Puerto Rico looks to tourism to boost sagging economic fortunes

Kayaks rest along the beach at Sol Meliá Paradisus in Río Grande. (Larry Luxner)

Puerto Rico, deep in the throes of an economic and fiscal crisis, is losing ground to rival Caribbean tourism destinations while the island’s population continues to shrink — from just over 3.8 million in 2010 to under 3.7 million today.

“We face strong competition from our neighbors and we need to focus on price-value added, better air access network, and languages,” said a new report issued by San Juan-based H. Calero Consulting. The agency said the key to improving tourism “focuses on the traditional traveler as well as on medical tourism; on improving air and maritime access; on expansion of more accommodations; more niche markets on luxury, nature, adventure, gastronomy, and sports tourism.”

Given world tourism trends, said the study, Puerto Rico must focus on new markets such as Germany, China, Japan and the United Kingdom, to lure tourists to its shores and slash its reliance on other industries.

Arroz con pollo, rice and beans and other traditional Puerto Rican delicacies dominate the menu at La Placita, a country restaurant along Highway 173 near Cayey. (Larry Luxner)
Arroz con pollo, rice and beans and other traditional Puerto Rican delicacies dominate the menu at La Placita, a country restaurant along Highway 173 near Cayey. (Larry Luxner)

In 1980, Puerto Rico received 19 percent of the Caribbean’s total arrivals and 26 percent of its total tourism income. By 2012, these shares fell to 13 percent and 15 percent, respectively. Tourism today accounts for less than 5% of the island’s GDP, down from 6 percent of GDP a decade ago.

In fiscal 2013, the island received 3.2 million tourists, about 4.7 percent more than in fiscal 2012. Puerto Rico has 151 lodging facilities, 86 of which are hotels — down from 169 hotels and lodgings in 2006.

“International competition and the U.S. mainland and Puerto Rican recessions have contributed to the closing of many hotels in the island, particularly in the non-metro area,” said the Calero study, noting that Puerto Rico now has 14,252 rooms with an average daily rate of $130 and an occupancy rate of 69.8 percent.

Legitimate casinos also are hurting — mainly because of the proliferation of illegal slot machines, the difficult economic situation and the rigidity of Puerto Rico’s gaming law. In fiscal 2012, the Puerto Rico Tourism Co. received 73 percent of its budget from revenue generated by legal casinos islandwide — but the PRTC said revenues began dropping in 2012, due to casino closures at El Conquistador Resort in Fajardo, Gran Melia Resort in Río Grande and other hotels.

The island’s tourism infrastructure got a boost last year, when Aerostar Airport Holdings LLC took over the operation and management of San Juan’s Luís Muñoz Marín International Airport, Puerto Rico’s main link with the rest of the world.

Aerostar, a 50-50 venture between New York-based Highstar Capital and Mexico’s Grupo Aeroportuario del Sureste (ASUR), has a concession to run LMM for the next 40 years. The airport now handles 8.5 million passengers a year, and Agustín Arellano, general manager of Aerostar, aims to boost that by at least 2  percent a year.

“We’re going to completely change the way this airport deals with retail. It’s a very old airport from the 1950s that has been renovated in different generations,” said Arellano in a recent interview. “No profile was ever made of passengers’ needs. We’ll establish the same system we have in our Mexican airports so we can offer passengers a very appealing commercial mix.”

"Tuna" musicians play for tourists in Old San Juan. (Larry Luxner)
“Tuna” musicians play for tourists in Old San Juan. (Larry Luxner)

Passengers transiting LMM spend about $2.70, compared to $7.80 per passenger in Cancún and $14 at Miami International Airport, he said, noting that “we are almost in last place in the whole U.S. airport system in terms of per-passenger spending.”

Arellano said certain items like liquor — especially rum — should be promoted at LMM. Taxes make other products like fragrances and cosmetics uncompetitive, meaning mainland-bound passengers will just wait until they arrive in Miami, New York or other gateway cities to buy those items.

He said Dufry, which operates 12 stores at LMM, will expand to 15 shops when the remodeling is finished by December 2015 or January 2016. Dufry’s contract expires in 2029. At present, the airport has 121 food, beverage, retail and duty-free concessions.

“Passengers are going to see a modern, high-quality airport — just the same as Cancún,” Arellano said. “There will be construction all over the airport. There’s just no other way to modernize it. Construction will be running 24/7.”

San Juan is still a major homeport for cruise ships, with 1.17 million passengers arriving during the 2011-12 cruise year, says a Florida Caribbean Cruise Association study. These included 685,628 transit passengers and 491,109 passengers embarking on their cruises in Puerto Rico, making the island the Caribbean leader in passenger embarkations. Of the former group, 91 percent disembarked and visited the U.S. commonwealth.

Passenger and crew visits generated a combined $186.6 million for the Puerto Rican economy. Transit passengers spent an average of $70.49, while passengers who arrived on the island to begin their Caribbean cruise spent an average $178.35. That means the typical cruise passenger who stayed one or more nights in Puerto Rico spent an average of $93.87 per day, based on an average stay of 1.9 nights.

Compared to the 2008-09 season, total passenger and crew visits fell 7 percent, from 1.39 million to 1.30 million. However, total direct cruise tourism expenditures actually rose by 2.4% over that same three-year period. The industry keeps about 5,000 Puerto Ricans employed, according to the FCCA study.

Last year, the commonwealth government passed a new incentives package to spur activity in the Puerto Rico cruise ship sector. Law 80 extends the 2011 incentives packaged approved by the previous administration of Gov. Luís Fortuño, adding four incentives to increase cruise ships’ homeport frequency and duration in Puerto Rico.

The first gives a discount increase of $1.50 per passenger if the homeport ship sails before 4 p.m. The second offers an additional $1.50 if ships dock before 11 a.m., with a minimum eight-hour port stay. The third gives a 50¢ increase per passenger if the homeport ship includes another Puerto Rico port, such as Ponce, during a week-long itinerary, and the fourth extends a further discount of 50¢ per passenger for homeport ships that embark or disembark from a Puerto Rico port more than once a week.

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