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Puerto Rico: Big investments in airport, hotel infrastructure should boost tourism arrivals
Travel Markets Insider / March-April 2012

By Larry Luxner

Puerto Rico’s tourism industry is doing rather well these days — and major investments are soon expected at San Juan’s Luís Muñóz Marín International Airport — despite rising crime rates, a sluggish economic prognosis following six consecutive years of negative growth and a continuing exodus of Puerto Ricans to the U.S. mainland.

Mario González-Lafuente, executive director of the Puerto Rico Tourism Co., said the industry had a “banner fiscal year 2011” with hotel revenue per available room rising 5.8% and the average daily rate edging up by 4.3%. More than three million room nights were sold in the 12 months ending June 2011, for an 8.2% increase in total additional revenue.

In the first 10 months of 2011, Puerto Rico received 1.2 million stayover arrivals, up 4.4% from the year-ago period. On the other hand, cruise ship arrivals from January to July 2011 were down 4.5% to 735,000.

But that’s already changing, says González-Lafuente, thanks to the recently enacted Puerto Rico Cruise Ship Development Law — which expands fiscal incentives offered to cruise lines — as well as improvements underway at Dock #3 in Old San Juan.

Under that package, signed into law in June 2011, the commonwealth government now offers cruise lines $4.95 for every passenger between 10,000 and 139,999 they bring to Puerto Rico, and a per-passenger incentive of $7.45 starting with the 140,000th passenger. In addition, the sweetened deal offers a homeport incentive ranging from $1 to $4 per passenger depending on ship size and number of visits.

“We’ve implemented a rigorous strategic plan to uphold our relationships with cruise lines and promote Puerto Rico as the Caribbean’s most important port,” González-Fuente said at a Jan. 18 press conference in San Juan. “The plan includes improving air access to strengthen the homeport ship market, to achieve additional frequencies and new routes by markets with a demand for cruises, to improve the passenger experience and promote the destination through collaborative agreements with cruise lines.”

The legislation applies to all ports in the U.S. commonwealth, not just dominant San Juan — one of the busiest in the Caribbean — but also Ponce, Fajardo and the offshore islands of Culebra and Vieques.

Each year, says PRTC, the cruise industry injects $240 million into Puerto Rico’s economy. Passengers, who spend an average $70 per visit, represent close to $65 million of that amount, said González-Lafuente, who was recently appointed to the U.S. Commerce Department’s 32-member Travel and Tourism Advisory Board.

In November, the island welcomed the 2,850-passenger Celebrity Eclipse for the first time. And during January 2012 alone, Old San Juan has seen the arrival of several gigantic cruise ships including the Millennium, Norwegian Gem, Carnival Liberty, Nieuw Amsterdam, Navigator of the Seas and the Explorer of the Seas.

PRTC has also launched a $20 million U.S. marketing campaign, “Puerto Rico Does It Better,” last November. The campaign, which runs through June 2012, puts increased emphasis on social media to reach tourists, including search engine marketing, Twitter feeds, YouTube videos and smartphone applications.

Concurrent with that are upgrades at Puerto Rico’s largest hotels. The Ritz-Carlton San Juan has just completed a renovation of its 416 guest rooms and suites, while the 800-room Caribe Hilton, built in 1949, is in the midst of a $5 million overhaul.

“We invest millions of dollars on an annual basis to maintain the Caribe Hilton as Puerto Rico’s premier hotel resort,” said general manager José Campo. Since 2000, the landmark property in San Juan’s Condado district — Hilton’s first outside the U.S. mainland — has received more than $40 million in upgrades. And right down the street from the Caribe Hilton, the luxurious Condado Vanderbilt, originally built in 1919, will soon open following a $100 million renovation.

In 2013, Fairmont Hotels & Resorts will open a 500-room property on the site of the former Hyatt Regency Cerromar in Dorado, along the island’s north coast. And the 503-room Sheraton Puerto Rico Hotel & Casino, which in late April will host the 16th Annual Caribbean Hotel and Tourism Investment Conference, represents a $210 million investment. It boasts a 20,000-square-foot casino, Puerto Rico’s largest, as well as access to more than 580,000 square feet of meeting space at the adjacent Convention Center.

Dwarfing all of these is the commonwealth’s proposed Caribbean Riviera project for the former U.S. Naval Station at Roosevelt Roads, along Puerto Rico’s eastern shore. This comes following the Navy’s decision to sell 2,036 acres of land within the 8,600-acre former base, which was closed several years ago after violent protests over the Navy’s use of Vieques as a bombing range.

The Caribbean Riviera project envisions a $2 billion investment, creation of 29,000 jobs and the building of a 2,500-room waterfront hotel, casino and entertainment complex, as well as an adjacent airport and passenger ferry terminal linking this proposed megaresort to Vieques and Culebra.

In addition, Puerto Rico could receive up to $285 million in federal assistance between now and 2016 to bring all its airports up to current design standards and add capacity, thanks to the recent Congressional approval of the FAA Modernization and Reform Act of 2012.

That act includes an amendment presented by Puerto Rico’s resident commissioner in Washington, Pedro Pierluisi, to guarantee equal treatment for the island’s airports with respect to both formula and discretionary funding allocated by the FAA’s Airport Improvement Program.

In 2010, LMM reported passenger volume of 8.57 million passengers, a 3.9% increase from the 8.25 million passengers who used the airport in 2009. But those figures are way down from 2005, its busiest year ever, when a record 10.77 million passengers flew in and out of LMM. In addition, Puerto Rico is home to five other commercial service airports located in Aguadilla, Ponce, Mayagüez, Isla Grande and Vieques.

“There is no reasonable basis to treat Puerto Rico less than equally when it comes to obtaining federal funds under the Airport Improvement Program, especially since aviation serves such a critical role on the island,” Pierluisi said during an April 2011 speech on the House floor urging passage of the amendment. “Puerto Rico is heavily dependent on safe and reliable air service to carry passengers and transport goods to and from the U.S. mainland.”

Meanwhile, the commonwealth government is moving ahead with about $40 million in improvement projects at LMM.

Arnaldo Deleo, the airport’s general manager, said the FAA will finance 75% of this investment, with the government responsible for putting up the remaining $10 million. This includes small projects such as overhauling the airport’s landing navigation system ($1 million); improving the multilevel parking garage ($500,000) and relocating X-ray machines needed for USDA inspections of luggage headed for the U.S. mainland ($107,000), and resurfacing the 2,000-foot taxiway connecting LMM’s two runways ($1.5 million).

Larger projects include resurfacing the 7,000-foot taxiway that runs parallel to LMM’s Runway 8 ($9 million); extending that runway by about 800 feet ($8 million); constructing hangar facilities for smaller aviation companies ($7 million) and replacing the fencing that encloses the airport facility and its two security checkpoints ($8 million).

“When the new operator sees that we’re undertaking all of these improvements, they will see a facility with greater value,” said Bernardo Vázquez, executive director of the Puerto Rico Port Authority. “We’re going to continue with the projects and improving the airport’s conditions, which we will pass on to the operator once the transaction is completed.”

Last September, the island’s Public-Private Partnership Authority (PPPA) announced that of the 12 consortia that had formally expressed interest in financing, operating, maintaining and improving LMM, six were short-listed for the concession. These include Flughafen Zürich AG, Public Sector Pension Investment Board (PSP), Camargo Corrêa and Gestión e Ingeniería IDC; Fraport AG and Goldman Sachs I Infrastructure Partners; and GMR Infrastructure and Incheon International Airport Corporation.

The three others are Asur and Highstar Capital; Grupo Aeropuertos Avance (Macquarie and Ferrovial Aeropuertos); and Puerto Rico Gateway Group (GE Capital Aviation, Allegheny County Airport Authority, TIAA-CREF, OpTrust, Airmall USA).

The PPPA says it’s about halfway through the privatization process, which must ultimately gain the FAA’s approval. The plan calls for granting a 50-year management concession to a private operator that will be required to invest $40 million to $80 million in “immediate improvements” during the concession’s first five years. Earlier feasibility studies had put the total required investment at $167 million.

Officials said that in order to lure more passengers and flights to LMM, private management would likely add first-class lounges as well as more upscale retail concessions to the airport.

Alvarez says his agency’s goal is to make LMM “the preferred facility to use for business, tourism, pleasure, visiting family or simply to make a stopover. Passengers should always prefer Puerto Rico’s airport. That’s our vision.”

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