US embassy cable - 04NASSAU1534

UNCLAS SECTION 01 OF 03 NASSAU 001534 
 
SIPDIS 
 
STATE FOR WHA/CAR/D. OCONNOR, E/CBA/WALKER 
USDOC FOR ITA/TD/OETCA/W.DEAN BUSBY, 
3134/USFCS/IO/WH/REBECCA MAN, AND 
4322/ITA/IEP/WH/OMCB/MBROOKS 
SANDO DOMINGO FOR USFCS 
 
E.O. 12958: B/A 
TAGS: EINV, ETRD, BEXP, BF, Tourism 
SUBJECT:  TOURISM UPDATE 2004 
 
1.  SUMMARY:  The Bahamian tourism industry continues to 
rebound from the effects of 9/11.  Visitor arrivals are up 
and economic indicators reflect increased growth in visitor 
arrivals and tourism development throughout 2004.  The 
national flag-carrier, Bahamasair, acquired two new jets and 
resolved its dispute with local travel agents in an effort 
to position the airline to compete with additional expected 
competition.  END SUMMARY. 
 
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STATISTICAL UPDATE 
------------------ 
 
2.  According to the Central Bank of The Bahamas' Annual 
Report for 2003, total tourist arrivals to the Bahamas 
increased by 4.3% to a record 4.6 million arrivals.  After 
consecutive declines in the previous two years, air traffic 
rebounded by 1.9% to 1.4 million, which remained some 3.5% 
below 2000 arrivals.  Sea arrivals, which encompass cruise 
visitors, continued to dominate the mix, but with gains 
abated from 9.0% in 2002 to 5.4% for 3.2 million passenger 
arrivals. 
 
3.  Tourism expenditure indicators suggest that industry 
earnings rose only marginally during 2003, with receipts 
from an increased number of cruise traffic supported by 
hotel sector pricing gains.  Growth in estimated hotel room 
revenues slackened to 3.7% from 6.6% in 2002, with a 5.4% 
increase in average nightly room rates to $164.22, 
offsetting a 1.6% reduction in total room nights sold.  The 
reduction in total room nights sold occurred alongside a 
3.0% rise in total room nights available for sale, and the 
average hotel occupancy rate also softened to 59.0% from 
62.0% in 2002. 
 
4.  On a destination basis, New Providence's room revenue 
gains narrowed to 4.6% from 7.9% in 2002; average nightly 
room rates increased by 5.6% to $188.11 partly offset by 
slightly reduced room sales of 1.0%.  In Grand Bahama, room 
revenues registered decreased 0.4%, as reduced room sales of 
3.4% outweighed the 3.2% rise in the average nightly room 
rate to $84.05.  However, Grand Bahama experienced a 9.9% 
boost in room inventory from renovated properties returned 
to use, causing the average occupancy rate to retreat to 
48.0% from 55.0% in 2002.  For the third consecutive year, 
Family Island room revenues declined, although moderated at 
2.9% from 7.8% in 2002.  While average room rate and 
occupancy levels were unchanged, at $160.36 per night and 
35% respectively, both capacity and room sales fell by 
approximately 2.9% 
 
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TOURISM OUTLOOK FOR 2004 
------------------------ 
 
5.  The outlook for tourism is expected to strengthen 
throughout 2004, particularly in the stopover segment, as 
the United States' economy expands.  The weak US dollar also 
continues to make vacations in The Bahamas a cheaper 
alternative to Europe and Asia, although travel safety 
concerns, while steadily dissipating, still persist.  The 
outlook is for healthy stopover visitor gains in the Family 
Island, concentrated in Exuma, owing to the presence of the 
upscale, 183 rooms Four Seasons Resort, which opened in 
November 2003, and further supported by the re-opening of 
Club Med property at San Salvador which was closed since 
2001. 
 
6.  Planned improvements to several major airports in the 
Family Islands and New Providence should also result in a 
favorable outlook.  Foreign investments aimed at adding more 
upscale rooms to the hotel sector within most of the major 
islands, including New Providence and Grand Bahama, 
underscore increasing confidence in the medium term outlook 
for the tourism sector.  Among these are the start of work 
on the $600 million Phase III expansion of the Atlantis 
Resort on Paradise Island, a $140 million development on 
Abaco, a 1.2 billion mega resort in Grand Bahamas, and 
another $240 million project earmarked for Exuma. 
 
7.  The Central Bank's Quarterly Economic Review for the 
period January - March 2004 reports visitor arrivals to The 
Bahamas rose by 13.2% to 1.4 million visitors, strongly 
outpacing 2003's low growth rate of 1.1% and the respective 
7.2% and 8.6% advances of 2001 and 2000.  The increase was 
led by cruise activity with Grand Bahama accounting for 
43.6% of the gains, New Providence 43.1%, and the Family 
Islands 13.3%.  This increase is attributed to the sustained 
upswing in the U.S. economy. 
8.  Sea visitors, which comprised 70.4% of all tourists, 
recorded more robust growth of 15.6% to 980,567, as compared 
to a modest 1.4% last year.  Air traffic also rebounded 
significantly and constituted 29.6% of arrivals. 
 
9.  Given the marked rise in cruise traffic and the recovery 
in air arrivals, which track the stopover market, visitor 
expenditure growth was more robust during the first quarter. 
A key indicator, average hotel occupancy rate, firmed 
marginally to 66.0% with increased room night sales of 12.7% 
outpacing expanded room capacity of 11.4%.  As occupancy 
gains more than offset the 1.6% decline in the average 
nightly room rate to $179.17, estimated room revenues rose 
further by 10.9%. 
 
10.  Expenditure growth was recorded in each of the major 
destinations.  In New Providence, higher room sales of 8.9%, 
on increased room inventory (13.8%) and a slightly firmed 
average nightly room rate of $209.10, supported a 9.0% 
advance in estimated hotel room revenues.  The improvement 
in the Grand Bahama stopover market was characterized by an 
increased average room occupancy rate of 66.3% vis--vis 
56.9% last year, as room sales growth of 24.8% outweighed 
the 7.1% rise in available rooms.  This produced a 22.0% 
rebound in room revenues, despite the decline (2.2%) in 
average nightly room rate to $94.28.  Supported by an 
improved average occupancy ratio, at 38.6% vis--vis 34.5% 
last year, and the appreciated average nightly room rate 
(1.9%) of $174.65, Family Island room revenues rose further 
by 18.5%.  Of particular note was the 3.9% rise in available 
rooms alongside a 16.3% rebound in occupied room nights, 
which combined to fully recapture occupancy losses 
experienced since 2001. 
 
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INVESTMENT PROPOSALS POUR IN 
---------------------------- 
 
11.  During the 2004/2005-budget debate in the House of 
Assembly in May, Minister of Financial Services and 
Investments Allyson Maynard-Gibson announced that over the 
past year, her ministry reviewed 95 proposed investment 
projects.  She said that her ministry should shortly 
complete its work on these projects and that a significant 
number of them will be able to commence construction in the 
near future.  Embassy will monitor these proposals and 
report on them as they materialize. 
 
----------------------------------------- 
BAHAMASAIR RESOLVES TRAVEL AGENCY DISPUTE 
----------------------------------------- 
 
12.  On July 28, Bahamasair' general manager Paul Major 
announced that the airline has resolved their dispute over 
ticket sales commissions with local travel agents.  On July 
6, the Bahamas Association of Travel Agencies (BATA) 
announced an industry wide boycott of Bahamasair because the 
airline reduced commissions paid to travel agents.  Mr. 
Major confirmed that the decision to cut rates paid to 
travel agents was a part of the overall cost cutting 
measures being instituted by the airline.  After weeks of 
negotiating with travel agents, Bahamasair has now agreed to 
double rates on the sale of domestic tickets and has offered 
travel agents a number of incentives to further boost sales 
through agencies and potentially increase its revenues by $4 
million to $5 million per annum. 
 
13.  According to Mr. Major some 37 percent of all 
Bahamasair ticket sales come through travel agencies, 
generating an estimated $18 to 20 million in annual sales. 
This means that if the 30-odd Bahamian travel agencies that 
are impacted by the decision see a 20% growth in ticket 
sales over 2003, both they and the airline could realize a 
substantial benefit.  Mr. Major said Bahamasair's load 
factors has been as expected for the summer, with industry 
observers saying this indicated the travel agency boycott 
did not have a material impact on the airline.  As plans for 
other airlines (Spirit and Jet Blue) to service the Bahamian 
market materialize, Bahamasair has to position itself to 
become more competitive. 
------------------------------------ 
BAHAMASAIR ACQUIRES TWO NEW AIRCRAFT 
------------------------------------ 
14.  On July 30, Bahamasair welcomed the first of two Boeing 
737-200 series aircraft to its fleet.  The second aircraft 
is scheduled to arrive in The Bahamas in several days. 
Bahamasair said the two additional 1981/82 Boeing 737-200 
advanced JT8D-17 series aircraft would allow the airline to 
increase profitability, expand its international mission and 
provide back up for the existing jet fleet.  During the 
commissioning ceremony, Minister of Public Works Bradley 
Roberts said that Bahamasair was able to cut its losses in 
the 2003/04 fiscal year from $27 million to $13 million.  He 
said with the two additional aircraft, he hoped to further 
reduce the losses of the government-run airline to a record 
$5 million.  The two planes will expand the airline's fleet 
to 11, which includes seven De Havilland Canada DHC-8 Dash 8 
turboprops and four Boeing 737-200 series jets. 
 
15.  COMMENT:  No doubt the Bahamas is poised for tremendous 
tourism development, however, the government has to 
carefully decide on the type of tourism development it will 
permit in the country.  Additionally, it is important to 
establish proper infrastructure to accommodate the 
anticipated increase particularly at the Nassau 
International Airport and the Prince George Dock.  END 
COMMENT. 
 
WITAJEWSKI