Rare Puerto Rico Growth Market Gets Squeezed as Zika Scare Rises

  • Cancellations will open 26,000 hotel rooms in next two years
  • Tourism accounts for 7.1 percent of Puerto Rico’s economy

For weeks, the organization that runs the Internet’s address book debated whether to move its October convention from Puerto Rico to another location because of the Zika virus inflicting the Caribbean island.

The Internet Corporation for Assigned Names and Numbers, or  ICANN, told its members Tuesday it will relocate the conference to Hyderabad, India, to protect the health and safety of participants and staff. That means that the thousands of conventioneers that typically attend won’t be staying in the island’s hotels, eating in the restaurants and bars or shopping in Old San Juan. It follows Major League Baseball’s decision to cancel a two-game series in San Juan between the Miami Marlins and the Pittsburgh Pirates because of Zika, resulting in a $5 million loss for the island’s economy.

The timing couldn’t be worse for Puerto Rico’s tourism sector, one of the few areas experiencing job growth on an island with an 11.7 percent unemployment rate. After weathering dire economic predictions by the government as it seeks to restructure a $70 billion debt load, potential visitors are now being inundated with headlines about the threat of the virus that has been linked to a rise in brain defects in babies, according to Milton Segarra, head of Meet Puerto Rico, which promotes meetings and conventions. Cancellations will likely leave 26,000 hotel rooms empty during the next two years, Segarra estimates.

“This is like a perfect storm,” Segarra said. “Zika virus on one side, financial crisis on another.”

Puerto Rico’s economy is expected to shrink 2 percent in the fiscal year beginning July 1. It would be the fifth consecutive year of contraction. Governor Alejandro Garcia Padilla is seeking to reduce the island’s debt load by asking investors to accept losses. Almost half of Puerto Ricans live in poverty and residents are leaving for the U.S. mainland in record numbers to find work. A House Natural Resources Committee on May 18 released legislation to establish a federal control board that would monitor the commonwealth’s budgets and oversee any debt restructuring.

Zika threatens to reverse a trend of growing tourism to the island, which saw 5 million visitors in 2015, the most ever, adding almost $4 billion to its economy, according to Ingrid Rivera, executive director for the Puerto Rico Tourism Co. The public agency focuses on promoting the island as a destination. Tourism accounts for 7.1 percent of the commonwealth’s gross national product. The recreation and hospitality industry added 5,100 jobs from 2013 through 2015, one of the few sectors that has increased employment, Rivera said.

“It is really the one industry right now that can really help the economy,” said Clarisa Jimenez, president and chief executive of the Puerto Rico Hotel & Tourism Association.

Economic Activity

The Zika effect can be seen in a year-over-year drop in hotel room-tax revenue of 3 percent in February and 5 percent in March, according to Rivera. The Center for Disease Control stepped up their efforts to address Zika at that time and parts of the U.S. experienced a warmer-than usual winter, she said. Hotel-tax receipts for the first quarter were up 3 percent, even with the two monthly declines, Rivera said.

Segarra estimates that the recent meeting and conference cancellations will result in about $16 million in lost economic activity during the next two years.

MLB and its Players Association on May 6 said the games between the Marlins and the Pirates would be held instead in Miami after players expressed concerns over the virus, further hurting the economy through missed promotional events and hotel stays, according to Rivera.

Microcephaly Risk

The number of cruise-ship trips fell by about 18 percent in the first three months of 2016, compared with the same period in 2015, and the number of cruise-ship passengers dropped by 17 percent, according to Tourism Company data. That’s the biggest year-over-year decline for the period since 2009. Rivera attributes the drop to Carnival Cruise Line dry-docking its home-port vessel in San Juan and changing that ship with a smaller vessel. Even with fewer trips and passengers, the current year, which ends June 30, is expected to be Puerto Rico’s third-best cruise season in the past 10 years. In the year starting July 1, the island will receive 10 ships coming for the first time to Puerto Rico.

Zika is spread by certain mosquitoes. Most infected people experience mild symptoms for several days. The Centers for Disease Control recommends that pregnant women or those trying to conceive avoid traveling to Puerto Rico because Zika can cause microcephaly, a birth defect that limits brain growth. The island reported its first case of microcephaly this month. One man on the island has died from Zika.

There were 1,100 confirmed cases of Zika in Puerto Rico, the commonwealth’s Department of Health said Friday. That’s 0.03 percent of the island’s population of 3.5 million. The U.S. Senate on May 17 advanced $1.1 billion of spending to fight Zika. The House has proposed a smaller allocation.

The government and hotels are spraying areas throughout the island to combat the growth of mosquitoes and removing standing water where the insects breed, Rivera said. Located in the Caribbean, Puerto Rico is accustomed to dealing with other mosquito-born illnesses such as Dengue Fever and Chikungunya.

Optimistic Signs

Even with the cancellations, there are bright spots for the tourism industry. Iberia Airlines this month reinstated direct flights from Madrid and Norwegian Air Shuttle in 2015 began offering direct flights from London from November through April and will continue again later this year. The Florida-Caribbean Cruise Association will hold its annual conference in September in San Juan after a five-year absence, Rivera said.

To encourage groups and organizations to book an event or avoid canceling, Meet Puerto Rico has testimonials from heads of companies and associations that recently held conferences, talking about witnessing the island combat Zika, Segarra said. He has also brought together prospective clients and recent visitors to discuss the merits of holding a conference in Puerto Rico.

“Every time we do that we eliminate that threat,” Segarra said. “People remain in Puerto Rico. People again think and maintain Puerto Rico as one of their options.”

Except ICANN. The not-for-profit organization, which coordinates Internet domain names and address pools, thought it best to relocate its convention, set for Oct. 29 through Nov. 4, to instead be held in India during the first two weeks of November.

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