Build more hotels, or ‘struggle’

Thursday October 17, 2019 Written by Published in Economy

Business and tourism leaders say the country can’t yet handle as many tourists as bank economists recommend. 

 

Cook Islands should build more hotel rooms or risk pricing itself out of the tourism market, according to ANZ’s international economists.

The contentious advice runs against the current of the country’s economic strategy, and caused raised eyebrows through the tourism and construction sectors yesterday.

ANZ’s Pacific Economic Outlook says the country has had a “remarkable run” of strong inbound tourism and GDP growth, but that’s about to slow down unless the country takes action.

“Cook Islands could to well to think about increasing tourism capacity,” the report says. “Without additional room stock, it will struggle to achieve strong growth and will run a risk of pricing itself out of the market.

“In turn, this will impact the country’s attractiveness to high-yielding tourists.”

The advice is unexpected, because Cook Islands have adopted a careful destination management strategy that ensures local residents and businesses work seamlessly with tourists to create an attractive high-value destination – not taking a hell-for-leather growth-at-all-costs approach.

However, ANZ’s Australia-based international economists Kishti Sen and Tom Kenny argue that a new phase of investment in the tourism sector will return the country to stronger growth.

“New hotels or significant extensions along with associated infrastructure will drive the next investment cycle,” they say.

“And because the construction sector has a high multiplier impact, the broader domestic economy such as business services will benefit from increased construction.”

Last night, an influential line-up of business leaders cast doubt on ANZ’s recommendations.

Cook Islands Tourism chief executive Halatoa Fua slammed the report as “misleading”, saying it failed to recognise the seasonal nature of its tourism industry.

“While accommodation is near capacity in the high season months of July to September, the other nine months in the low and shoulder season have much lower occupancy,” he explained “Other key source markets such as Australia and the Northern Hemisphere are important to fill the low and shoulder season and travel to the outer islands. There is still capacity to fill all year round to provide a more sustainable tourism industry.”

Chamber of Commerce president Fletcher Melvin welcomed the positive economic growth over the past five years, thanks especially to the increase in tourism-related activity.

“Obviously the boom in building has been a result of a housing and room shortage which has brought with it immediate problems short-term but also a great opportunity for the building industry.

“The increase in Air BnB is continuing to supply some of the room needs but also has contributed to long term housing issues so this needs to be addressed.”

And he warned of challenges to infrastructure if ANZ got its way: “If there is an increase in resort room numbers then it is imperative that the sanitation plan moves quickly to keep up with the pace of change.”

Both Melvin and Tata Crocombe, the owner of The Rarotongan, questioned whether the ANZ economist had actually asked the views of people in the Cook Islands.

“I don’t believe the people who wrote the report have visited the Cook Islands and talked to the major players in the industry,” he said. “If they had, they might have come to a different set of conclusions.”

Crocombe said the challenge was not to build more accommodation, but to better manage pricing across the high season and low season to keep occupancy rates level.

He worried that the glut of budget accommodation had tipped the balance towards lower-yield customers. “A 5-star tourist spending $1000 a night or a budget tourist paying $55 a night, the cost is the same for the water and sanitation and policing.

“I think there’s a break-even point below which they’re actually costing the country money.”

Even in the building industry, John Short said the country didn’t more hotel rooms – “we’re at capacity, in my opinion”.

Builders including his company, John Short Construction Ltd, already had a great deal of work on, he said.

“We’re at the stage where the bubble is going to burst one day – and it’s not going to be much longer, just a couple of years.

“I don’t think the islands have the capacity for any more tourists. It’s not just a strain on infrastructure, but also on services.”

4 comments

  • Comment Link Nga Upoko Friday, 18 October 2019 09:22 posted by Nga Upoko

    WEL said John Short-Strain on INFRASTRUCTURES and Services

  • Comment Link Papa Manavaikai Friday, 18 October 2019 00:58 posted by Papa Manavaikai

    Kia Orana,
    The economist may have 'overlooked' asking local's their opinions however, what their saying is not 'damning' our market but more of a 'warning'. Research shows there is a steady stream of tourist coming to the Cooks, and we do need to think of extending our reach to northern hemisphere continents - North America, Europe and Asia. But not forgetting our NZ and Australian tourist, who have been the biggest contributors of tourism numbers for some time.
    Let's reflect on a few things that, will impact both positive / negatively for our island. There will always be question's of our infrastructure coping with the increased stresses, how far behind is our infrastructure, what do we need to do to meet the increased demands, who will spearhead these changes. How about; health services, work force to meet the increased demands and governance / control. To be clear that is the 'negative' side, and not to point the finger to anyone in particular but doesn't our infrastructure suffer already? For example if we were able to convert 5 percent of Australia's population into visiting tourist, our infrastructure would be stretch beyond it current limitations. In the same breath could this be the driver that, our government need to address these existing issues and make Cook Islands a tourist destination. FYI - if the changes took place, this would also mean that our locals benefit just as much as our 'tourist'. Better water, sewerage, health services, workforce and a healthy economy for 'everyone'.
    I also find it hard to read one of the paragraphs, saying that; saturating the market with variations of price points brings a 'lower-yield customers'. I am no economist, or qualified professor, I am actually the opposite - a curious Cook Islander who asks a lot of questions. I have yet to meet such a customer, and I would like to meet on one day. If we look at the term 'lower-yield', there is such a meaning in terms of shareholders / investors getting lower revenues from their invested money. Last I look customers don't get financial returns from paying for a 'service', such as staying at a hotel or home.
    Let's put it this way - are we not guilty in bargaining a better deal? are we not guilty in bartering a better price? I would then guess that, the recorded statement could cancel itself out? If anything let's just say that 'john doe' now has an opportunity to make a sustainable living, in offering those $55 a night rates. To service the lower end of an existing tourism world, yes the world approximately 7 billion and increasing.
    Do you not want to be able to cater for all tourist, and provide a truly sustainable scalable economy. This by the way is part of the 'positive', the other was a better infrastructure, health services and workforce. The economist are speaking the truth, that is there job to examine data and make forecasts. Don't get 'angry' at them, if anything let's consider what their suggesting. And it wouldn't hurt to upgrade our existing infrastructure, health services, local work force - heck, why not an increase our living standards so we don't have to live life like it's '1972'. And let's be brave and ask our government; when will the infrastructure be right, when can we get better health services, when can get a better workforce OR build holiday home, rent out for a 'reasonable' price, give you guest an experience they won't forget, and they will be your advertisers for more customers who will enjoy staying at your place. Heck you may even meet this 'lower-yield customers', and can you please let them know I would be interested in meeting them also.
    Be safe my island, be fearless, be kind to each other - "Nō te aro‘a ‘ua o te Atua i taea mai ei tātou e te mārama mei runga mai."
    Papa

  • Comment Link skys the limit. How much do you want?? Thursday, 17 October 2019 21:42 posted by skys the limit. How much do you want??

    Message

  • Comment Link Tomie Timon Thursday, 17 October 2019 17:18 posted by Tomie Timon

    I completely agree regarding the infrastructure/services problem. What would be horrific is if CI became like Maui: a constant traffic jam around the island, over-run attractions making the natural environment compromised so that what brought tourists to the island in the first place is no longer even available (coral destruction, etc.)

    To the CI government and tourism industry, please consider the long range problems generated by "over loving" a little paradise.

Leave a comment