Wake up, Bermuda, the love affair is over

Bermudians love Tourism. This love is visible in the average Bermudian’s approach to hotel development. It’s even more visible in the national belief that a new hotel will appear on the old Holiday Inn site in St George’s.

Our love for tourism is understandable. From 1921 to 1993 — 72 years — tourism provided the income that lifted Bermuda and all Bermudians from a poor subsistence- level agricultural community that farmed and fished and sold onions and flowers to the US, to a wealthy middle-class community where, by 2008, GDP per capita was almost twice that of the USA [in 2008, it was $93,000/Bda to $48,000/USA ].

Bermudians must grow up and admit that Bermuda’s long relationship with tourism has changed. Bermudians must stop trying to re-kindle a relationship that is completely changed.

Evidence of change

The DNA and CCTV evidence of complete change is that the majority of visitors now buy Bermuda as a cheap cruise destination that is on par with everywhere else that mega-ships cruise to. This is confirmed by the fact that the majority of visitors to Bermuda are Cruise Visitors.  In 2012, there were almost two Cruise Visitors [348,000] for every one [187,000] leisure Land Visitor.

It’s been that way since 2003, which is the year Cruise Visitors first outnumbered leisure Land Visitors.

The second sign of absolute change is that since Holiday Inn/Loews/Club Med’s 1988 shutdown, no developer has gone past the spreadsheet stage in developing a Tourism product on that site.

Here, in layman’s language, is why that happened and why this eighth and newest 2014 promise of development will, inevitably, end the same way.

The idea of developing that site always looks good at the ‘dinner napkin’ stage. A prospective developer who has been wined and dined will always find the proposition attractive and worth further investigation.

Next, the legal pad stage. The developer’s main financial person has a look. This guy or gal asks a few questions, scribbles out some numbers and possibilities on a yellow or white legal pad, and confirms that there is potential for profit.

The third stage brings in the bean-counters. They switch on their monitors, set up a spreadsheet, ask detailed questions, do comparative research, and make thorough analyses. These bean-counters uncover and discover.

They uncover and discover that:

• Bermuda’s leisure Land Visitor numbers have been in steady decline since 1987; going from about 450,000 in 1987 to 187,000 in 2012;

• Bermuda’s cost-to-build is from 300% to 30% higher than anywhere else in the Caribbean [$250k to $750k per room in the Caribbean; but $1.0m and higher in Bermuda];

• Selling prices for fractional or other units and hotel room rates must be significantly higher than anywhere else in the Caribbean or other comparable resorts; 

• Bermuda has several fractional unit projects that are currently in financial difficulty;

• Labour costs for all layers of all service staff will be 100% or more higher than anywhere else — despite a Payroll Tax subsidy by Government;

• Utility, food, and beverage costs and therefore charges to guests must be far higher than in the Caribbean [or on any cruise ship cruising to Bermuda].

With just these six minimal but critical factors on a spreadsheet, it quickly becomes apparent that with existing global pricing factors, building a new operation in Bermuda is unlikely to offer a reasonable chance for a reasonable return on investment.

Ego problem

The bean counters show their spreadsheet to the chief financial guy or gal.  This guy or gal goes to the ‘big man’ and advises him that the idea is a ‘no-no’.  The ‘big man’ then has the ego problem of backing out of something that he may have made personal promises on.

If there was no grand public announcement about “Mr Masterdeveloper” developing the Club Med site, then “Mr Masterdeveloper” simply steals away and moves on. But if the announcement came with great fanfare, then “Mr Masterdeveloper” has the problem of publicly backing off and admitting that he’d got it wrong. And guys like this don’t really like to be seen backing off or admitting errors.

In the twenty-five years since 1988, with the Holiday Inn/Loews/Club Med site, this process of developer-in developer-out has happened with seven publicized developers. Hanging in there for six years, Carl Bazarian holds the record.

Will an eighth developer start work on that site? No. The numbers are running the wrong way and the time has passed.

To this project, Bermudians need to say “Goodbye”, not “See ya later…”