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CARRIBEAN ASSOCIATION OF INDIGENOUS BANKS Sue Springer November 19th 2008 Overview The importance of Tourism Business State of the Industry Economic Analysis of major markets Operating Costs Ideas for working together to survive this challenge? The Tourism Business The Caribbean is a region that is the most highly dependant on tourism in the world Despite economic decline a vacation is still high priority WTTC continues to predict growth in travel and tourism of some 3% year on year over the next 5 years world wide State of the Industry Different for each Island Spanish speaking islands with lower prices Atlantis hotel in Bahamas laid off 800 staff Barbados 4% decline in long stay arrivals for October compared to 2007 Overall arrivals decline of 0.6% to end of October 2008 Projection by FTO bookings up 15% for 2009 at the present time Dynamic times & the situation changing DAILY Economic Analysis - Canada Higher oil prices & slowing economy @ a more rapid rate than anticipated - affecting all areas Canadian $ fell to US$0.93 cents Economy forecasted to grow by only 1.7% in 2008, down from 2.7% in 2007 40% of Canada’s GDP generated from exports to USA Auto & auto parts largest export – All 3 major US auto makers cutting production in plants in Ontario & Quebec. Economic Analysis - USA Burdens of both high oil prices & the sub-prime banking crisis wrought havoc on the economy of the USA Exacerbated most recently by the demise of Lehman Bros. ect Today General Motors, Chrysler & Ford have requested Federal monies to stay in business – (US$25Bn) Biggest fall of US wholesale in 60 years - down 70% Overall lack of consumer confidence Causing consumers to rethink travel habits Unleashing a ‘stay at home mentality’ or “Stay-cations” Election fever over Economic Analysis - UK Alistair Darling – Chancellor of Exchequer recently said “Britain faces ‘arguably the worst’ economic downturn in 60 years” Fresh economic data = a feeling of austerity, after yrs of debt-fuelled spending 12.7% decline in property prices during September compared to the same month a yr. ago BOE left interest rates unchanged @5% for the 5th month Expected that interest rates may change this week Inflation 4.4% more than double the target rate expected to increase to 5% by yr end. Economic Analysis – UK Contd. Real inflation including Fuel & Mortgage = 10.6% (per the Financial Times) Household savings @ their lowest level since 1950’s People trading down of groceries – Supermarket own-label goods up 6% New car registrations down 18.6% in August lowest since 1966, the hardest hit the more expensive makes, BWM down 40%, Land Rover 58%, Jaguar 41%, Mercedes 35% Unemployment projection of 2M by year end. The exchange rate for the pound declining daily now below Bds$3 Economic Analysis - Caribbean & Latin America All the Caribbean islands facing high prices on oil, utilities & food. Major investments with high end product, both hotels and villa multi use complexes have been halted or are on a slow down Challenges with capacity in airlift at peak times Major challenge with price of air fares Majority of the price includes high governmental taxes Operating Costs in Barbados Electricity bills increased over the past six months as much as 45 to 65% Improved valuation on lands showing increases of 60 to 80% = increased land taxes A Wage increase for hotel workers in December of 5.5% a total of about 12% over two years when compounded 50% Excise tax added to alcohol – impacted on the All inclusive hotels as rates are fixed for the next year. An active hurricane season in the region may impact on insurance rates for Barbados Despite all of these increases HOTELS CANNOT INCREASE RATES AS WE LIVE IN A WORLD OF DISCOUNTS & /OR VALUE ADDED A Discounted World Due to the global economic tsunami that we all face Discounting or value added is the name of the game Jamaica hotels discounting rates by 30% Free air fares being offered in some cases Free flights for children Half price for a companion flying Tacticals being offered in the market place by everyone The world is on sale!!!! Ideas for working together to survive this challenge? Moratorium on loan principal - hotels to only pay interest or even to capitalise the interest depending on the level of debt – Limited period 1 yr to 18 months Hotels unable to service the loan will close & what do we do with these properties Redundancies equal possible challenges re personal loans 100 staff with an average loan of $30,000 = $3M to be written off Ideas for working together to survive this challenge contd. Globally Governments facilitating monies to bail out entities Governments could create a guarantee system for hotels in trouble Enterprise Growth Fund in Barbados – set up with funds for 9/11, small hotels initiative, environmental retrofit project ect. EGF – create an equity position in the business Ideas for working together to survive this challenge contd. Reduced Cash Flow Additional facilitation e.g. soft loan Lower Overdraft interest rates Temporary financing facility Ideas for working together to survive this challenge contd. Reschedule Debt Hotel funding in the original state historically a challenge Length of repayment given in first phase too aggressive Increase period of time for repayment of loans -10 yrs to 15yrs, 15yrs to 20yrs Ideas for working together to survive this challenge contd. Expediency All assistance to be confirmed within a 30 day period Allows business to plan their next months business cycle Assists with managing cash flow Ideas for working together to survive this challenge contd. Tourism is the primary industry in the Caribbean Appears that there is a disconnect with the tourism industry Possibility of a Tourism specialist to be on the staff in the banks Lack of knowledge can cause conservatism Ideas for working together to survive this challenge contd. Some companies forced to go abroad for loans Resistance to the industry due to instability Often tourism is described as a high risk industry Tourism is not an industry but a business It is the main export for many of the Caribbean islands History has proven that TOURISM recovers & bounces back after disasters – 9/11, SARS, Iraq War, Terrorism, Tsunami, Hurricanes, Recession Help us to survive! We will survive & bounce back after this economic tsunami Help us to be one of your surviving customers I thank you!