The 19 commercial airlines now flying into the Juan Santamaría airport in Alajuela, Costa Rica’s busiest international airport, cut 1,184 flights during the period January to August, 2009 as compared with the same period in 2008.  The reason?  Well the numbers tell the story. The economic crisis has taken its toll on Costa Rican tourism.  During the period January to August of 2008, there were 20,665 flights.  For the same period this year, there were only 19,481, for a 6% decrease.  During that period 117,000 less passengers arrived at the airport (1,053,000 total arrivals versus 1,170,000 during the same period in 2008).  The principal routes that have been cut are from the U.S. as that country accounts for 12 daily flights and over half the total tourism arrivals.  In addition to cutting flights, some airlines are opting to use smaller planes.  For instance, if the market demands at least 80 seats, a 90 seat-er will be more profitable than a plane that seats 150.  William Rodríguez, vice president of the Costa Rican Tourism Chamber, told La Nación that while this year tourism will likely see a sizable decrease compared to the exceptional year of 2008, already the market is beginning to witness a turnaround.  Although ICT (the Tourism Ministry) wants to attract more flights to Costa Rica, Director Mario Zamora noted that now is not a good time to spend money and time trying to do so.  Allan Flores, also with ICT, added that the $20 million allocated by ICT to promotion of tourism in other countries has definitely softened the blow a bit with respect to Costa Rica as compared to other major tourism destinations.

Link to Article in La Nación

The Intercontinental Hotels Group (IHG) is one of Costa Rica’s largest hoteliers.  They currently operate five hotels in the country, all of which are located in the San Jose area.  They are: Real Intercontinental, Crowne Plaza Corobicí, Aurola Holiday Inn, Holiday Inn Express and Indigo (which opened for business on May 7th).  The hotels IHG currently operates in San Jose are what one would consider “business class” and cater to travelers in Costa Rica for business reasons. Now IHG wants to get into the beach market and has plans to open two new hotels, one in Guanacaste and the other in the Central Pacific.  Jim Abrahamson, the president of IHG in America, stated that while the economic crisis has affected the Guanacaste area, IHG believes this is only a short-term phenomenon and that when the economy recovers Guanacaste will once again be a very strong market.  Likewise, he stated that the Central Pacific market is strong and will get stronger with the opening of the new highway from San Jose to Caldera.  A specific timeline for the hotels was not given, Abrahamson stating that in Costa Rica, these things take time.  IHG further has plans to open a sixth hotel in San Jose in 2011.  This will be another of the Holiday Inn brand and will be developed in an alliance with Grupo Agrisal of El Salvador.  IHG is one of the largest hoteliers in the world with interests in 4,150 hotels with 620,000 rooms in 100 countries.

Link to Article in La Nación

Tourism numbers are in for the first three months of 2009 and they don’t look too good.  For the first three months of 2008 there were 634,000 tourist visitors arriving at Costa Rica’s two international airports (Juan Santamaría and Daniel Oduber).  For the same period of 2009, there were 551,000 arrivals, for a decrease of 83,000.  Tourism was growing briskly in 2008, with the numbers of the first trimester showing 17% growth over the prior year.  The year the trend is in reverse.  Most of the problem stems from Costa Rica’s strong tourism link with the U.S., where the now worldwide economic crisis began.  Some 54% of Costa Rica’s visitors hail from that country.  The hotels are really feeling the pinch.  Most affected are the regions of San Carlos (where the Arenal volcano is located), Alajuela, Guanacaste and San Jose.  Even more alarming is the fact that the tourists that are visiting are staying for shorter periods and spending less money.  In 2008, the average a tourist spent per each day in the country was around $110.  This year is apt to show much lower daily spending figures according to reports from tour operators and artisans that cater to tourists.  However, a bright note is that while this year has been down from those past, it isn’t nearly as bad as other countries, most notably Mexico, where tourism numbers are down as much as 50%.  ICT (Costa Rica Tourism Ministry) Director Carlos Benavides stated that increases in airline flights, most notably Continental, which increased by three the number of flights to both international airports, as well as the addition of Jet Blue into the market, have helped bolster tourism figures.  Everyone in the tourism industry, myself included, is more than ready to see an end to this “crisis.”  Hopefully, the silver lining is that while the high season wasn’t that high, maybe the low season won’t be so low….wishful thinking, but it always pays to be optimistic.

Link to Article in La Nación

The International Air Transport Association (IATA) is up in arms about Costa Rica’s recent decision to forgo the 3% hotel tax in favor of a $15 per ticket airline tax. Humberto Rivero, International Director for IATA claims that in the midst of this economic crisis, this will kill tourism to Costa Rica. Passengers will instead choose to go to another destination rather than pay the “onerous” $15 tax. Carlos Benavides, Costa Rica’s Minister of Tourism, says “hogwash.” That not a single would-be traveler to Costa Rica will change their mind due to this $15 tax. Also, that the elimination of the 3% hotel tax represents a far greater savings to tourists who on average pay for a 10-days stay in Costa Rican hotels. Benavides dismisses the claims of IATA and says that they are only looking out for the interests of airlines worldwide and not in the least bit concerned specifically about Costa Rica’s tourism.  What they are concerned about is that if the tax works for Costa Rica, that other major tourism destinations may follow suit and impose their own tax. Benavides states that the tax is not on the tourist in the first place, but is levied against the airline. He states that unlike hotels, airlines have the ability to alter their prices moment by moment and thus are in a much better position to weather the pain imposed by the tax. This he said in reponse to Rivero’s allegation that to remove the tax on hotels and impose it on airlines is unfair. The change in tourism tax structure is part of the Costa Rican government’s Ley de Fortalecimiento de la Industria Turística (or law to strengthen the tourism industry). ICT plans to use money raised by the new tax to fund an advertising campaign aimed at promoting tourism to Costa Rica. For my part, I believe the move makes sense. Like Benavides I can’t see Package Costa Rica customers changing their minds due to a $15 per ticket tax.  Times are bad, but hopefully they aren’t that bad.  Also, yes indeed the elimination of the 3% hotel tax will result in more savings for the tourists.

Article in La Nación

According to figures released by the World Tourism Organization at its International Convention held in Berlin, tourism arrivals to Central American countries in 2008 grew at a rate of 2% over 2007.  The total arrivals were around 8.2 million dispersed as follows:

Costa Rica - 1,979,789

Panama - 1,585,800

Guatemala - 1,526,729

El Salvador - 1,403,231

Honduras - 899,300

Nicaragua - 857,279

The data was supplied by the Centro American Tourism Agency (CATA).  According to CATA, what aided Central America was its focus on sustainable tourism centered around environmental conservation and preserving cultural traditions of the region.  A highlight that was noted in this regard is Costa Rica’s vow to become completely neutral in its carbon emissions by 2021.  For the year 2008, Costa Rica grew at a rate of 12% over the prior year.  Nevertheless, in the last six months of the year growth actually decelerated as the economic crisis kicked into full effect.  The reduction in the final six months was -8% compared to the same period in 2007. 

Link to Article in El Financiero

Is the question we get frequently from our customers arriving on Costa Rica vacation packages.  According to a recent article El Financiero that details a decline in flights into the two international airports of 4%, not so good is the answer.  However, according to Carlos Benavides, our Tourism Minister, Costa Rica is fairing much better than other countries, such as the U.S. and Europe.  Here are the facts as reported in the article.  The fall in flights was from 395 weekly flights in February of 2008 to 378 in 2009, a decline of 17 flights per week, or -4%.  The decrease seems to be accelerating since in January 2009 compared to January 2008, the decline was -.52%.  The number of airlines with flights in and out of the country has been declining, from 20 in December of 2007 to 16 in December 2008.  Those that have left the country include Martinair, AirComet, and Cubana de Aviación.  Another that could leave the market soon is the Colombian airline, Sociedad Aeronáutica de Medellín.  However, on the brighter side, Continental has actually been increasing flights, adding a third flight between Liberia and Houstan and also a third between San José and Newark.  Continental has enjoyed strong growth in passengers in recent years, having carried a total of 400,002 in 2006 and 499,854 in 2007 (these figures are for flights into and out of the Juan Santamaría airport in Alajuela).  Angélica Solano, director of the group known as Asociación de Líneas Aéreas, stated that while the U.S. market has decreased, the South American market, where the economic crisis is being felt to a lesser degree, still shows promise.  The U.S. airlines that count with the strongest volume are Continental and American.  No figures were provided in the article for American.  For the entire year 2008, 3,341,917 passengers were carried into and out of the Juan Santamaría airport.  In 2007, 3,982,004 were carried from all three of Costa Rica’s airports (Juan Santamaría in Alajuela, Daniel Oduber in Liberia and Tobías Bolaños in Pavas).

At least that is what Mauricio Ventura, consultant with the group DTL4 (Desarrollos Turísticos Los Cuatro), told El Financiero in a recent interview.  Ventura looked back at other crises affecting the world and how Costa Rican tourism reacted, as compared with world tourism.  For instance, the event of September 11 was certainly a crisis that affected tourism in the country and in the world.  The year before that event, tourism in Costa Rica grew at a rate of 4%, compared with 6.8% for the world.  The year of the event, growth stagnated and fell by -1.6% in Costa Rica, as compared with -0.14% in the world. The year after the event, growth in Costa Rica rebounded nicely at 11.3%, while the world grew at a rate of 8.7%.  Ventura made similar calculations for the 1991 and 2003 wars between the U.S. and Iraq.  These showed similar strong rebounds the year following the event.  Ventura states that the World Tourism Organization projects that tourism will decrease by around -2%, whereas DTL4 estimates Costa Rica will decrease between -5% and -7.5%.  Ventura suggests certain reasons Costa Rica should come out of this crisis positively.  First and foremost is the fact that Costa Rica is a niche destination that appeals to a certain segment of the market, namely those tourists who are environmentally conscious and at an average age of around 45 with high income.  Therefore, Ventura reiterates what Carlos Benavides (Minister of Tourism) has been stating, which is that Sustainable Tourism will be a key growth factor going forward.  This not only adds to the appeal of the country as an eco-tourism destination, but also helps in the fact that enterprises that practice sustainability will, as a result, save money, states Ventura.  Ventura suggests that lowering prices is not the right reaction to this crisis.  That while it may pay off in the short-term, when the crisis ends it could turn out to be hard to raise prices back to acceptable levels.  His suggestion is to increase the quality of services and to cater to that niche market that may not be so price sensitive, the environmentally conscious tourist.

Link to Article in El Financiero

2008 saw strong growth in arrivals to both of Costa Rica’s international airports.  Specifically in the year just past arrivals reached the 2 million mark, which was 100,000 more than the previous year.  But the numbers for the final months of the year confirmed what everybody feared, the economic crisis of the U.S. is having an effect.  During the period July through December, but especially the final months of the year, October, November and December, arrivals fell precipitously, by some 22,000 below the year 2007.  Carlos Bevavides, director of the ICT (Costa Rica Tourism Ministry) stated his organization plans to spend some 20 million to attract new visitors.  Both ICT and Alterra (the company that manages the Juan Sanatamaría airport) have doubled efforts to attract new airlines and additional flights from existing ones (see previous post re Jet Blue).  Benavides responded to those who would turn away from the U.S. market to pursue others, saying that this is “suicide.”  The U.S. market represents some 54% of the tourist arrivals and to think that other countries can replace that is a fallacy, stated Benavides.  Pablo Solano, director of the Costa Rican Chamber of Hotels, said that the recession in the U.S. is leading to more prudence on the part of tourists. That now tourists are not booking as far in advance and that they are looking to stretch their vacation dollars as far as possible.  Particularly hard hit is the area of Guanacaste, which is attractive primarily for the beach and the sun.  However, these two commodities are offered by many competing destinations as well and the competition right now is ferocious.  Hotels in Guanacaste have responded by lowering prices and providing other options to attract tourists.

Link to Article in La Nación

I have been the owner and operator of a Costa Rica Travel Agency since 2004.  While I enjoy bringing to my customers the best possible experience of Costa Rica, something that has been less than enjoyable is the often adversarial relationship that exists between vendors (and by that I mean Hotels, Tour Operators and Transfer Providers) and my agency.  I would venture a guess that other agencies have run into the same problem.  Right now times are hard in the travel business world-wide and Costa Rica is certainly no exception.  In my opinion during times like these vendors and agencies need to be in a relationship of cooperation, respect and trust, not one that pits one against the other as if it were a grudge-match between Saprissa and la Liga.  This paper presents my view of the sources of this problem and the solutions.  I believe we will all be better off if this problem is recognized and addressed so that relationships can be strengthened as right now we all face an uncertain future.

The Roots of the Problem

First off, I readily admit that there are bad agencies out there.  Anyone can visit Costa Rica one time and then decide to throw up an attractive web site and try to make money in this business.  Many of those agencies come and go and leave lots of problems for the rest of us in their wake.  I am talking rather about reputable agencies that have been operating for some time and have shown a proven commitment to Costa Rican tourism.  It is not fair, nor wise, to allow a few bad apples spoil the whole basket.  So in the comments, below I am referring to reputable agencies and vendors who need to establish more realistic guidelines for working towards mutual long-term success.

Room Pre-Sale Blocking

It is a common practice by many travel agencies to block rooms in advance in hopes of being able to sell those rooms at a later date.  This is especially true for exceptionally busy times such as Holy Week or Christmas/New Years.  My agency as a policy does not do this and here is the simple reason.  It is not fair.  It is not fair to other agencies and it is not fair to the hotels.  It is also not fair to other agencies for hotels to allow large agencies to engage in this practice, nor is it wise.  For when a hotel does this it is placing too many eggs in that one agency basket.  If that agency is unable to deliver, or has a business failure, the hotel may not have other agencies to fall back on, having in the process of catering to the whims of this one agency ruined its relationships with all others.  Let’s get to the root of this problem.  If a hotel allows XYZ agency to block a substantial number of rooms without even having sold those rooms that prohibits me from being able to make a reservation even though I have a paying customer behind that reservation.  I believe the practice of blocking rooms prior to having actually made a sale is what gives rise to the infinite multitude of “pre-payment policies” applied to agencies that honestly makes doing business miserable and sometimes downright impossible.   I operate a business with its own cash flow characteristics.  I cannot comply with the 100 different prepayment policies of the hotels that I send business to.  It is simply not feasible.  Nor is it necessary if this practice of pre-blocking rooms were eliminated.  The only logical reason for the hotel to have a pre-payment policy requiring, for example, that an agency fully pay a reservation 30 days in advance of the customer’s arrival is to prevent the loss of the ability to rent that room in the event of a cancellation.  In the case of pre-booking, since there is not even a sale behind the reservation, certainly that is a risk the hotel should not be expected to make. However, if my agency makes a reservation from a paying customer, i.e., there is an actual sale to back up the reservation, there is no good reason for prepayment.  The only risk is if that customer cancels the trip and in my history that is a very rare event.  Maybe it could be reasonable for the hotel to ask for a small deposit, but not 100% payment.  After all, the agency generated the business through its marketing and salesmanship and should not be required to turn over the cash to the hotel or tour operator well in advance of any services by the latter even having been yet rendered.  It just makes no business sense to expect the agency to do this.  So I believe solution number one is to eliminate the practice of pre-booking and to require all agencies to show proof that the reservation is for an actual customer….not a hopeful future sale.  There are a number of ways that such proof could be offered such as a simple sales receipt.

The “Funnel-Mentality”

A phenomenon that I have witnessed over the years and one that I truly believe causes a lot of problems in relationships between vendors and agencies is what I often refer to as the “funnel-mentality.”  This is the attitude that some (not all) vendors have towards agencies that we are simply a “funnel” for business to flow through us to them….including the cash generated by that business.  But it just isn’t the case and here are two reasons why.  First, it is the agency’s marketing that generated the sale.  Personally I have invested literally 100’s of thousands of marketing dollars to be able to generate sales to my vendors.  The customers that come to agencies because of their marketing, salesmanship and hard-earned reputation are just that, the customers of that agency.  After all, who gets blamed if something goes wrong on a travel package that my company has sold, the vendor, or me?  I can tell you that in 110% of cases it is my company that gets blamed and is bad-mouthed when the customer returns home and not the vendor whose poor service may have actually caused the problem!  So, the vendor cannot in any way look at that customer as its customer.  The vendor’s customer is the agency itself and the agency is not just any customer, but a customer that may have sent the vendor $1,000’s in business and has the potential of sending $1,000’s more for an indefinite time into the future.  Yet sometimes it feels as if the agencies are the customers that get treated by the vendors with the least respect of all.  The payments agencies make to their vendors are part of that agency’s “cost of goods sold” just like any other business, be it a manufacturer or retail firm.  Sometimes, credit is required for payment when cash-flow needs demand it.  If such credit is extended it should be done so on terms that are equitable to all parties and that puts no one at undue risk.  However, extending credit to an agency seems to be something that most vendors will not even remotely consider doing.  In my opinion this attitude is part and parcel of the so-called “funnel mentality” that tends to believe that the sales that the agency makes and the cash generated from those sales should just be immediately turned over to the vendor.  This creates unnecessary strain in the relationship and sometimes makes in completely untenable.  I have had to discontinue relationship with vendors who have held steadfast to this “funnel mentality” even after having sent $1,000 in business over the course of multiple years.  The situation finally gets to the point of intolerability.  This mentality really needs to end and below I lay out what I perceive to be the solution.

The Solution to the Problem

I believe the solution to the problem is for proper vendor-agency relationships to be built and maintained.  For that to happen there must be three elements present in such relationships….Cooperation, Respect and Trust.

Cooperation

In my opinion cooperation means that the vendor and the agency work together for the good of both firms.  That means that the agency does not pre-block a large volume of rooms, but instead makes reservations only when it has paying customers behind them.  It means that the agency honors its payment commitments, especially those that involve credit previously extended.  On the part of the vendor, it means that the agency is treated as a most valued customer.  Even more than a customer, the agency should be treated as a valued supplier.  That means that when the other elements of respect and trust are present (and those must of course be earned over time), credit is sometimes extended.  The customers that are delivered to the vendor through the efforts of the agency are treated with special respect and never ever is anything derogatory said about the agency to that customer.  When these elements are present there will be a spirit of cooperation that will enable the relationship to serve its purpose, which ultimately is to enhance the profitability of both firms.

Respect

Mutual respect is important in any relationship and the vendor-agency relationship is certainly no exception.  Often the front line employees of vendors are given policy guidelines with no discretion to apply exceptions to those rules.  We have many times had groups arriving to the country and had the vendor call prior to check-in (several days prior actually) and tell us that if we don’t run to the bank by 12:00 noon and make a cash deposit the reservation will be cancelled.  That is sometimes said without any regard to the cash flow constraints of my agency.  There is probably a good reason for the delay in payment and rather than making demands that may be impossible to meet, it would be better to have a discussion and reach a mutual understanding based on what is actually possible to accomplish for the good of all parties, including the end user of the service, the tourist.   This is just a matter of providing respect on both sides.  Openness, honesty and a commitment to understand each other’s needs are necessary elements of such an atmosphere of respect.

Trust

Finally trust is an element that is absolute necessary for the vendor-agency relationship to thrive.  Without trust there is no possibility of a fruitful relationship.  If something happens to evaporate that trust, then the relationship has come to an end and generally neither party will be better off as a result.  Trust is obviously something that must be earned and time is one of the elements of that process.  However, in order for there to be trust both parties must be willing to take certain risks.  Certainly there is a possibility that the agency may not survive and any credit extended should be done so in a manner that ameliorates that threat.   By the same token there is a possibility that the vendor may not survive and to allow a vendor to hold funds months in advance of having provided any service to the agency (or the agency’s customers) is also unrealistic and unreasonable.  For the relationship to work, both parties must be willing to take calculated risks, but at the same time take proper measures to hedge those risks.  This can be achieved in the context of a relationship marked by the characteristics of cooperation and respect previously mentioned.

Conclusion to the Matter

Having been in the tourism game now for several years now, I have come to realize that there are some real problems with vendor-agency relationships.  I hope this paper sheds some light on how those problems can be overcome and a more synergistic relationship of Cooperation, Respect and Trust can begin to be established in many of these strained relationships. I truly believe that in tough economic times like at present this is an absolute imperative.  If these relationships can be improved along these lines, I believe that both agencies and their vendors, as well as the tourism industry of Costa Rica, stand to benefit enormously in the years to come.

The major financial and business newspaper of Costa Rica, El Financiero, has awared Eduardo Villafranca Sargent, the title of Businessman of the Year 2008.  Who is Eduardo Villafranca?  Fifteen years ago he developed an eco-resort in the remote area of Islita on the Nicoya Peninsula.  That resort is named Punta Islita and has become a sustainability model for all that have come hence.  Now Don Eduardo has taken the Islita concept to a new area with a resort named El Silencio, which is located in Bajos del Toro, Alajuela.  His philosophy has been to give back to the environment, rather than take from it, and also to give back to the community.  When El Financiero asked him what gives him the most satisfaction in business, Don Eduardo told the story of Mairon Viales.  Mairon began working for Punta Islita as an unskilled laborer, then moved up to foreman status and finally chief of the remodeling department.  Punta Islita encouraged Marion to start his own micro-business and that if he met certain standards the hotel would contract for his services.  Mairon did that and now runs a business with 54 employees and not only contracts with Punta Islita, but also four other projects.  In Don Eduardo’s own words, “generating micro-businesses has given me the greatest satisfaction because it is a process in which people are educated integrally and in a short period of time.”  Doing business the Punta Islita way not only gives back to the community, but also cuts costs and improves service.  When asked why other similar business are not fostering micro-enterprises, he said that it is because of short-term thinking and also because people tend to underestimate others.  But when someone is given the opportunity to develop their own business, they tend to learn very quickly.  The new hotel, El Silencio, was a six million dollar investment.  Of the 210 acres purchased for the project, 200 have been set aside to take advantage of the area’s rich biodiversity for research.  Don Eduardo’s group developed a social responsibility program for the area prior to beginning construction on the hotel, using Punta Islita as a model.  Another project that Don Eduardo has taken on, together with Arturo Arrea, is the founding of the Responsible Business Alliance, which will advise Costa Rican companies on how best to create social responsibility projects.

My company, Package Costa Rica, is proud to work with Punta Islita, one of the few hotels to have attained level four in the Certificate for Sustainable Tourism program.  Eduardo Villafranca’s business ethics and concern for the communities in which his businesses operate certainly earn him our vote as Businessman of the Year.

Honorable Mentions…

The following businessmen and women were also noted by El Financiero for their contribution to the sustainable tourism movement in Costa Rica.

Jim Damalas - Jim is the founder of the hotel in Manuel Antonio known as Si Como No.  Si Como No has earned the level 5 sustainability rating from the Certificate for Sustainable Tourism program, the highest possible rating.  Jim also owns the hotel in San Ramon called Villa Blanca, which has also earned the coveted level 5 distinction. 

Glenn Jampol - Glenn is known as the “high priest of sustainable tourism” and is the reigning president of the Chamber of Ecotourism.  He owns the hotel in Santa Barbara de Heredia known as Finca Rosa Blanca, which has also earned the level 5 CST distinction.  Jim is not worried these days because in his view in this era of tough economic times, the tendency will be for tourists to look for hotels and tour operators that take a responsible ecological approach.  In his view, that is the differentiation that will spell the most success for Costa Rica’s tourism businesses in the years to come.

John and Karen Lewis - John and Karen left their life in Minesotta towards the end of the 80’s (John was a lawyer and Karen a professional musician) and purchased 404 hectareas on the Osa Peninsula.  They then developed the eco-lodge Lapas Rios, a lodge with 40 bungalows that has entertained guests such as actress Julia Roberts and film producer Michael Crichton.  Their opinion is that not only does a sustainable tourism approach give back to the environment and the community, but it also makes good business sense.  In their view, there is no reason to destroy the forest to make money.  They are now seeking a buyer for the eco-lodge that will carry on their business philosophy.

There you have it.  El Financiero’s list of the best of the best in business in 2008, all of which are carrying the torch as leaders of the Costa Rican sustainability movement.  It will be of great benefit to the country and to the world for others to follow.

Link to Interactive Presentation of the Business Persons of the Year