro Acevedo, vice president of development in Mexico and the Caribbean. On the resort side, Marriott is looking in the Dominican Republic, Jamaica and Barbados; on the business side, San Juan, Puerto Rico, and Santo Domingo, Dominican Republic have further potential.

Barcelo Hotel Group has nine properties in the Caribbean, mostly in the Dominican Republic. The company has been managing more, said Juan Perez, senior vice president of sales and marketing – USA at BHG Latin America, although acquisitions aren’t off the table. Barcelo aims to grow in higher-end segments in both resort and urban destinations. It manages two Cuban properties and will add a third in Varadero this year. “The destination will continue to be a priority market,” Perez said.

Speaking of which

“We would welcome the opportunity to come back to Cuba,” Hilton’s Corvinos said. “We’re patiently waiting to get regulatory approval to get back on the island.”

Marriott gained a coveted foothold in Havana through its acquisition of Starwood last year. Its Four Points by Sheraton opened a few months ago, and the Hotel Inglaterra, a Luxury Collection, is being renovated. “We are continuing with business as usual, and we will comply with U.S. regulations. We’re waiting to see what happens,” Acevedo added.

The main challenge for the Four Points is customer expectation. “The Cuban people are really amazing,” Acevedo said. “They have a great attitude for service, but they’ve never been trained based on the U.S. standard, so I just think it is part of the education process. But the attitude and willingness is there.”

“We welcome the competition,” said André Gerondeau, executive vice president of hotels at Palma de Mallorca, Spain-based Meliá Hotels International. It’s been in Cuba since 1990 and has 28 hotels and over 30,000 rooms, mainly Meliá and Paradisus brands, with three in the pipeline. That’s 21% of inventory and 28% of marketshare, he said. Meliá just opened the 1,076-room Meliá Jardines del Rey, an all-inclusive on Cayo Coco, and intends to bulk up its higher-end portfolio.

Is Gerondeau ready for new competition in Cuba? “We are probably the strongest players in the all-inclusive and high-end all-inclusive, and we have a strong position in the Caribbean,” he said. “We understand the culture, the market, the customer probably much better than anyone else does.” He echoed the training challenges but points to consistent improvement that isn’t directly related to increased U.S. interest as much as it is to changing customer habits and rising demand in general.

That isn’t stopping Wyndham. “We plan on looking at opportunities this year to introduce our brands to Cuba,” said Paulo Pena, president and managing director, Latin America and Caribbean. “We’ll be talking to potential partners and attending development conferences, but will work within the necessary legal framework to bring hotels to the island.”

The vacuum

“The process of the relationship recovery between Cuba and the U.S. is a way without return,” said Arturo Garcia Rosa, founder and president of SAHIC, the South American Hotel and Tourism Investment Conference, which is hosting a conference in Cuba in May. “What we are seeing is only the tip of the iceberg.” He doesn’t believe the U.S. would pass on opportunities so close to its own border. Once those opportunities develop, if given the opportunity, how will it impact the rest of the region?

“There was great trepidation on the part of many with respect to what would happen to local markets in the Caribbean region” after the U.S. announced a warming of relations with Cuba in 2014, said Letvia Arza-Goderich, a partner at Preston Arza, West Hollywood, California, and a lawyer who practices in the U.S. and Caribbean.

However, she hasn’t seen any reduction in demand in places like Puerto Rico or the Dominican Republic – just the opposite – and lopsided supply means “any so-called vacuum is going to take a long, long time” to build, she said.

Wyndham’s Pena doesn’t hear a giant sucking sound, either. “The emerging interest in the country won’t drastically change our development strategy in the Caribbean,” he said. “Cuba is now certainly on our radar in a way it wasn’t previously, but there are other markets throughout the region which have years and years of reputation and infrastructure already in place.”

Corvinos pointed to the melting pot. “Every (island) has its own culture, its own gastronomy… The beautiful thing about the Caribbean is that you have choices.”

“Initially I think you’re going to see an influx of people going because of the curiosity factor,” HVS’ Jordan said. “The flip side is that if someone is going to Nassau or the Dominican Republic, they’re not going to cancel their vacation to go to Cuba. Aruba has a lot of repeat visitation. I don’t see that changing.”

To stay competitive, other islands need to focus on their advantages and deliver world-class service, said Jordan, offering Punta Cana as a success story. “Cuba will eventually change the landscape,” he said. “Many islands are bracing for the impact.”

 


Qué complicado

Jorge Duany, director of the Cuban Research Institute at Florida International University, has two opinions on U.S.-Cuba relations: The embargo probably won’t go away as long as Congress remains in Republican control; and the U.S. will probably restrict the 12 categories of travel that are currently allowed.

Despite that, “the opening has in general been good to families on both sides of the Florida straits,” Duany said. However, one of the main goals of the U.S. engagement policy was to improve human rights in Cuba, and there is evidence that is has gotten worse, he said, citing a crackdown on peaceful demonstrations during former President Barack Obama’s 2016 visit.

Tourism is driving construction and providing opportunities for a populace with one of the highest literacy rates in Latin America. “The problem is that you have a mismatch between a very well-educated labor force and the kinds of economic opportunities now available. That’s been one of the tragedies of the Cuban economy since the 1990s,” Duany said. “It’s not uncommon to find a PhD driving a cab or running a restaurant. They earn more money than in their own profession.”

 


Zika season

“Everyone is waiting now for 2017 to see what the pattern of Zika is,” said Dr. Anna Durbin, a professor at Johns Hopkins Bloomberg School of Public Health in the department of international health. Large-scale outbreaks like those in 2016 may continue; or more people will have developed immunity.

“The expectation is that as the weather gets warmer and mosquitoes start circulating again, we’re looking to see if the number of cases of Zika, come May, April, June, will be at the numbers they were in 2016,” said Durbin, who has a joint appointment in the school of medicine’s department of infectious diseases.

The World Health Organization declared Zika, a mosquito-borne disease that arrived in the Americas in 2015, a public health emergency in early 2016. That status was lowered in November; the agency is focusing on sustained research.

Hotels and resorts in the region have added protocols to protect guests from the virus, which is transmitted via mosquito bite. There are no licensed vaccines yet, although several are in early testing, Durbin said.

“We have a very high bar of protection that we think we’re going to need,” Durbin said. “It’s still as much of an issue and the same precautions still need to be taken.”

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