Thursday, September 11, 1997

A good lesson on how not to win at tourism

Tourism on our beautiful Island of Margarita has been harshly battered over the last few months. As always, there are many factors that contribute to this situation, but I would like to specifically shed light on three of them since these have a common denominator, i.e. the fact that the problems could have been solved by more coherent official intervention.

The first factor refers to the administration of hotels by the official entities responsible for the management of assets recuperated during the recent financial sector crisis. The concentration of the supply side of the equation in the hands of a few players without apparently requiring a minimum return on occupied rooms has totally altered the structure of the hotel industry on the Island. As a result, Margarita has today abandoned the possibility of applying a sophisticated marketing strategy so aptly illustrated by the slogan “The Best Kept Secret in The Caribbean”. Instead, it has been introduced to the world of cheap package tourism based on three elements, low rates, lower rates and lowest rates.

In an oil based nation such as Venezuela, in which the local currency tends to revalue making it difficult, if not impossible, to compete, this strategy is outright dense. This is occurring today; we have had a relatively stable exchange rate for the last year while local inflation burns underneath. There are islands in the Caribbean with less attractive infrastructure and landscapes that are applying tariff structures five or ten times higher that those actually in force in Margarita.

Having seen the immense dedication Pro-Competencia gave the Pepsi-Coca Cola fiasco, a case of obvious magnitude and importance but in which the dispute was between a few shareholders, it surprises me no end that they have not found it necessary to intervene in the hotel market in Margarita. The subtle control the government exerts over such a high percentage of hotel rooms definitely affects free competition. The sheer fact that it has placed rooms on the market at rates that barely cover variable costs without requiring either returns or recovery of capital investment, raises the possibility of an anti-dumping suit.

The government could easily have avoided this sad situation should it have insured that the management contracts were awarded to various hotel operators and, among other things, required a return on each room occupancy. The fact is that the market has been seriously damaged and as a result the State has less possibilities of recuperating its investments.

The second problem which could have been avoided by opportune and intelligent intervention by the government, was caused by the cancellation of Viasa’s flights to Margarita. Routine flights between Europe and Margarita fed hotel room demand and allowed tourists to travel directly and to then pick and choose among hotels at their whim.

Charter flights, even though very welcome, have the disadvantage of transferring the act of selecting hotel accommodation in the country of origin. In this sense, the foreign tour operator is in a win-win situation as far as tariff negotiations is concerned. In other words, the lion’s share of the package paid by the tourist is allocated to the air-fare while little is left to cover the hotel room.

It is inconceivable that, knowing the vital importance of these flights to Margarita, the government did not insure the immediate entry of other carriers to substitute Viasa’s canceled flights from Europe to Margarita. This can only be explained in terms of indolence and/or incapacity.

The last issue on which I wish to offer some comment is that of energy supply to the Island. There is not doubt that lack of regular supply of electricity seriously affects the tourism industry anywhere. I’m sure that, should the primary objective of privatization of the energy sector in Margarita have been to allocate the latter to the bidder who promised the best service instead of trying to maximize income for the Venezuelan Investment Fund and for the central government, the Island would today have an abundant supply of energy.

In this sense, it is surprising that resources were not made available to Edelca to finance the installation of an additional transmission line to the Island which would, like in effect Zulia and other equally as remote locations already do, allow Margarita access to Venezuela’s vast availability of hydroelectric power.

I don’t understand what is holding them back from recuperating the tourism industry in our beloved Margarita. It seems that the entire official sector has dedicated all its energy to the debate on casinos and bingos. When will they realize that the development of tourism is not merely a game!
Published in the Daily Journal, Caracas, September 11, 1997