TOURISM UPDATE 2004

UNCLAS SECTION 01 OF 03 NASSAU 001534

SIPDIS

STATE FOR WHA/CAR/D. OCONNOR, E/CBA/WALKER
USDOC FOR ITA/TD/OETCA/W.DEAN BUSBY,
3134/USFCS/IO/WH/REBECCA MAN, AND
4322/ITA/IEP/WH/OMCB/MBROOKS
SANDO DOMINGO FOR USFCS

E.O. 12958: B/A
TAGS: EINV ETRD BEXP BF
SUBJECT: TOURISM UPDATE 2004


1. SUMMARY: The Bahamian tourism industry continues to
rebound from the effects of 9/11. Visitor arrivals are up
and economic indicators reflect increased growth in visitor
arrivals and tourism development throughout 2004. The
national flag-carrier, Bahamasair, acquired two new jets and
resolved its dispute with local travel agents in an effort
to position the airline to compete with additional expected
competition. END SUMMARY.

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STATISTICAL UPDATE
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2. According to the Central Bank of The Bahamas' Annual
Report for 2003, total tourist arrivals to the Bahamas
increased by 4.3% to a record 4.6 million arrivals. After
consecutive declines in the previous two years, air traffic
rebounded by 1.9% to 1.4 million, which remained some 3.5%
below 2000 arrivals. Sea arrivals, which encompass cruise
visitors, continued to dominate the mix, but with gains
abated from 9.0% in 2002 to 5.4% for 3.2 million passenger
arrivals.


3. Tourism expenditure indicators suggest that industry
earnings rose only marginally during 2003, with receipts
from an increased number of cruise traffic supported by
hotel sector pricing gains. Growth in estimated hotel room
revenues slackened to 3.7% from 6.6% in 2002, with a 5.4%
increase in average nightly room rates to $164.22,
offsetting a 1.6% reduction in total room nights sold. The
reduction in total room nights sold occurred alongside a
3.0% rise in total room nights available for sale, and the
average hotel occupancy rate also softened to 59.0% from
62.0% in 2002.


4. On a destination basis, New Providence's room revenue
gains narrowed to 4.6% from 7.9% in 2002; average nightly
room rates increased by 5.6% to $188.11 partly offset by
slightly reduced room sales of 1.0%. In Grand Bahama, room
revenues registered decreased 0.4%, as reduced room sales of
3.4% outweighed the 3.2% rise in the average nightly room
rate to $84.05. However, Grand Bahama experienced a 9.9%
boost in room inventory from renovated properties returned
to use, causing the average occupancy rate to retreat to
48.0% from 55.0% in 2002. For the third consecutive year,
Family Island room revenues declined, although moderated at
2.9% from 7.8% in 2002. While average room rate and
occupancy levels were unchanged, at $160.36 per night and
35% respectively, both capacity and room sales fell by
approximately 2.9%

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TOURISM OUTLOOK FOR 2004
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5. The outlook for tourism is expected to strengthen
throughout 2004, particularly in the stopover segment, as
the United States' economy expands. The weak US dollar also
continues to make vacations in The Bahamas a cheaper
alternative to Europe and Asia, although travel safety
concerns, while steadily dissipating, still persist. The
outlook is for healthy stopover visitor gains in the Family
Island, concentrated in Exuma, owing to the presence of the
upscale, 183 rooms Four Seasons Resort, which opened in
November 2003, and further supported by the re-opening of
Club Med property at San Salvador which was closed since

2001.


6. Planned improvements to several major airports in the
Family Islands and New Providence should also result in a
favorable outlook. Foreign investments aimed at adding more
upscale rooms to the hotel sector within most of the major
islands, including New Providence and Grand Bahama,
underscore increasing confidence in the medium term outlook
for the tourism sector. Among these are the start of work
on the $600 million Phase III expansion of the Atlantis
Resort on Paradise Island, a $140 million development on
Abaco, a 1.2 billion mega resort in Grand Bahamas, and
another $240 million project earmarked for Exuma.


7. The Central Bank's Quarterly Economic Review for the
period January - March 2004 reports visitor arrivals to The
Bahamas rose by 13.2% to 1.4 million visitors, strongly
outpacing 2003's low growth rate of 1.1% and the respective
7.2% and 8.6% advances of 2001 and 2000. The increase was
led by cruise activity with Grand Bahama accounting for
43.6% of the gains, New Providence 43.1%, and the Family
Islands 13.3%. This increase is attributed to the sustained
upswing in the U.S. economy.

8. Sea visitors, which comprised 70.4% of all tourists,
recorded more robust growth of 15.6% to 980,567, as compared
to a modest 1.4% last year. Air traffic also rebounded
significantly and constituted 29.6% of arrivals.


9. Given the marked rise in cruise traffic and the recovery
in air arrivals, which track the stopover market, visitor
expenditure growth was more robust during the first quarter.
A key indicator, average hotel occupancy rate, firmed
marginally to 66.0% with increased room night sales of 12.7%
outpacing expanded room capacity of 11.4%. As occupancy
gains more than offset the 1.6% decline in the average
nightly room rate to $179.17, estimated room revenues rose
further by 10.9%.


10. Expenditure growth was recorded in each of the major
destinations. In New Providence, higher room sales of 8.9%,
on increased room inventory (13.8%) and a slightly firmed
average nightly room rate of $209.10, supported a 9.0%
advance in estimated hotel room revenues. The improvement
in the Grand Bahama stopover market was characterized by an
increased average room occupancy rate of 66.3% vis--vis
56.9% last year, as room sales growth of 24.8% outweighed
the 7.1% rise in available rooms. This produced a 22.0%
rebound in room revenues, despite the decline (2.2%) in
average nightly room rate to $94.28. Supported by an
improved average occupancy ratio, at 38.6% vis--vis 34.5%
last year, and the appreciated average nightly room rate
(1.9%) of $174.65, Family Island room revenues rose further
by 18.5%. Of particular note was the 3.9% rise in available
rooms alongside a 16.3% rebound in occupied room nights,
which combined to fully recapture occupancy losses
experienced since 2001.

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INVESTMENT PROPOSALS POUR IN
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11. During the 2004/2005-budget debate in the House of
Assembly in May, Minister of Financial Services and
Investments Allyson Maynard-Gibson announced that over the
past year, her ministry reviewed 95 proposed investment
projects. She said that her ministry should shortly
complete its work on these projects and that a significant
number of them will be able to commence construction in the
near future. Embassy will monitor these proposals and
report on them as they materialize.

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BAHAMASAIR RESOLVES TRAVEL AGENCY DISPUTE
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12. On July 28, Bahamasair' general manager Paul Major
announced that the airline has resolved their dispute over
ticket sales commissions with local travel agents. On July
6, the Bahamas Association of Travel Agencies (BATA)
announced an industry wide boycott of Bahamasair because the
airline reduced commissions paid to travel agents. Mr.
Major confirmed that the decision to cut rates paid to
travel agents was a part of the overall cost cutting
measures being instituted by the airline. After weeks of
negotiating with travel agents, Bahamasair has now agreed to
double rates on the sale of domestic tickets and has offered
travel agents a number of incentives to further boost sales
through agencies and potentially increase its revenues by $4
million to $5 million per annum.


13. According to Mr. Major some 37 percent of all
Bahamasair ticket sales come through travel agencies,
generating an estimated $18 to 20 million in annual sales.
This means that if the 30-odd Bahamian travel agencies that
are impacted by the decision see a 20% growth in ticket
sales over 2003, both they and the airline could realize a
substantial benefit. Mr. Major said Bahamasair's load
factors has been as expected for the summer, with industry
observers saying this indicated the travel agency boycott
did not have a material impact on the airline. As plans for
other airlines (Spirit and Jet Blue) to service the Bahamian
market materialize, Bahamasair has to position itself to
become more competitive.
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BAHAMASAIR ACQUIRES TWO NEW AIRCRAFT
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14. On July 30, Bahamasair welcomed the first of two Boeing
737-200 series aircraft to its fleet. The second aircraft
is scheduled to arrive in The Bahamas in several days.
Bahamasair said the two additional 1981/82 Boeing 737-200
advanced JT8D-17 series aircraft would allow the airline to
increase profitability, expand its international mission and
provide back up for the existing jet fleet. During the
commissioning ceremony, Minister of Public Works Bradley
Roberts said that Bahamasair was able to cut its losses in
the 2003/04 fiscal year from $27 million to $13 million. He
said with the two additional aircraft, he hoped to further
reduce the losses of the government-run airline to a record
$5 million. The two planes will expand the airline's fleet
to 11, which includes seven De Havilland Canada DHC-8 Dash 8
turboprops and four Boeing 737-200 series jets.


15. COMMENT: No doubt the Bahamas is poised for tremendous
tourism development, however, the government has to
carefully decide on the type of tourism development it will
permit in the country. Additionally, it is important to
establish proper infrastructure to accommodate the
anticipated increase particularly at the Nassau
International Airport and the Prince George Dock. END
COMMENT.

WITAJEWSKI