By Jim Hepple, President & CEO, Aruba Hotel and Tourism Association,
I am sure many of you have been following the recent exchanges on TV, radio, in the newspapers, online news sites and social media and wondering why is AHATA so opposed to the proposal to use legislation to change the ways hotels are licensed.
Please let me take a few moments of your time to explain our position.
The discussion essentially began in 2014.
The debate began with the sale of the Westin Hotel to Riu in 2014 and intensified with the sale of the Radisson Hotel in 2015. As a result of these two transactions the Minister of Tourism said that he was concerned that Aruba was getting too many all-inclusive resorts and proposed to change the hotel licensing law to regulate this.
The supporting documentation justifying the change in the law states that the Government is of the view that a proper balance of tourist accommodation is needed in Aruba and is therefore using legislation to place a cap on the further expansion of all-inclusive accommodation in Aruba as it believes this is in the best interests of Aruba.
These are the key points of our opposition.
Once AHATA learned the details of what was being proposed it expressed its concerns to the Government and listed the following reasons for its opposition to the legislation
Ø There is no clear and present threat to the Palm Beach area becoming completely all-inclusive.
Ø It’s a matter of principle as the law would create an unfair and unequal operating environment.
Ø If the law passes it will have an enormous negative impact in the international financial community as to how businesses are financed in Aruba.
Ø If the law passes there will be significant negative knock-on effects.
Ø If the law passes it will give far too much power to the Minister responsible for Tourism Affairs in allowing arbitrary decisions to be made about the day to day operations of a hotel and to whom a hotel can be sold.
Ø There are opportunities for upscale all-inclusive resorts.
Ø There is a lack of impartial, objective and relevant supporting information.
Ø That basically AHATA is in favour of some form of management of the accommodation sector but that this particular piece of legislation is not the way to achieve this.
Ø That further study would allow the evaluation of alternatives to legislation.
Given the above AHATA asked for a cooling off period to allow a further study of not only the all-inclusive issue but the impact of the dramatic increase in demand for non-traditional tourist accommodation (apartments/private homes/condominiums) which it thinks, in many ways, is a more serious issue in terms of its impact on our economy than the expansion of all–inclusive product.
ATIA, The Chamber of Commerce, the Central Bank, the Minister of Finance, the FTA, and the Caribbean Hotel and Tourism Association all support our position.
A more detailed explanation is given below.
I know it’s a long read but I hope you find it worthwhile.
The debate really begins with events which occurred in 2006. In that year the 481 room Wyndham Aruba property was purchased by the Belfonti Group out of the USA who engaged Starwood to manage the hotel as a Westin hotel. It was 2006, the height of the financial madness that gripped the USA, and so Belfonti overpaid by some considerable amount of money using borrowed money from Wachovia Bank. The deal went south very quickly and Wachovia was forced to take back the hotel.
In 2008 the Wells Fargo Bank purchased the Wachovia Bank and found that one of the assets they had purchased was a hotel in Aruba. It became very obvious, very quickly that Wells Fargo did not want to own a hotel in Aruba but it took them some years to sort out a myriad of legal issues before they were able to sell the hotel unencumbered by legal problems.
The Westin hotel was put up for sale by Wells Fargo in late 2013 and was purchased by the Riu Corporation, who owned the Riu Palace immediately next door. Riu closed the hotel at the end of February 2014 and spent six months renovating it. It re-opened in October 2014 as the Riu Palace Antillas. It is now a very successful all-inclusive resort, certainly by comparison with the less successful Westin property.
So by early 2014 Aruba had gone from three all-inclusive hotels, (the Divi, The Riu Palace and the Occidental – total 1,298 rooms) to four (with the addition of the Riu Palace Antillas) and thus from 24% of the existing hotel room inventory to 34%.
At that time, early 2014, the Minister of Tourism began to respond to some concerns expressed in the local community at this trend, particularly from local restaurants, by saying he thought that Aruba was getting too many all-inclusive hotels.
Then, in August 2014, the Carlson Group, which owned the 354 room Radisson Aruba, put that hotel up for sale. They initially had hoped an investment group would buy the hotel and let Carlson keep the management contract but there was a lot of interest in the property because it sits on 15 acres of prime beachfront land. Carlson decided to sell to a local Aruban investment group, the Aruba Growth Fund, who said they wanted to keep the hotel operating on an EP basis. It was expected the deal was to close before the end of 2014.
The transaction dragged on into 2015 and in May 2015 Carlson suddenly announced that the deal with the local investment group was off and that the hotel would be sold to the Riu Group, which would make it the third Riu hotel on the Palm Beach strip.
The Government did not like this at all and was able to work with Carlson, Riu and the local investment group to revert back to the previous arrangement whereby the hotel would be purchased by the local group. Thus happened in June of 2015 and the local group retained Hilton to manage the property. It became the Hilton Aruba Caribbean Resort and Casino in mid July 2015.
While all this was going on the Minister of Tourism announced that the Government was extremely concerned at this trend of well-established European plan hotels on the Palm Beach strip being sold and converted into all-inclusive resorts and announced that the Government wished to regulate this.
The Minister met with AHATA in June 2015 to discuss his proposed approach.
The Minister met with the Aruba Hotel and Tourism Association (AHATA) in early June 2015 to discuss his proposal and announced that this would be achieved by the passage of legislation which would cap the number of hotel rooms which could be sold to transient guests as all-inclusive at 40%.
During this meeting AHATA pointed out that a number of hotels which might be defined as European Plan also offered all-inclusive packages during the course of the year as and when necessary and that one smaller independent hotel offered A.I. packages primarily to their honeymoon guests and guests from Europe because that is what those guests wanted.
AHATA then pointed out that the four all-inclusive resorts (Divi, the two Riu’s and Occidental) accounted for about 35% of the hotel room inventory so that left little room for the other hotels to offer A.I. packages should that be necessary.
And then it was pointed out that the Government, which said it did not want more all-inclusive accommodation in the north of Aruba, was in the process of entering into a deal with Bahia Principe Hotel Group to build 900 all inclusive rooms in the south of Aruba and that a further 124 room all-inclusive rooms were planned for the west coast at Savaneta (an AM Resorts Zoetry property).
It was calculated that as Aruba currently had 5,300 hotel rooms, of which 1,838 were all-inclusive, then if the Bahia Principe and Zoetry were added to this inventory that would make 6,324 rooms of which 2,862 (45%) would be all-inclusive. Which caused confusion as no one was now sure so what the 40% cap meant and what this would mean for those EP hotels which sold some all-inclusive packages.
Management of the different hotels took the government proposal back to the property owners who quickly realized that:
- Their existing hotel licenses would be revoked and replaced with another license which allowed the Minister of Tourism alone to determine how a hotel could market itself and set its prices.
- That the Minister alone could determine who the owner could sell a hotel to in as much as if the purchaser wanted to operate it as an all-inclusive this would be determined by the Minister and could be denied.
- This would severely impact the overall investment climate and investors perception of Aruba as being a safe and secure place to invest.
These objections were discussed with the Minister in late June during which time it became very clear that the Minister was of the view that legislation was the only solution which would address his concerns whilst AHATA was of the view that there were alternatives to the proposed legislation. As a result of this impasse discussions between the Minister of Tourism and AHATA broke off in early July 2015.
In October 2015 draft legislation was prepared and was sent to Raad van Advies for its review. Raad van Advies made numerous recommendations to amend the proposed law but basically concluded that the law was flawed and should not be sent to Parliament.
The legislation was sent to Parliament in April 2016.
In early 2016 the Government made a number of changes to the draft legislation which it says met 80% of the recommendations of the Raad van Advies and presented the revised legislation to Parliament on April 12th.
So it wasn’t until mid-April that AHATA had first sight of the revised draft legislation and it was at that point we began to understand the full scope of what was proposed and how it would impact the hotels of Aruba.
The supporting documentation for the legislation states that the Government is of the view that a proper balance of tourist accommodation is needed in Aruba and therefore using legislation to place a cap on the further expansion of all-inclusive accommodation in Aruba is in the best interests of Aruba as a whole.
AHATA’s basic position is that this is a very complex issue, that implementing such a law interferes with the basic rights of owners to operate their businesses as they see fit, especially at a time of rapidly evolving changes in consumer behavior and demand, and that while we agree that some form of management of the tourism sector is necessary this legislation is not the way to do it.
The core of our opposition to this legislation is as follows:-
There is no clear and present threat to the Palm Beach area becoming completely all-inclusive.
The Ritz Carlton, The Aruba Marriott, the Hilton Aruba and The Hyatt Regency Aruba are all successful EP hotels and it is highly unlikely that they would be converted into all-inclusive resorts as, in many instances, it would not make any financial sense.
It’s a matter of principle.
AHATA does not believe that the Government can change the nature of hotel operating licenses for economic reasons to “guide” the economy by shifting business away from one hotel to another in an effort to redistribute economic activity. This creates a totally unequal and unfair operating environment. Our concern is that this could open the door to further government interference in all businesses. It may be hotels today, but tomorrow it might be other businesses in Aruba which will be subject to such fundamental interference in the way they do business.
If the law passes it will have an enormous negative impact in the offshore financial community as to how businesses are financed in Aruba.
Should the law pass it will have a significant impact on financing as the collateral value of any hotel or business will become more uncertain as banks cannot rely on the effective management of the business to maintain its value. In today’s banking world the hotel buildings themselves do not have value only the operating cash flow does. Furthermore, if the regulatory environment becomes uncertain and the government starts changing the existing licenses, this uncertainty will also negatively impact the appetite for investing any further in Aruba.
If the law passes there will be significant negative knock-on effects.
We as Aruba do not determine what type of vacations people buy. If the consumer wants to buy all-inclusive vacations and we cannot fill our rooms with European plan business (i.e. people who only want to pay for their room) and are unable to sell all-inclusive packages than we all lose because those customers will be unable to come to Aruba. In other words, the choice may not be between an AI-guest and an EP-guest, but it may well be between an AI-guest and no guest.
And because there will be less business for the hotels there will be less business for our restaurants and the wholesalers who supply the hotels and restaurants because the rooms will stay empty.
If the law passes it puts far too much power in the hands of a single Minister.
A major concern is that the law will give enormous arbitrary power for many years to come to the Minister responsible for Tourism Affairs to determine who does and does not get a license to offer all-inclusive packages and how many all-inclusive packages in any one month can be offered by European plan hotels.
There are opportunities for upscale all-inclusive resorts.
The general impression is that all All-inclusive resorts are low quality and unfortunately the articles distributed by the ATA only talk about this segment. The fact is that the all-inclusive market has evolved and continues to evolve, and that almost 60% of the four diamond hotel rooms in the Caribbean (excluding Aruba) are all-inclusive.
In our view the discussion should be on the quality of the visitor we want to attract not the nature of the resorts themselves.
Where is the supporting information?
A lot of information has been published but fact is that the only study that has been done on the specific Aruba situation is the one done by PWC in 2015 of which the conclusions have been published (pages 18 and 19 of the PWC synopsis report). PWC clearly concluded:-
“Regulation of all-inclusive resorts could trigger a disproportionate negative effect on Aruba’s reputation in the international lodging and investment community”
PWC further concluded
“Considering the apparent broad footprint of the all-inclusive model in Aruba, combined with the momentum of customer preference, operators’ available investment funds, the expected entry of established traditional brands, it may be advisable to embrace the all-inclusive concept”.
We cannot understand why this original PWC report has not been made available to the Members of Parliament, to AHATA, nor to the general public as a whole.
Given the above AHATA has asked for a cooling off period to allow a further study of
- the all-inclusive issue and its impact on Aruba
- evaluation of alternatives to the proposed legislation,
- the impact of the dramatic increase in demand for non-traditional tourist accommodation (apartments/private homes/condominiums) which we think in many ways is a more serious issue in terms of its impact on our economy than the expansion of all–inclusive product.
ATIA, The Chamber of Commerce, the Central Bank, the Minister of Finance, the FTA, and the Caribbean Hotel and Tourism Association all support our position.
We met with the Minister on a number of occasions during May and June.
The Minister of Tourism suggested during a meeting held on Thursday June 2nd that if AHATA could guarantee that existing European plan hotels would not be converted into all inclusive hotels for a certain period of time then he might consider the idea of such a cooling off period.
AHATA was asked to attend follow up meetings with the Minister of Monday June 6th and again on Thursday June 9th to continue discussions. Of course AHATA was working during the week of June 6th to determine how many owners would agree to make such a commitment and respectfully requested that the two meetings be postponed until such time as we had canvassed the owners.
Once this was done we met once again with the Minister of Friday June 17th during which we informed the Minister that the ownership of eight major European plan hotels agreed to such a moratorium on sale or conversion for a period of 12 months. Of course the owners of the four all-inclusive resorts (Divi, Riu and Occidental) did not need to make such a commitment so were not part of the list.
Unfortunately this was not enough and the Minister of Tourism has indicated that the legislation is to be discussed and voted on during the week of June 27th.
So that is where we sit today.
Some Background Information.
In 2015 Aruba received 1,224,934 stopover visitors (persons staying for 24 hours or more) and 607,019 cruise visitors. Of the 1,224,934 visitors 541,409 (44.2%) stayed in a hotel, 274,265 (22.4%) stayed in a timeshare resort and 409,261 (33.4%) stayed in a private home/condominium/apartment. This last category of visitor was up 59% compared with 2014.
Aruba currently has 22 major hotels of which 4 are all-inclusive. These 22 hotels offer a total of 5,260 rooms. The four all-inclusive properties are Divi Tamarijn/Divi All Inclusive (500 rooms), Riu Palace Aruba (490 rooms) Riu Palace Antillas (480 rooms) and the Occidental Grand Aruba (368 rooms). In total there are 1,838 all-inclusive rooms or 35% of all hotel rooms.
There are also 14 timeshare resorts offering a total of 3,430 units. And there is an ever increasing number of condominiums, apartments and private homes available for rent.
Ø www.airbnb.com lists 300+ properties available in Aruba although their own records provided to the CHTA indicate there may be as many as 900 properties in Aruba listed with them.
Ø www.homeaway.com list 378 properties in Aruba.
Ø www.booking.com lists 260 properties in Aruba.
Ø www.expedia.com lists 111 hotels (!) in Aruba with many of these hotels actually being apartments, condominiums etc.
In 2015 Aruba’s hotels averaged a 78% year round average room occupancy, a $237.49 average daily room rate and average revenue per available room (revpar) of $185.20. According to Smith Travel Research the same numbers for their overall sample of 220 Caribbean hotels achieved a 69% average room occupancy, a $229.44 ADR and average revpar of $157.74.