The threat from Zika is overblown, at least so far
The threat from Zika is overblown, at least so far
01 NOVEMBER 2016 7:21 AM

Hotel performance in south Florida and the Caribbean is on a downward swing, but it’s a mistake to blame the troubles entirely on the Zika virus scare.

One of the biggest news stories of the year is the Zika virus epidemic and subsequent fears of its effects on tourism in Central and South America, the Caribbean and the southern United States. So far, it seems as though the worst fears for the travel business haven’t materialized and might not at all.

Unlike during other health scares in recent decades—everything from SARS to Mad Cow Disease to Ebola—most consumers seem to be taking the Zika threat in stride. You can count me and my wife among the group of unconcerned travelers: Since June, we’ve spent a week each in the Dominican Republic and the east coast of Florida, and never once thought about changing our plans. And neither one of us contracted the disease during our two vacations.

In looking at hotel performance for south Florida and the Caribbean this year, it appears as though hotels in both regions are struggling—at least compared to the robust performance they’ve generally seen since the end of the last recession. While it would be easy to blame the downturn on consumer fears about Zika, the blame more likely lies with hotel supply and demand dynamics.

STR, the parent company of Hotel News Now, reported through September the Miami/Hialeah hotel market experienced decreases in occupancy (down 1.4% year to date), average daily rate (down 1.9%) and revenue per available room (down 3.3%). At the same time, supply in the market was up 4.1%, while demand increased by 2.6%. That kind of imbalance will kill occupancy every time. 

The results were similar for the Miami Beach submarket, where year-to-date through September occupancy fell slightly (down 0.8%), but both ADR (down 4.9%) and RevPAR (down 5.7%) sagged. Again, a 6.4% increase in room supply was probably the leading reason for the disappointing performance of the market.

Other factors could be at work, including the strength of the U.S. dollar and the hard-to-quantify impact of Airbnb and other sharing economy accommodations sites. Despite headlines to the contrary, it doesn’t appear that Zika is near the top of the list of what’s ailing the Florida hotel industry. 

In the Caribbean, the Zika scare might be more of a drag on the region’s hotel performance. Despite a minimal increase in supply, lower occupancy and ADR contributed to a 6.9% decline in RevPAR through September. The near-term future doesn’t look bright for the region. STR forecasts decreases in occupancy, ADR and RevPAR for the Caribbean in 2017. 

In Puerto Rico, a Caribbean nation with severe economic problems, Zika might be another factor contributing to its troubles. According to Meet Puerto Rico, the island will see a sharp downturn in convention business this year. This year, Puerto Rico is scheduled to host 223 convention groups that will occupy 132,386 roomnights. Last year, the island had 286 groups that accounted for 149,941 roomnights.

In addition, several sports-related cancellations further injured Puerto Rico’s tourism business. ESPN moved a three-day college basketball tournament from San Juan to Walt Disney World near Orlando, and earlier this year Major League Baseball moved a two-game series from San Juan to Miami.

I don’t mean to underplay the effect Zika might have on consumers’ future plans. One recent survey by Allianz Global Assistance points to significant number of Americans who appear wary of traveling to Florida. According to the survey, 14.9% fewer Americans are planning trips to Florida this fall and winter than did during the same period last year. Miami and South Beach could be hardest hit, with the number of travelers planning flights to south Florida down 29.1% compared to last year. 

Again, it’s not a concern for me as my wife and I will spend the month of February in Cocoa Beach, Florida.

Despite some of the bad news associated with Zika, the scare and its effects on the hotel industry pale compared to the impact the SARS epidemic of 2003 had on the industry in Toronto and some other cities. According to STR data, hotel occupancy in Toronto dropped to 45.1% in April 2003 and 43.7% in May 2003.

Yet Toronto rebounded quickly, with citywide occupancies approaching 70% by the fall of 2003. Today, the city is a hotbed of hotel activity: the city had occupancies above 80% for May, June, July and August of this year.

That should be the lesson to hotel owners and operators: Don’t panic when these kinds of shocks rattle your markets. Usually, the crisis—real or imagined—will pass and business will return to normal and be guided by traditional market forces rather than fear and panic.

Email Ed Watkins or find him on Twitter.

The opinions expressed in this blog do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.

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