We all know that headlines are meant to sell a story or make daily news appear more dramatic in order to generate interest. However, headlines can be deceiving for another reason: Journalists often jump to conclusions from insufficient data instead of digging deeper or consulting with experts.
A prime example was recently seen in the island of Curacao—one of my favorite destinations—in the Southern Caribbean. The local hotel association releases monthly statistics on its member hotels (in aggregate) in a timely manner. During 2018, occupancy and average daily rate showed significant increases month after month. In July 2018, for example, occupancy registered an increase of approximately 13% over the previous July’s level and hit the 80% mark—an impressive island-wide statistic. ADR for July 2018 was $153, or 12% higher than in the same month of 2017. Hence, revenue per available room reached close to $123, for a 32% increase.
Thirty-two percent annual RevPAR growth is quite rare, and to journalists, such an achievement should be noteworthy. In fact, this growth was well-reported, especially since Curacao is known in the industry to be a “slow and steady” market, with stable occupancy and value-driven rates that typically rise by a couple of percentage points per year.
Behind the headline, the supply and demand profiles of the market help explain the occupancy and ADR surges that might have guided investors and analysts to erroneous conclusions. First, one of the largest hotels on the island, the Curacao Marriott, was closed for renovations and expansion throughout 2018. This hotel’s 247 guestrooms represented roundly 18% of the 1,409-room inventory tracked by STR at the time. Several other older hotels in Curacao were closed or had declared bankruptcy, as the traditionally low ADR on the island was a strong obstacle to the economic feasibility of extensive renovations. That is, needed renovations were not justified because the result of such investments would only be small increases in ADR of $10 or $15. These hotels included the Plaza and the Kura Hulanda, among others. Further reducing hotel supply, the Holiday Beach Resort was closed to be razed and replaced by a new and larger all-inclusive resort by its owner, Corendon of the Netherlands. (STR is the parent company of Hotel News Now.)
The actual story of the surge in Curacao hotel key performance indicators during mid-2018 was that supply was so constrained—due to the updating and renovation that resulted in the closure of the better tier of aging hotel stock and the closure of other hotels in the lower-quality tier that were no longer feasible to operate or renovate—that occupancy would have no option but to soar, and the prices for these scarcely available hotel rooms were temporarily bid up to significantly higher levels.
In the 19 months since July 2018, the Marriott property reopened after its $40-million renovation and expansion, with 89 additional rooms, the neighboring Hilton was renovated and converted to the 197-key Dreams-branded all-inclusive resort hotel, and the Holiday Beach site will open this Spring as the Corendon Mangrove Hotel, with its first phase of approximately 400 hotel rooms. Marriott announced in November 2019 that it will brand a 283-key Autograph Collection all-inclusive hotel in the gentrifying Pietermaai neighborhood, near Willemstad. Expansion of room counts is also underway at the Avila Beach Hotel in Pietermaai and the Chogogo Hotel in the Jan Thiel neighborhood.
External factors have also impacted local hotel statistics, such as fluctuations in airlift, the increasing attractiveness of tropical destinations outside of the typical hurricane “belt” and the stability and security of an island with such strong ties to a European Community country.
The latest monthly report from the Curacao Hospitality and Tourism Association reports statistics for January 2020. Occupancy was down five percentage points from January of 2019, to roundly 75%, and ADR was down 9% from the year earlier, leading to a RevPAR decline of 16%.
Taken in the context of a longer horizon, Curacao’s 2018 market was not ”supercharged,” and the current market is not in steep decline as the occupancy, ADR and RevPAR results might indicate. Rather, the market has kept true its traditional attribute of being a “slow and steady” growth market, with a few supply and demand “bumps in the road.” In actuality, the market should end 2020 with a much refreshed supply of hotel inventory, a healthy (for such a small market) hotel development pipeline, and improved airlift to North America, as United Airlines and American Airlines have both increased service to Curacao after the demise of the local airline Insel Air.
While the story has a somewhat happy ending for Curacao, the point of this article is how to best communicate changes in hotel market KPIs without “talking ourselves into a recession” as one of the speakers at the recent ALIS conference warned. Politicians are (supposed to be) well-versed in speaking in such a way that their words cannot be taken out of context to manipulate their intended message. Our industry experts must take care to do the same.
We saw after the same ALIS conference that CoStar quoted STR President Amanda Hite as opening her comments with “2019 was the worst year since the recession for RevPAR growth,” followed by the fact that this growth was on top of an all-time high level, and that the year registered another record for hotel demand in the United States. While most publications, like CoStar’s website, are quite evenhanded in presenting industry news, the same sentiment could be taken out of context by a more drama-seeking journalist with a quote that for the hotel industry “2019 was the worst year since the recession.” (Hotel News Now is a division of STR, a CoStar Group company.)
The bottom line is two-fold. First, when communicating industry results, especially in a cyclical market like hotel real estate, we need to stress the difference between short-term KPI changes and longer-term trends. And second, occupancy and ADR do not tell the whole story. A more careful look at supply and demand can either add color to these metrics or, at the very least, steer the user of such data to the likely sources of changes in recent and forecast results.
Andrew Cohan, MAI, is the Managing Director of the Horwath HTL office in Miami primarily serving Florida and the Caribbean Basin. A seasoned hospitality professional with extensive real estate, marketing and account management skills in North and Latin America, Andrew has consulted for leading branded management companies such as Canyon Ranch, Six Senses, Montage, Solage and Bulgari. He has extensive experience with health and wellness resort properties and has performed numerous feasibility studies for planned resorts in the Caribbean and Central America. He especially enjoys working on greenfield projects, teaming with land planners to determine the optimal resort configuration in order to fit market demand with destination and site attributes. As health and wellness have moved from the margins of the industry to become important components of mainstream hospitality projects, Andrew’s expertise has been in demand to conduct an increasing number of assignments for proposed resort properties, particularly in Central America, the Caribbean, Mexico and the “sunbelt states” of the United States. Acohan@horwathhtl.com; 305-606-2898
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