As we come to the close of our traditional tourist season, it is a good time to reflect on the initiatives outlined at last month’s annual USVI Destination Symposium.
In order to insure our competitiveness, up-market our brand, and develop niche markets to drive tourist traffic and get a better understanding of the recent legislation that requires the Department of Tourism to advertise St. Croix on St. Thomas and St. John, it is worth being a bit more conscious with respect to our commitment to this – our most important, if not only – industry.
The current state of our tourism product is a topic that has as many positions as there are people willing to comment; we need to do more; we need to do less and focus more on high-paying jobs; our retail needs to be refreshed; our fees and taxes are too high to be competitive; we do not need to give any more hotels tax benefits; and for some, well, it is just what it is and will never change.
Regardless of one’s current position, what is less clear is just how committed we are to an industry that has been an economic driver and vehicle for our visibility since the 1960s, and especially at a time when our Caribbean neighbors are pouring more of their resources into tourism.
Our wavering commitment has exposed us to risks and vulnerabilities, especially when you put it in the perspective of what we have been through since 2008 with the Great Recession, the loss of beneficiaries in our Economic Development Commission program and the closing of HOVENSA oil refinery.
There is no doubt that the closing of Cuba in the 1960s was our opening into the tourism and hospitality industries, and what we did over the next 25 years put us at top of the pyramid.
The repositioning of the warehouse facilities owned by The West Indian Company to a shopping area to coincide with the growth of cruise tourism further solidified our premier position in the industry.
But we have a new reality at this moment in time. The biggest elephant in the living room is our huge neighbor to the northwest. Cuba. The country has seen an increase of 36 percent in tourists since the beginning of this year.
And given the newly liberalized travel rules for U.S. citizens, the Cuban government is projecting 10 million Americans will visit annually, up from 1 million so far this year.
These figures and projections lend credence to the statement by Frank Comito, president of the Caribbean Hotel and Tourism Association that “the opening of Cuba has been the biggest and most disruptive pebble to dropped into the Caribbean pool in 50 years.”
For 2014, according to the statistics from the Caribbean Tourism Organization, the U.S. Virgin Islands experienced low single-digit growth of 3.9 percent in overnight guests.
St. Maarten upped their overnight guests by 7 percent; St. Kitts by 3.7 percent; and Saint Lucia saw an increase of 6.1 percent.
At the docks, the U.S. Virgin Island lagged well behind its Eastern Caribbean neighbors’ growth during the same time period. We had only 4.3 percent increase in cruise ship passengers while St. Maarten was 12.1 percent, St. Kitts at 16.9 percent and Saint Lucia’s cruise ship passengers grew by 8 percent.
There is further cause for concern when you factor in that:
– St. Kitts has added cruise ship capacity at Port Zante in downtown Basseterre;
– St. Maarten is adding two new berths;
– Martinique will complete its Pointe Simone Cruise Terminal by year-end;
– Tortola Pier Park is a new shopping area in Road Town with added berthing capacity;
– – Antigua has obtained financing from China Civil Engineering and Construction Company to complete its St. John’s Waterfront Development Project;
– and Barbados has enhanced its Sugar Point Cruise facility.
And if that’s not enough to get our attention, Carnival Corporation has neared completion of its $85 million Amber Cover Cruise Center in the Dominican Republic and is poised to begin its planned $70 million investment on the Haitian island of Tortuga. With their new terminals and piers, these projects could well impact home porting in San Juan.
And while Grenada and Montserrat are evaluating multimillion-dollar projects to get deeper into the cruise ship market, we just rejected the offer of the same two cruise lines who are underwriting the Tortola Pier project to similarly finance the development of Long Bay Landing in St. Thomas.
We are still trying to find a hook to make St. Croix an attractive cruise ship destination given the meager capacity at the Frederiksted pier and our planned investment in Schooner Bay.
And despite trying to put the best face in this coming year’s reality, the fact is, we are down an estimated 60 plus calls going into the 2016 season.
The Virgin Islands Port Authority, meanwhile, has issued a request for proposals for conceptual plans for a new pier in the Crown Bay area (to make up for the Long Bay debacle). It is the operating mode of the cruise lines to never say “no” to its destination, but until the agreements are reached and checks are signed, it’s still just a plan.
And then we have the marquee value of Richard Branson’ s new venture, Virgin Cruises, adding the Tortola Pier – which is built – to its itinerary from the Port of Miami!
It is interesting to note that all these projects were undertaken not by the governments or port authorities going into more debt, but use of public-private partnerships as the vehicles to undertake the construction.
So as we wave from our forsaken waterfront apron as the cruise ships pass us by, the retailers are rightfully concerned that we are losing and in some cases have lost our position as the first port of call out of Miami. And current schedules indicate we will be bypassed by some of the ships that used to have us as a port of call but have now selected other destinations.
And as if to support their worst fears, Havensight and Main Street have gaping holes where high-profile, sought-after shops used to be. And our best attempt to improve the downtown shopping district has been stalled in V.I. Superior Court for over a year.
Are these vacancies, we must ask, due to a changing marketing conditions given our competitors and the questionable recovery after 2008 or the fact that landlords still believe they can collect the pre-1980 exorbitant rents levels that strangle any attempts by our merchants to be creative and proactive?
What we do know is that in the last six months, we lost have Colombian Emeralds (Main Street and Havensight), Boolchands (Main Street) and H. Sterns ( Havensight Mall), Royal Caribbean (Havensight Mall) to name the more high profile casualties.
In the overnight guest area, we have similar risks. We appear to have the air lift and seat capacity, and according to presentations at the Destination Symposium, we are doing better than the region is this area. However, we cannot ignore that somewhere between 10-20 percent of this traffic gets in a van or safari bus for either the Red Hook dock or Tortola Wharf to catch the ferry to the British Virgin Islands.
Given the recent actions by the BVI government with Tortola Pier, they will undoubtedly move forward with the improvement to the Terrance B. Lettsome International Airport’s terminal.
Meanwhile at least six other Caribbean destinations are either rebuilding their airline terminals or considering new ones. Count them: St. Maarten, Barbados, St. Vincent, Jamaica, Curacao, St. Lucia.
Similar to the port investments, these projects are being financed through public-private partnerships that limit the use of government or port authority funds and therefore share the risks associated with construction and operations.
Added to this, we have not had a new hotel product in more than 20 years, while the Caribbean region has seen an explosion of over 100,000 new rooms during this timeframe. And more branded hotels have entered the region in the last five years.
Without new rooms it makes it difficult to convince the airlines to dedicate an aircraft. The fact is, St. Thomas and St. John have been experiencing a steady decline in hotel rooms since 2000, with fewer rooms, at 2,913.
The numbers are only up over recent years because we redefined rooms to include all accommodations units; villas, guesthouses, vacation ownership. We recently lost a chance to have an upper-end Hyatt brand. But we are getting a boutique hotel on Water Island.
On St. Croix, of the three hotel projects on which have been in process for more than 10 years all three have major impediments to their coming to a successful start.
During this same period, Puerto Rico has had over five new hotels in the upper end of the market with government support, even though they also have central government financial challenges.
So with Cuba looming we must ask if l the anticipated additional U.S. traffic to Cuba be primarily new travelers to the Caribbean, which means they will need U.S. passports, which will eliminate our marketing advantage of being a passport free travel location. Or have many of our loyal passport holding visitors already decided to explore Cuba instead?
Another economic threat from Cuba is the possible impact of Havana Club rum, owned jointly by Pernod Ricard and the Cuba’s state distiller, gaining direct access to the U.S. market. Thanks to President Obama’s loosening import restrictions last December, U.S. guests visiting Cuba can already bring up to $100 worth of the long-withheld and, therefore, sought-after brew. But a much bigger blow could be in reduced sales of Captain Morgan and Cruzan Rum and thus the reduction of our cover-over rum receipts.
The solutions to the conundrum in which we find ourselves will be opined by many. In all cases, however, the solutions will revolve around political will, the ability to attract private investment and public support to make the overall investments we require. The fact is our business model has to change and we have to recommit to the industry.
It does not mean we don’t continue to refine and build on the incentive programs of the Economic Development Commission or the University’s Research and Technology Park, or the educational and entrepreneurial opportunities that are within our grasp with the broadband capability offered by viNGN.
It doesn’t mean we should not invest in a medical school or develop an entrepreneurial ecosystem to support what we have not yet even imagined – but not to continue to see the value of our tourism and hospitality industry is reckless.
We should not sacrifice more cruise passenger traffic for overnight guests and quality hotel development; we can have both. The fact is that, combined, the overnight and cruise passengers provide the aggregate tourist traffic to support the investments in attractions, tours, retail and restaurants that we need to brand and rebrand our island paradise.
No one segment gives us the numbers or consistency of traffic that will support the investments that lead to the jobs and salaries we require. We do not need another study or working group. We need to stop tinkering at the margins and commit to our core product.
We need to market and advertise for more visitors to come to the U.S. Virgin Islands. We now have some focused competitors that we did not have in the past and their entry to this arena requires us to improve our game and our execution.
Let’s decide on the hotel brands we want and approach them. Put West Indian Company, Port Authority and Tourism officials in a room and come up with a comprehensive cruise ship strategy to achieve first-calls, more St. Croix calls, extended hours, increased summer traffic and cruise line investment dollars.
Meet with the landlords and retailers to determine an equitable balance that will result in a reinvestment in the downtown properties of Charlotte Amalie, Christiansted, Cruz Bay and Frederiksted, and incentivize a diversification of our product offerings.
Having more of the same is not good for us in the long run. It won’t be easy but it is necessary. Easier said than done, but it has been achieved in other territories, states and municipalities and there is absolutely no evidence we aren’t just as creative!