HENDERSONVILLE, Tennessee—As mounds of Sargassum continue to inundate coastlines and pile up on beaches with their unpleasant smell, travelers have increasingly avoided spending vacations on beaches affected by the macroalgae.
In this report, STR’s team of analysts investigates hotel data in the Caribbean to determine how Sargassum has affected demand for hotel rooms and thus the pricing power of hotels. The goal of our analysis was to clarify the potential impact of Sargassum blooms on the hotel industry in the Caribbean. (STR is the parent company of Hotel News Now.)
Key findings from the analysis include:
- Sargassum blooms have possibly adversely impacted hotels located in regions affected by the plant. In particular, the demand and pricing power of such hotels have weakened compared to hotels in unaffected regions.
- Other factors, including hurricanes, may have had a greater impact than Sargassum.
Analysis of KPIs
Sargassum is a genus of brown seaweed native to the Caribbean Sea, Gulf of Mexico and tropical Atlantic. Recent years have seen massive blooms caused by high levels of nutrient-rich runoff from the Amazon River as a result of deforestation and fertilizer use in the Amazon basin. The scientists tentatively associated the growth of Sargassum to rising levels of nutrients in seawater, associated with deforestation and the rising use of fertilizers. These thick mats of seaweed threaten both ecology and economic stability, as they smother coral reefs and wash onto beaches as reddish-brown, foul-smelling gobs.
Since Sargassum began invading the Caribbean in 2011 (Figure 1), blooms of the plant have been most severe from spring to summer 2018. Sargassum has bloomed every year from 2011 to 2019 with the exception of 2013.
To understand Sargassum’s impact on the local hospitality industry, we examined the three most important hotel KPIs—occupancy, average daily rate (ADR) and revenue-per-available-room (RevPAR)—and their year-over-year percent changes.
Source: Optical Oceanography Laboratory, University of South Florida https://optics.marine.usf.edu/projects/saws.html
STR tracks current supply landscapes in the global hotel market. According to the STR Census database, there were approximately 1,984 hotels and roughly 260,000 rooms in the Caribbean market, as of January 2020 (Figure 2). The room supply growth was 2.8% in 2019.
Caribbean hotel occupancy declined year-over-year during the seaweed blooms in 2018 and 2019. Of course, seaweed blooms are not the only natural phenomenon affecting Caribbean hotels. Hurricanes impact hotel performance significantly more than Sargassum (Figure 3), and cause sizable short-term declines in occupancy. We observed a double-digit drop in year-over-year occupancy in September 2017 due to Hurricane Irma, and then a 9% drop in 2018 October due to Hurricane Michael.
A closer look at Sargassum blooms seasons in 2018 and 2019 reveals that the pricing power remained strong despite an occupancy fluctuation (Figure 4). In 2020, according to the University of South Florida’s “Outlook of 2020 Sargassum,” Sargassum blooms will continue, even though the magnitude of blooms thus far has been less than in some previous years (e.g., 2015, 2018 and 2019). From March to May 2020, the Caribbean Sea will likely experience a moderate amount of Sargassum. STR will continue to monitor its impact on hotels in 2020.
Pinpointing the impact of Sargassum across islands in the Caribbean remains difficult because it requires differentiating the plant’s impact from other factors such as hurricanes and regional economic trends. Therefore, in the following sections, we examined two popular leisure markets in the Caribbean in single-case studies.
Barbados: Sargassum-affected area experienced a decline in RevPAR
In Barbados, although Sargassum has riddled the southern and eastern shores, the west coast has hardly been affected according to Sargassum Monitoring. To compare the impacts of Sargassum on hotels, we categorized the hotels into two groups: ones located in the unaffected region and ones located in the affected region.
Because the most severe Sargassum blooms in the Caribbean were observed from January to July 2018, the following analysis uses year-to-date data from July 2018. Hotels located in the region unaffected by Sargassum experienced an increase in RevPAR (+3%) in July year-to-date 2018 compared to the same months in 2017, whereas hotels located in the affected region reported drops in occupancy (-4.7%) and RevPAR (-4.4%), as depicted in Figure 5.
In fact, hotels in the Sargassum-affected region observed a decrease in occupancy every month from February to July in 2018 (Figure 6). Notably, occupancy declined 9.4% in June, when the Sargassum bloom was most severe.
In spring and summer this year, the southern and eastern shores of Barbados will likely continue to observe a moderate amount of Sargassum. Hoteliers and local governments continue working to mitigate ongoing problems caused by the plant.
Grand Cayman: Resorts on unaffected beaches observed fewer problems caused by Sargassum
According to Sargassum Monitoring, on Grand Cayman Sargassum blooms were most prevalent in the southern areas of the island. As most hotels on the island are high-end, in this case study, we examined the high-end resorts located on the island’s western side (Figure 7).
The group of hotels in the region unaffected by Sargassum reported steady growth (Figure 8), including running-12-month RevPAR 20% greater in April to July 2018 than in those months in 2017. Because RevPAR growth was mostly due to ADR, pricing power in Grand Cayman’s regions unaffected by Sargassum seems to have remained robust.
Closing
It is possible that Sargassum blooms have adversely impacted hotels located in regions affected by the plant. In particular, the demand and pricing power of such hotels have weakened compared to hotels in unaffected regions. However, other factors, including hurricanes, may have had a greater impact on area hotels than Sargassum.
To understand how Sargassum may have impacted your hotel markets, the STR Trend Report provides historical monthly, year-to-date, and total-year performance metrics for a variety of geographies.
We encourage questions and feedback, and we look forward to sharing additional research as more data becomes available.
Tingting Duan and Kelsey Fenerty are research analysts at STR.
This article represents an interpretation of data collected by STR, parent company of HNN. Please feel free to comment or contact an editor with any questions or concerns.