The way forward for Jamaica's tourism industry


The way forward for Jamaica's tourism industry


Friday, July 31, 2020

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Exactly 10 days ago, on July 21, the Jamaica Hotel and Tourist Association (JHTA) held a press conference on the impact of the COVID-19 pandemic on Jamaica's tourism industry. The first thing to understand is that this time is truly different.

The global economy, in the words of Nobel Prize-winning US economist Paul Krugman, was forced into a “medically induced” coma. In a number of global sectors, particularly anything involving face-to-face people interaction or the gathering of people, business and therefore revenues came to a near complete stop.

This was particularly true in areas such as accommodation, airlines, attractions, restaurants and bars to single out the hospitality sector and its related industries. In the US, and globally, tens or even hundreds of billions of support have been provided to those affected.

In his presentation, JHTA President Omar Robinson emphasised that their presentation “should not be misconstrued as a slight against the Government”, and that despite the view that Jamaica was “in the midst of an election season”, the only season the tourism sector was prepared to recognise was one where “Government, Opposition and private sector” work together to get the country through the global pandemic – in short a national partnership approach.

He noted that approximately 15 per cent of the businesses have reopened so far, bringing back no more than nine per cent of the total pre-COVID-19 employment, and that “we are looking at a slow recovery that will test the resolve”, as JHTA members “take the necessary and costly hit to restart the engines of the sector” over the next three to four months.

Most hotels need “an average of 60 per cent occupancy to achieve break-even, while currently we are tracking at 10 to 35 per cent”. For closed properties, which still have to pay light, water, security etc, the average monthly cost to keep a small (under 100 rooms) hotel closed is US$30,000 to US$50,000, medium (under 500 rooms) ranges from US$300,000 to US$650,000, large (over 500 rooms) ranges between US$500,000 to US$850,000 and attractions range between US$50,000 to $300,000.

More simply, the reality is that hotels opening now will have to operate at negative cash until at least the Christmas season, and more likely into next year, particularly in the now likely eventuality that the pandemic does not abate in the US before then.

The simple reality is that most hotels, part of an overall tourism sector with 150,000 direct jobs, and 200,000 indirect jobs, will not be able to reopen, and most will not be able to bring back anything approaching full staff complement.

So what do we need to do?

Firstly, as noted by Glenn Lawrence of Couples in his presentation, the 120-day trigger period for redundancy is now approaching very quickly (some workers were being laid off from March 21), so it is critical that the JHTA suggestion for a “90-day” cooling off period before redundancy can be triggered is implemented, as has occurred in virtually all other Caribbean tourism-dependent countries.

In the words of the Bermuda Labour Minister, “Forcing companies into bankruptcy ... will be a net destroyer of jobs,” which prompted them to exclude the three months, April 1 to June 30, from the four-month redundancy period, a move responsibly supported by their Opposition. This should be a no-brainer for the unions, aided by Government, to forge a true partnership with tourism and indeed the wider business sector (other companies are in trouble too) as it is about saving jobs, and not giving in to false mirages of a big payday, as even if the company is able to pay (many of the smaller hotels definitely won't), the employee may have to wait a very long time for another job in this sector.

Secondly, the issue of testing needs to be dealt with.

The JHTA had in fact always argued for pre-testing of both Jamaicans and tourists, but that this would require an expansion both in capacity (to include private sector test facilities) and test types beyond the polymerise chain reaction (PCR) to allow the return of overseas Jamaicans and the restart of the tourism industry due to the obvious increase in numbers.

This issue has become more pressing as even the 10-day pre-test requirement has been swamped by the spike in cases in the US, resulting in no shows as even committed travellers can't get a test in time.

One solution would be to adopt a Caribbean-wide approach, where regional governments and private sector get together to identify select hospitals in the US with regional connections able to provide testing on a scheduled basis. If Caricom unity means anything, this should be an immediate priority, as if we can't even combat “plague” together what does Caricom unity mean.

Finally, the issue of financing can no longer be ignored.

Companies affected by the COVID-19 shock, which has destroyed their revenues, need a “bridge to the future”. As former JHTA President Wayne Cummings noted in his presentation, not only have cancelled bookings (initially often rebooked but cancelled as border closures became commonplace) had to be repaid, but more seriously global tour partners have not paid their Jamaican hotel partners hundreds of millions of US dollars for services already delivered, as some have folded, others filed for bankruptcy protection, and one of the largest in the world has unilaterally implemented a “force majeure” clause, simply refusing to pay until they believe they can.

While this inevitably means the bankers will need to extend more support, it is unreasonable to believe that they can do it alone without some form of regulatory forbearance and risk-sharing with the Government (perhaps aided by the major multilaterals).

Firms seeking to restart their businesses are likely to need substantial additional working capital, particularly to replace what was sucked out of them by the tour operators. A $1.2 billion grant fund, whenever it arrives, is mere pennies on the dollar of what is required. This is not an argument for freeness, but just for large-scale financial support, along the lines of what has been offered by the Small Business Administration (SBA) in the US, not as grants but as “attractive” loans.

If companies merely got rates similar to that of the Jamaican Government, for the COVID-19 times, that might be enough. A large tourism fund is currently being looked at by the Government of Barbados and the International Development Bank, and might provide a model for a different approach.

In this context, the late payment of BEST cash (payment of CASH through companies to workers), whilst very important for trust and maintaining the company/workers relationship, is actually not in the top three of issues that need to be dealt with right now.

As JHTA President Omar Robinson noted, it is clear we have at least a year before we can expect a viable vaccine, and longer before it is distributed worldwide.

Jamaica had no choice but to open on June 15th, but if we want it to be able to take advantage of the new short-term leisure market opportunity (long haul leisure, cruise and business hotels will take a lot longer to come back) identified by global airline analysts, as the nearest market for US tourists (Bahamas recent actions have meant that they decided to take themselves out of the running for the next few months), then we need to immediately deal with the top-three issues – election or no election.

To do otherwise will simply be a failure of leadership, and we have already seen the consequences of such failures elsewhere.

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