January 26, 2020

‘Tax the cruise sector and reduce airport tax’ Bahamian businessman urges Caribbean governments to make changes


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By Delana Isles From TC Weekly News

governments should tax the cruise sector more and lessen taxes for air passengers in and around the region. 
This is the view of Robert MacLellan, managing director of MacLellan and Associates, a hospitality consultancy firm based in the Bahamas.

In an opinion piece that has been shared by several times by numerous media houses across the Caribbean this week, McLellan urged Caribbean governments that if they band together they can negotiate better deals for their destinations, and are thus less susceptible to threats of being dropped from the cruise lines.
For this to happen, he stated that tourism dependent governments should follow the model developed by oil producing countries for their negotiations decades ago.

He goes on to explain what he means by this, writing: “When relatively small and poor oil producing governments sought to get a fair price for oil – their main source of national revenue – they banded together to negotiate more effectively with the multinational oil companies and the larger developed nations, which were the major consumers of their oil.

“In 1960 five of these countries came together to found OPEC – the Organisation of Petroleum Exporting Countries – and were later joined by nine additional member states. 

“As a result of their joint stronger bargaining power, oil prices have risen relatively steadily from $1.63 per barrel in 1960 to an average of around $77 during the last ten years.”

According to MacLellan, the weak negotiating position of individual Caribbean governments versus the massive cruise line corporations, relative to port taxes, poses similarities to OPEC’s situation 60 years ago, and the same potential rebalancing strategy should now be pursued in the Caribbean. 

“If governments across the whole region, including Central America, come together and form OTEC – the Organisation of Tourism Economy Countries – they can negotiate as a cartel from a position of greater strength with the cruise lines,” he stated. 

Currently, when individual countries try to increase port taxes, they are threatened with being dropped from cruise itineraries and can be picked off one by one by the powerful cruise lines.

He added that from a better bargaining position, state or national governments with single destination cruise itineraries – Alaska, Bermuda and Hawaii – have already negotiated higher cruise port revenues than those in the average Caribbean country. 

“Cruise ships stay two nights in Bermuda and pay at least $50 per passenger. For mainland United States and Canada cruise itineraries, an average of 33 percent of the cruise ticket price goes to port taxes, compared to an average 14 percent for a Caribbean itinerary. 

“By negotiating together, governments in the greater Caribbean region can achieve similar results to these destinations with higher port taxes.”

He cited a recent statement from the Government of Antigua and Barbuda which summarised the history and current situation of regional cruise taxes, thusly: “In 1993 Caricom countries initially agreed to impose a minimum $10 port head tax for cruise passengers but this was never implemented because of internal disagreements. 
“A range of today’s head taxes in the Caribbean is as follows: $18 – The Bahamas and The British Virgin Islands, $15 – Jamaica, $13.25 – Puerto Rico, $7 – Belize, $6 – St Kitts and Nevis, $5 – St Lucia, $4.50 – Grenada, $1.50 – Dominican Republic.”

magine the economic benefit, if these cruise tax rates could be increased and standardised across the region at the higher levels listed, MacLellan observed.

“One directly relevant and current challenge could be addressed – the current sky-high airport and air ticket taxes in the region could be reduced to help increase the volume of stay-over visitors in the Caribbean.

“Stay-over travellers, whether intra-regional or from outside the Caribbean, spend very much more than cruise ship passengers and generate considerably more local employment than today’s cruise ship business model, which is now highly exploitative of Caribbean countries.”

He added that an increase in stay-over visitors drives the development of more hotels and marinas, as well as many other forms of real estate and tourism infrastructure investment. 
Reduced air ticket prices keep intra-regional airlines, like LIAT, flying and increase the number of airline seats into Caribbean destinations from the rest of the world, he said.

MacLellan further stated: “The cruise industry business model has changed radically and aggressively in the last 15 years and should no longer be viewed as an ideal ‘partner’ for the countries of the Caribbean. 

“There is a growing sense in the islands with the highest cruise ship volumes, like St Thomas and Sint Maarten, that today’s port taxes are not adequate compensation for the overcrowding of downtown areas, the pollution from the burning of heavy fuel oil and the minimal spend ashore of today’s cruise ship passengers.”

He stated that the mega ships now have multiple shops, casinos, restaurants and bars offering all-inclusive packages that totally distract passengers from spending ashore. 

“In the last 20 years, ships’ commissions on shore excursions have risen from 10 percent to 50 percent, discouraging passengers from going ashore at all and squeezing any possible profit margin for local tour operators. 

“Today, over 80 percent of a cruise ship passenger’s discretionary spend is on board.”

MacLellan noted that most cruise ships enjoy a double high season – Caribbean for less than six months and the balance of the year in Alaska or the Mediterranean – operating virtually free of corporation taxes and with very low wage bills. 

The largest ships, he said, cost less than $300,000 per cabin to build, while new hotel rooms in the Caribbean cost double that figure per room to develop and have only one high season.

The cruise ship’s highly competitive business model and the further recent growth of cruise tourism in the region might be viewed as a direct disincentive for resort investment and reinvestment in the Caribbean.
“The total number of cruise ship passengers was over 27 million world-wide in 2018, up nearly 10 percent from two years earlier. 
“In the next ten years, 106 new ships are expected to enter service and, currently, over 50 percent of the world’s cruise fleet is based in the Caribbean for the winter. 
“The hugely profitable cruise industry can afford to absorb higher port taxes in the Caribbean and will do so, once faced with a stronger negotiating entity.”
He continued: “Do not believe any cruise line threats that they can pull out of the region all together. 
“The Caribbean is the only archipelago with natural beauty and sophisticated tourism infrastructure, located directly between the established feeder cruise markets of North America and Europe and the growth feeder market of South America.
“Is it not now abundantly clear that, at the very least, there is an absolute logic to rebalance the tax burden between the Caribbean’s stay-over visitor and the cruise ship passenger?” MacLellan concluded.

For more on this story go to: http://tcweeklynews.com/xtax-the-cruise-sector-and-reduce-airport-taxx-bahamian-businessman-urges-c-p9801-127.htm

EDITOR: I thought this article was so good I substituted it for mine.

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