Caribbean Tourism Report Q2 2008

Weak Performance In 2007 With nearly all countries having now reported visitor arrivals for 2007, these bear out our view that the tourism industry performed poorly in 2007. This was to some extent expected, given the impact of rising fuel prices and a weak US economy, meaning that less US visitors - traditionally the mainstay of the Caribbean tourism industry - were expected. In addition, a heavy hurricane season provided further disincentives for tourism. However, the figures are particularly disappointing since the Cricket World Cup in H107 did not provide the expected fillip to tourism. Of the nine host countries (Jamaica, St Vincent, Trinidad & Tobago, Barbados, St Kitts and Nevis, St Lucia, Antigua and Bermuda, Grenada and Guyana) only Guyana demonstrated strong growth, of 26.5% year-on-year. This bears out our positive assessment of Guyana's tourist potential in our recent focus piece, in which we indicated that Guyana had more to gain from other host nations, since as yet it has failed to market itself successfully as a bridge tourism location between the Caribbean and Central America. We also note that neighbouring Suriname posted higher than usual growth, of 22.3% y-o-y, which we believe is a result of the spillover effect from Guyana's World Cup tourism success.

Of the other host nations, only Grenada posted growth of more than 5.0%, while some even experienced a fall in arrivals, such as St Vincent and the Grenadines, where annual arrivals fell by 7.6%. Given the substantial investment in the World Cup, this is highly negative for the industry. We do not expect the situation to improve vastly in 2008, with the US economy potentially entering recession, and the global impact of this economic slowdown having a knock-on effect on arrivals from other regions as well. As such, we expect moderate growth in 2008, forecasting arrivals to total 25.1 million.

Focus On Grenada Grenada was one of the few Caribbean countries to buck the prevailing negative trend in 2007. Tourism arrivals grew by 9.0% y-o-y, well above the regional average. This was in part due to exploitation of its position as a World Cup host nation - which included a skilful European marketing campaign - but also comes as a testament to the country's positioning of itself as a major cruise and luxury destination. The small island also benefits from close links to nearby Trinidad & Tobago, and has set up air and sea links between the two.

We believe that Grenada has the potential to perform strongly again in 2008. Major reconstruction work following Hurricane Ivan in 2004 and in preparation for the World Cup means that Grenada now has relatively extensive infrastructure, which can support a growth in tourism arrivals. While, like the rest of the region, the downturn in the US will exert negative pressure on industry growth, Grenada is well placed to ride out this storm.

Royal Caribbean Posts Q1 Profit Cruise company Royal Caribbean released its Q108 financial results in April. These were encouraging, showing that the company made a quarterly profit of US$75.6 million, up from US$8.8 million in the same period the previous year. Revenue increased by 17% y-o-y to US$1.43 billion. However, the company has reduced its full-year earnings forecast to US$3.0 per share, from previous forecasts of US$3.4, stating that this was due to increased fuel costs resulting from rising oil prices. Fuel prices increased costs by US$60 million in Q1, despite the introduction of passenger fuel surcharges. The company is forecasting an increase in capacity of 5.0% in 2008, stemming from the launch of the 3,634 capacity passenger ship, Independence of the Seas, which will be launched in May.