Costa Rica Hotels in Financial Trouble

The global and U.S. financial crisis is beginning to spill over into Costa Rica business and life. Most recently, the country’s hotels have reported lower-than-average occupancy levels, with the decrease ranging from 5 to a discouraging 50 percent.

A recent survey by the Costa Rican Chamber of Hotels discovered that 52 percent of Costa Rica hotels report lower international occupancy rates in 2008 in comparison with 2007’s figures. Importantly, Costa Rica is currently in the middle of its low season, one of the rainiest in history, which may account for some of the disappointing figures. Rain doesn’t explain away everything however, and the Costa Rican Chamber of Hotels reports that, though hotels were expecting lower occupancies typical of the rainy season, they were not prepared for such a drop in business.

Some sectors are harder hit than others. La Fortuna, one of the country’s top tourist destinations, has suffered terribly. Hotels in the region are reporting a 30 to 45 percent drop in visitors from the United States, in addition to smaller decreases from other international guests. If a nearby hotel welcomed an average of ten guests daily in 2007, this year they will only welcome six. Beach hotels are in the worst situation of all, dealing with the double impact of an economic crisis and heavy rains. That being said, all hotels throughout Costa Rica — even those in central San José, which see heavy business travel traffic — report losses and reduced profits.

Unfortunately, most hotels see only darker skies looming in the future. Most of the country’s hotels and resorts have noticed lower advanced reservations for 2009, and many have reported high cancellation rates for reservations already in place. In fact, of those hotels surveyed by the Chamber of Hotels, most reported 5 to 40 percent cancellation rates on their pre-existing reservations. In a time of economic uncertainty and discouraging occupancy rates, such a high cancellation level is very troubling.

Not every hotel and tourism company is affected, however. The reduction in oil prices, the implementation of CAFTA and new tourism campaigns (funded by the Costa Rican Tourism Institute) has supplied certain companies with more than enough business. In short, lower prices on plane tickets, coupled with ad campaigns to promote Costa Rica, will likely result in enough visibility to keep the market relatively steady.

For those that are still concerned, industry experts advise everyone to remain prudent. Nothing is assured in today’s market, so new projects are most likely best put on hold. Renovations should be postponed and any serious investments should be considered twice. In all cases hotels, tourism companies and even tour operators should think ahead to determine what changes they will make and how their companies will survive if profits drop another five to ten percent.

On the bright side for visitors, lower demand will force competitors to improve service and carefully consider their prices. Other helpful options such as re-booking and cancellation insurance are popping up on the Costa Rica vacation radar along with discounts and other incentives. With these new reasons to visit the country and the high season just over the horizon, the tourism industry will soon receive a needed boost in revenues, and things will hopefully return to relative normality.

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Filed under: Business on October 23rd, 2008