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Minister Admits Baha Mar Room Discounts 'Slightly Worrisome'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Minister of Tourism yesterday admitted the steep promotional discounts being offered by Baha Mar were "slightly worrisome", and asserted: "We definitely don't want a price war."

Dionisio D'Aguilar, acknowledging the concerns of the $4.2 billion project's rivals, told Tribune Business that "the Government is concerned" about whether its opening will generate the promised gross domestic product (GDP) expansion.

Acknowledging that this would not happen if total visitor numbers did not grow, and room rates became depressed, Mr D'Aguilar said Baha Mar's top executive had assured him the development will "do its level best to minimise" the cannibalisation of other properties' markets.

The Minister was speaking after Baha Mar's 'Buy Once, Stay Twice' promotion exacerbated fears among its Nassau/Paradise Island rivals that it will discount heavily to attract business, forcing room rates down across the market.

The promotion, which closed yesterday, gave guests who stay at Baha Mar between July 24 and August 30 an opportunity to enjoy a second, equivalent stay between September 4 and December 17, 2017.

The second stay is priced at $50 per night, which is equivalent to just 29.4 per cent of the Nassau Paradise/Island hotel industry's lowest monthly average daily room rate (ADR) for 2016. Bahamian hotels are traditionally priced at the upper end of the market, in keeping with their high-end status and need to cover significant operating expenses.

Mr D'Aguilar told Tribune Business that the level of promotional discounting was "slightly worrisome, I must say", and expressed the Minnis administration's determination to avoid a 'rate war' between Baha Mar and other New Providence-based properties, including Atlantis.

"I don't want there to be a price war where the overall rates are going down, and we maintain occupancies at far lower room rates. That's not good for the Bahamas," the Minister said.

"Don't get me wrong, competition is good, but as Minister of Tourism I don't want a God almighty price war, as the only one who benefits will be the consumer and not the country."

Mr D'Aguilar said the Government had extended multi-billion dollar tax incentives and other concessions to both Atlantis and Baha Mar, including marketing/promotional subsidies, and wanted to ensure it received a 'return' on these investments via jobs and economic growth.

"The Government wants there to be a positive effect from these concessions, and an overall benefit to the Bahamian people," he added.

"A property of this size [Baha Mar] is clearly going to have a substantial effect on hotel inventory and the pricing of the market, but we have to make sure it doesn't do so to the detriment of existing hotels that have served us well over many years. We definitely don't want a price war."

Howard Karawan, Atlantis's top executive, had earlier this week expressed fears of market 'cannibalisation' as a result of new developments such as Baha Mar, adding that these projects should effectively 'take the lead' in attracting new airlift to this destination and expanding the tourism market.

He was backed by Gary Williams, Sandals Royal Bahamian's general manager, who told Tribune Business: "We all have the same concerns. Baha Mar is good for the Bahamas, but what the country can't afford is for them to discount rates. That is going to cannibalise the market. Discounted rates are no good for the Bahamas."

Mr D'Aguilar yesterday said he was optimistic that "a happy medium" could be achieved, arguing that the concerns of other hotels needed to be balanced with Baha Mar's efforts to establish itself in the market.

"Cannibalisation is a major concern of the other major players, other hotel operators in the Bahamas, and clearly Baha Mar has to develop strategies to get their product known in the marketplace," the Minster said.

"We understand that, but we have to be very careful that we don't grow the occupancy levels at Baha Mar at the expense of occupancies at other locations, at least from a sustainability point of view."

Mr D'Aguilar said it was key for Baha Mar to tap into new markets and grow the number of visitors to the Bahamas, as this would sustain - rather than degrade - room rates by ensuring there was enough demand for all hotel properties.

"On the one side, operators in the market are saying Baha Mar is not doing enough to grow demand; not at the expense of the other hotels," he added. "But, on the other side, Baha Mar is saying we need to get our name known in the marketplace and overcome the bad press that preceded they're opening.

"They've [Baha Mar] impressed on me that they're very mindful of cannibalisation, and [president] Graeme Davis assured me they're very mindful of that and are going to do their level best to minimise that.

"But on the other side you've got players in the market seeing the offers Baha Mar is making online, and realising the numbers going into the fall are not as robust as they should be."

Mr D'Aguilar said both sides needed to listen to each other, adding that the Government was "mindful of the noise in the marketplace" and the need for Baha Mar to grow the economy rather than split the high-end visitor market with Atlantis.

"It's early days," he told Tribune Business. "Everyone's a little jittery, everyone's a little nervous. The Government is concerned that Baha Mar's opening leads to an upward trajectory to our GDP.

"Everyone's watching to see if the marketing efforts they're going to deploy will have an overall effect of growing GDP for the destination. That's where our focus is, where our concentration is. The Government does not want a price war. That will not bode well for the destination. If we have too many rooms, it will have a detrimental effect."

Fears that Baha Mar may split, rather than grow, the market for high-end visitors with Atlantis have been present ever since the $4.2 billion Cable Beach development was conceived in 2003-2005. Paul O'Neill, Atlantis's former top executive, publicly voiced such concerns during that period at a Bahamas Chamber of Commerce luncheon.

Should these fears come to pass, it would create downward pressure on room rates at both New Providence's mega resorts and, potentially other hotel properties, with none generating the profits they need to keep Bahamians employed and maintain a sustainable business model.

Comments

tell_it_like_it_is 2 years, 2 months ago

Does D'Aguilar have shares/investments on Paradise Island? I don't get why DD says in one breath he wants Baha Mar to have a greater occupancy and yet at the same time is 'so worried' about competition (you can tell us the truth, were you offered "support" from P.I.?).

A new company will obviously have to do something to stand out at first. It can't last forever because everyone wants to make a profit, and usually a 'big' profit these days. Something isn't adding up here... (oh, and by the way, please leave God out of politics and business).

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TalRussell 2 years, 2 months ago

Comrade Minister I thought your party was the party of Free Enterprise?
In Canada and the United States, if corporations get together even to try to interfere with 'market prices' - executives will go to jail for a long time if convicted of 'price fixing.'
Would it be okay for the red government to allow Food Store Operators to get together to fix prices food items?

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Porcupine 2 years, 2 months ago

The bigger picture may be that the owners of BahaMar don't care if they make a profit for decades. They will see all the other resorts go belly up and then come in and buy them for pennies on the dollar. Then, they will have the vast majority of market share here and can do whatever they want. It is already been seen that the "leaders" of The Bahamas haven't been forthright in this whole process. We, the people, have no idea of all the concessions given, crown land given, tax breaks, and other "advantages" over existing resorts. In addition, if you look at the geopolitical objectives of the new owners of BahaMar, I think we can safely say that the short term profit motive of a resort is not their first priority. I do not think this will end well for The Bahamas.

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sheeprunner12 2 years, 2 months ago

Bahamar is a Chinese government asset and a political lever to use against our Bahamian government ......... Price and currency wars are common Chinese ploys ....... This is the reality of getting in bed with the wily Chinese

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OldFort2012 2 years, 2 months ago

Obviously Mr. D'Aguilar does not have a degree in Economics and nor does anyone advising him, so here goes, couched in terms understandable to the average reader: Let us assume that GDP (from tourism, in this example) is a cake. The government only cares that the size of the cake gets bigger each year. It is not the job of the government to care who gets what sized slice (distribution between Atlantis & Baha Mar). The government also should care that the ingredients used to bake the cake are according to standard, otherwise the cake will taste bad for everyone. This is done via anti-monopolies legislation. Part of that legislation are anti-dumping provisions: basically you cannot undercut your competitor under your costs to drive them out of business and ensure a bigger slice of the cake for yourself by foul means. So, Mr. D'Aguilar, simply inform the Baha Mar management that you are watching them like a hawk and that you will not hesitate to impose huge fines on them should you see any dumping going on. Then sit back, enjoy your cake and let the market take care of everything else.

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Porcupine 2 years, 2 months ago

OldFort,

Having a degree in economics simply means that one has been brainwashed. There is no such thing as a "market" Economics is a soft science. Meaning for the average reader that economics is simply bullshit. The idea of a Nobel Prize in economics is laughable. The economists have been advising governments for ages. And boy what results we have gotten. Your suggestion that any government official could withstand the legal challenges to suggesting they are pricing below cost, and to prove it, shows you are living in la la land. Try watching the following video. If you understand half of it, then continue to comment on "economics". From my perspective, if you have a degree, it has been purely academic with no real world experience. . https://www.youtube.com/watch?v=QBMRb...">https://www.youtube.com/watch?v=QBMRb...

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OldFort2012 2 years, 2 months ago

LOL @Porcupine, I have only 35 years experience in the field (Wall Street, not Bahamalalaland), but your video has shown me the error of my ways. Economics is all junk. Continue as you are. It's going great, is it not? PS: anti-dumping provisions are law in nearly every advanced economy and strictly enforced, with massive fines. But there again, their civil servants can read and write. Try Googling it, you might learn something.

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Socrates 2 years, 2 months ago

there is nothing special about a bahamas hotel compared to similar properties south of here.. we have an operating cost problem due inflated wages and benefits and utilities... bahamar pricing brings competition to the market and forces employers to become more efficient.. visitors spend money on more than just the room, so if lower prices increase numbers, whatz the problem? nobody complains about increasing cruise arrivals, and they contribute almost nothing...

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