Caribbean Hotels Match U.S. Profitability

A recently released report by PKF Hospitality Research on the Caribbean hotel industry finds that Caribbean resort hotels and comparable U.S. properties are equally profitable, but for dramatically different reasons. Both achieve a profit margin of roughly 20.0 percent.

However, Caribbean resort hotels pay higher utilities and insurance costs than their U.S. counterparts, which are partially offset by lower labor costs and lower property taxes in the Caribbean.

These observations come from the recently released 2007 edition of Caribbean Trends in the Hotel Industry published by PKF Hospitality Research (PKF-HR), an affiliate of PKF Consulting. It is believed to be the only Caribbean-focused financial research report in the industry.

PKF-HR compared the performance of Caribbean resorts located throughout the region to a set of comparable U.S. properties. In 2006, the total revenue for the Caribbean sample averaged $102,051 per available room (PAR), while the U.S. properties earned $113,107 PAR.

On the bottom line, Caribbean resorts averaged a net operating income (NOI) of $20,443 PAR, or 20.0 percent of total revenue, while the U.S. properties achieved an average NOI of $22,348 PAR, or 19.8 percent of total revenue.

In 2006, operated department expenditures averaged 44.2 percent of total revenue at Caribbean resorts. This is less than the 47.2 percent average at comparable U.S. properties. Since salaries, wages, and employee benefits comprise over half of these departmental expenditures, the operating efficiencies achieved by the Caribbean resorts can be attributed to lower labor costs.

At 1.1 percent of total revenue, property taxes and other municipal charges are low relative to U.S. hotel operating averages. This low expense ratio exists due to the unique economic and investment structure of many Caribbean nations. Many hotels receive government assistance in the form of reduced, or abated, property taxes while guests pay higher hotel and sales taxes.

Caribbean hotels paid out 3.2 percent of their total revenue in 2006 for property and general insurance, or $3,306 PAR. This is 6.3 percent more on a dollar-per-available room basis compared to the comparable U.S. properties.

Overall, the current Caribbean tourism market continues to outperform historical results. Through the summer of 2007, most Caribbean destinations have enjoyed increased visitor arrivals over 2006 levels.

Those nations that have experienced a decline in 2007 visitation can attribute their loss to the resurgence of the Cancun market, which is rebounding strongly from their 2006 hurricane damage.

Looking forward, PKF Hospitality Research finds that the majority of new Caribbean lodging development has shifted towards upscale and luxury resort properties that include a residential component in the form of condominiums or fractional ownership units.