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CARIBBEAN TOURISM ORGANIZATION (www.onecaribbean.org) OVERVIEW It’s time to take an early look at how some of our trend predictions are holding up half-way through the first quarter. At first blush, it appears quite well, although we said back then that trying to forecast where the price of crude oil may be heading is a fool’s game and certainly the international turmoil in several key oil-producing nations in January is stark confirmation of that truism. However, the performances our most important market economies are continuing to chug along at a satisfactory rate and consumers are continuing to spend even as their confidence levels in recent polls appear to be somewhat shaky. We also take a look at Germany on the eve of yet another ITB and some of the recent travel trends in Europe’s largest marketplace. There’s more on changes in distribution channels and developments in technology while this month’s postscript focuses on the passing of legendary airline pioneer, Sir Freddie Laker, whom some of us knew and who was both admired and vilified during the course of his long career in commercial aviation which did so much to create today’s low-cost carrier environment around the globe. USA The U.S. economy continues moderately strong even as fears of inflation appear to be gaining some momentum after the Federal Reserve, now under new chairman Ben Bernanke, issued minutes of its January 31 meeting suggesting that the current level of inflation was too high. The Fed’s statement supports the likelihood that short-term interest rates will continue to head higher, perhaps from 4.5% to 5% in the near future. However, the markets appear to have shrugged this off along with other bad news on energy costs as business confidence is still high and the Dow Jones soared back above the 11,000 level to its highest point in nearly five years. Other markets in North America and Europe have risen in tandem with the Dow. The Conference Board also released its latest figures showing the US Leading Index of Economic Indicators rising sharply in January. That index has now risen for five of the last six months suggesting that economic growth in the US is likely to pick up more steam in the months ahead. Consumers don’t seem so sure as business leaders and the University of Michigan’s preliminary findings in their February index of consumer sentiment showed an unexpected drop from January’s reading. The index fell for both current conditions and the expectations gauge. Most analysts believe, as do we, that this drop is largely related to concerns over the cost of fuel. Another factor could well be unease about the deteriorating situation in Iraq and Iran. However, the past connection between consumer confidence and spending appears to be more tenuous of late as retail sales have grown solidly while confidence levels have gone up and down. Thus far Americans are spending briskly in 2006 including on discretionary travel purchases and our monthly check on leading wholesalers, retail chains and airline executives finds most of them holding their breath that the good sales they are experiencing now to most destinations in the Caribbean will continue into the spring and summer. It’s just too early to tell. THE UK The British economy is in for a period of growth and stability for at least the next two years according to a just-released report from the Bank of England. The Bank projects that GDP in Britain will be rising by an average of 3% a year by the end of 2006, considerably higher than most analysts’ predictions, and consumer price inflation should stay close to the government’s target of 2% a year. The Bank is betting

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that last year’s slowdown in consumer spending is a thing of the past and expects that British household spending will quickly return to its long-term average over the last three years. There is considerable empirical evidence that British travelers to the Caribbean are back in force and spending more than ever, particularly in high-end hotels and on expensive cruises. As in other markets, there have been big changes in booking patterns as many Britons are researching and booking travel via the Internet, either directly or with online travel agencies like Expedia and Travelocity (which bought Lastminute.com in 2005.) Tour operators are fighting back by moving more and more of their inventory separately onto the Internet and relying less on all-inclusive package sales. Many high-street travel agents are also learning to adjust to the new reality by helping clients book complicated itineraries researched online and charging service fees when net rates are involved. GERMANY The German Economy, which accounts for nearly a third of the 12-nation Eurozone’s economic activity had zero growth in the last quarter and grew by only 1.3% for all of last year. The sky-high optimism and big profits seen lately among Germany’s big exporting manufacturers suggests that a revival in the economy for 2005/2006 is likely. Unfortunately, the benefits of a stronger industrial performance have not trickled down thus far to the consumer as firms cut corners and hold wages down and household spending in Germany remains at a low level. A trend survey conducted by FVW in mid January found that holiday bookings for this winter season have been very slow with only long-haul travel and cruises sales performing well. The main reason given by the tour operators is the sharply higher cost of package tours as a direct result of rising oil prices. The impact of natural disasters in vacation areas in 2005 is also said to be holding back demand. The major operators are still hoping for a late-season pickup in sales prior to the Easter holidays. It’s also clear to us that a good part of the tour operator dilemma in Germany, as in other markets which we have pointed our before, comes from a change in demand from traditional all-inclusive packages towards more flexible constructions based on consumers combining various components of their trips often purchased through different channels. It must be noted, however, that German sales for Caribbean vacations are still dominated by package tours due mainly to the lack of availability of direct scheduled air service into the region from Germany such as exists in France, the UK and Holland. This trend was somewhat puzzling at first blush as opposite results and good sales were concurrently reported for early 2006 by German retail agents. According to the TATS organization which surveys 2,750 agency locations every month, tourism related sales grew by 6% in January and are up by 3.6% for the three-month period since November. However, a significant component of this increase occurred in airline ticket sales, up 7.1% which supports the switch theory away from all-inclusives. The big operators have taken notice of this trend and are taking defensive action as in the UK market. For example TUI and Neckerman are expanding their long-haul holiday business by focusing on modular bookings and individual component offers. TUI has transferred its own long-haul program for the Americas to Airtours which it considers better designed for this type of business. In other news from Germany, there is a continuing growth of e-commerce. 47.4 million Germans are now regular Internet users which cross virtually all age groups. Germans are also heavy online shoppers (58%) and forecasts call for online annual spending in the neighborhood of $108 billion within two years. As a consequence, TUI plans to double its online sales by 30% over the same time period. The TUI Group which includes seven airlines already generates 25% of its sales online across all its markets. While the UK and Scandinavia lead in the percentage of online sales, Germany is catching up fast according to TUI chairman Michael Frenzel.

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We can’t leave Germany without noting that the new Chancellor Angela Merkel has been making an excellent impression both at home and around the world after a very difficult election process and early problems in forming a coalition government. A recent German opinion poll gave Ms. Merkel an 80% favorable rating, the highest ever recorded by a German Chancellor. While it can’t be expected to stay at that exalted level, it’s a great start. But it is in foreign policy that she has been making the largest and most positive impact. We hope that Ms. Merkel’s early successes can breathe new life into Europe’s largest but somewhat moribund economy. Together with Germany’s stirling performance in the Winter Olympics and the prospect of hosting this year’s World Football Cup, it should provide an optimistic and exciting background atmosphere for ITB. KEY ISSUES 1. Energy

In the last Brief, we asked where the price of oil may be heading as the number one issue likely to affect our industry in 2006. Crude was then trading below $60 a barrel in New York and it was expected to remain in a narrow range for the near-term with supplies plentiful and demand moderating, even apparently in China which claims its oil demand actually declined by 0.2% in 2005. Troubles came quickly, however, starting early in January. Political turmoil in two major oil-exporting countries, Nigeria and Iran, combined with the Bush administration’s determination to halt Teheran’s nuclear-program aspirations sent oil prices soaring back toward the post-Katrina highs of over $70 a barrel in September. The only good news was the unexpectedly warm weather in most of the Northern US for the whole month of January which helped to bring prices back down again. In early February, traders were once again spooked by a report out of Mexico which suggested that the huge state-owned oil industry there may be hit by a large and possibly irreversible decline in oil output due to water and gas encroachment into Mexico’s largest oil field. Once again prices soared. OPEC held an extraordinary meeting in Vienna on January 31st and once again decided not to cut production quotas in spite of diminishing demand. The situation in Nigeria has worsened with increased rebel attacks on pipelines and production facilities and Iran’s position seems to be increasingly intransigent with strong support from the Arab world. Still another threat developed with an unsuccessful terrorist attack on Saudi Arabia’s principal refinery. By late February, oil prices had dropped back to the low $60s a barrel but where they go from here is anyone’s guess. Airline stocks have been rising and falling on the same rollercoaster and survival of several key carriers for the region remains a troubling issue. We note that Belize has recently joined the short-list of CTO member countries that are crude-oil producers. Although production is comparatively small, it is apparently enough for Belize to start exporting to the US. and hopefully for Belize to become energy independent.

2. Currency The US currency had a weak start to the year with a substantial two-day drop against the euro in the first week of January. However, it has quickly recovered in line with the Fed’s continued raises in the short-term interest rate. A number of major concerns remain which may further affect the dollar. There is a good possibility that China may diversify its huge foreign exchange reserves away from dollar holdings and America’s enormous current-account deficit remains a big problem. For now, the dollar continues in the forecast range of just under $1.20 to the euro and $1.75 to sterling and we stick with our prediction that no swings are likely to be significant enough this year to have much impact on discretionary travel on either side of the Atlantis.

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3. Airlines There is little to add here beyond the general concerns expressed before on the impact of energy costs on the internal and external carriers serving our region and there have actually been a number of new flights added by several airlines this winter. However, one cannot help being particularly troubled by American’s performance as it remains the single largest provider of seats. In spite of considerable cost cutting exercises through employee reductions and reduced levels of service, American had a fourth quarter loss of over $600 million, more than double the loss of a year before, and that’s scary. On the other side of the coin, we see that Air France is about to report its best year ever for fiscal 2005/2006 which ends in March. First semester results show a 46% rise in gross income and a passenger load factor approaching 80%. Much of this success is attributed to the merger with KLM which is drawing new traffic from Asia, Africa, the Middle East and the US over their two major hubs at Schiphol and Paris CDG. We keep referring to it because of our strong belief in this kind of merger which provides efficiency without loss of national identity.

4. Technology We pick up where our last report left off with still more confirmation that travel websites of every kind are booming everywhere. The online travel sector reached its highest-ever peak in the U.S. market during the week ended January 14. It was up by 13% over the same week in 2005 and accounted for nearly 6% of all online visits for the period according to Hitwise research. The same report attributes 38% of visits to all travel websites to search engines led by Google. However, numbers alone are not the whole story as there are other far-reaching changes that need to be recognized and adjusted to by online marketers. Foremost among these are the changing demographics of online users. While younger individuals were long thought to be the most likely users of IT and more comfortable with the Internet; a number of recent surveys in the US and the UK reveal that the over-50 market has adapted well to going online and is actually now more likely to consummate bookings online that their younger counterparts. UK research by Neilsen/Net Rating has described the over-50 market as a “wide and varied audience hungry for travel experiences and adept at using the Internet to get the best deals…what screams out is the staggering percentage of over-50s who go online to book their travel.” Still another report from Burst!Media in the US market says online users age 55 and over are spending more time online and less time in traditional media including TV. Burst estimates that the number of adults in America 55 and older going online has grown by 20% in the past year to over 27 million unique visitors. This new information undoubtedly explains much about the huge increases in online booking activity in the U.S. and U.K. that we detailed in the last report. Developments in technology have also led to the increased consumer-centric approach to tourism marketing that we have noted elsewhere. The technology now allows consumer to easily search for exactly the products and services that they really want while forcing suppliers to take a long step further in understanding consumer needs and desires. Is there a threat to the Internet domain system? A recent story in the Wall Street Journal called our attention to a powerful movement that is growing rapidly around the world and challenges the universality and global interconnectivity of the Internet as the needs of developing nations change and anti-American sentiment proliferates. The Internet was developed originally by US government agencies in the 1960s. It uses a domain-naming system called the “root” that consists of 264 suffix possibilities including the most widely used: .com, .net, .org and various country codes like .UK. The root is coordinated by a non-profit organization based in California known as ICANN, the Internet Corporation for Assigned Names and Numbers. Although nominally a private sector group ICANN

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works under the auspices and direction of the US Department of Commerce. Many people outside the US are bothered that a US-based organization has sole power over the use, assignment and control of each name while others are concerned that the needs of developing nations using different alphabets are not being addressed quickly enough. The Wall Street Journal story notes several competing developments including German computer engineers who are building a root alternative to the Internet for political reasons and a Dutch company that has already built one for commercial profit. China has created three suffixes in Chinese characters to substitute for .com etc. resulting in websites and e-mail that can only be accessed in China while the 22-nation Arab League has begun a similar system to the Chinese using Arabic suffixes. In the past, developing nations had neither the expertise nor the infrastructure necessary to build their own networks and the need for alternative systems had not yet been demonstrated by sufficient international users, all that has now changed with huge numbers of users coming online in nations that don’t utilize Roman letters. Having a single root has always been central to preserving the universal appeal and power of the Internet. Alternative roots are becoming a clear threat to the Internet and a challenge to the dominance of the US. For more on this fascinating and important story you can go online at the Wall Street Journal site and members may also ask CTO for additional details if they do not have the means of access. It is a development that we will be following closely and reporting on in future editions. New competitive portals are appearing in key markets.

A program is in full swing between CTO and CHA to redesign and upgrade both organizations’ websites in a cooperative process. Part of that process is to analyze competitive websites globally and seek out their best features. Here are two regional organizations’ sites that bear watching. The European Travel Commission (ETC) will be launching a brand new portal in late March initially in three markets, the US, Canada and Brazil. It will carry information in English, French and Portuguese. A preview of the new site suggests that it will be a vastly-improved and effective trip planning tool. The site contains flight-search capabilities, lifestyle content, linkages to booking engines and comprehensive coverage of major events throughout Europe. By 2007, the ETC expects that it will have expanded to a truly global portal in several more languages. The Travel Industry of America (TIA) also recently unveiled a new portal for the UK market which some members may have seen. It can be viewed at www.seeamerica.org.uk. The site links British visitors to several thousand websites in the US including state and city tourism departments, hotel, car rentals, attractions and selected tour operators. It encourages stickiness by featuring a destination of the month and an online newsletter offering special deals and promotions. POSTSCRIPT Sir Freddie Laker died on February 9th at the age of 83 and while obituaries have been published everywhere in trade and consumer media, we wanted to observe his passing and we celebrate his life at this desk with a mixture of sadness and great respect for his legacy. Some of us knew Sir Freddie personally and encountered him over the years, sometimes in an adversarial role wearing different hats, but he was always exciting to be with or listen to – brash, irascible, amusing and full of life. He spent a lifetime tied to a passion for flying of all kinds while creating a revolution in commercial air transportation that persists to this day. From his personal participation throughout the long and dangerous months of the 1948/49 Berlin Airlift at the controls of one of his small fleet of aging military aircraft that he had acquired after WWII to his development of Laker Airways and Skytrain in the late 1970s, there was never anyone else quite like him in the aviation industry. Using loopholes he

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discovered and exploited in British law, Sir Freddy became the first to challenge the virtual monopoly and high fares of the big airlines like Pan Am and BOAC that flew the profitable North Atlantic route between London and New York. Skytrain was the first no-frills, low-fare carrier to fly long haul, offering fares which were as low as ₤118 on the New York route and showing the way for his friend and other great entrepreneur Richard Branson who issued a personal tribute to the media. Sir Freddie must have felt justified at the end of his life to see similar level fares still prevailing in 2006 on North Atlantic routes.. Skytrain worked well for more than five years until a combination of problems with the DC10, his workhorse aircraft, the introduction of very low fares by Pan Am designed primarily to kill off Skytrain and the recession of the early 80s sent Laker into bankruptcy from which Sir Freddie never fully recovered. His last venture took him to The Bahamas which he loved, where he briefly operated a different kind of international service to Skytrain using aircraft with leather seats, fine wine and food and great service. That, too, failed but Sir Freddie will long be remembered as the man who was most responsible for bringing the possibility of flying to distant places at rates the ordinary citizen could afford. That’s quite a legacy.

BARBADOS One Financial Place Collymore Rock St. Michael,Barbados Tel: 246-427-5242 Fax: 246:429-3065 ctobar@caribsurf.com

NEW YORK 80 Broad Street, 32nd Floor New York, NY 10004 USA Tel: 212-635-9530 Fax: 212-635-9511 ctony@caribtourism.com

LONDON 22 The Quadrant Richmond Surrey, TW9 1BP England Tel: +44-208-948-0057 Fax +44-208-948-0067 ctolondon@caribtourism.com

CANADA 130 Bloor Street West Suite 301 Toronto, Ontario Canada M5S 1N5 Tel: 416-935-1896 Fax: 416-935-0939 ctotoronto@caribtourism.com

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CARIBBEAN TOURISM ORGANIZATION (www.onecaribbean.org) INTRODUCTION The last few months have been a trying time for the cruise industry as several leading cruise lines have been hit with a series of well-documented disasters from a fire at sea to several health scares, murder mysteries, and even an attack by pirate ships. They have all been played out on network TV, in leading newspapers across North America and in the trade press. As a result, questions have been raised in the media including a major piece in the Wall Street Journal recently questioning the success of this year’s wave season and the near-to- mid-term outlook for continued growth. We decided to get a first-hand account of the state of the cruise industry from CLIA’s President and CEO, Terry Dale and we thought it important enough to devote most of this month’s pages to the interview. OVERVIEW The first quarter ended with a typically good news/bad news scenario for more than just the cruise industry as the price of oil has started to climb again on continuing problems in the Middle East, Nigeria and most recently Venezuela. The energy crunch plus serious labor problems at several carriers and the new, tougher entry restrictions into the US are all conspiring to threaten the resurgence promised by IATA for international airlines. While major market economies appear to be reasonably strong going into April, there are some soft spots and inflation fears creating investor concerns in a fickle marketplace. GLOBAL ECONOMY A survey of first-quarter stock-market performance from the Dow Jones World Stock Index shows that international stocks continued their climb in virtually every market of interest to the Caribbean, in spite of high energy prices and raised interest rates by Central Banks in the World’s three largest economies. Both the US Federal Reserve and the European Central Bank raised rates in the first quarter and the Bank of Japan is expected to follow shortly. The Federal Reserve under new chairman Ben Bernanke pushed up interest rates another quarter point in late March and made it clear that the tight credit policy associated with his predecessor Alan Greenspan would continue. The Fed emphasized that the economy is slowing from its unusually strong growth in the first quarter to what it described as a “more sustainable pace.” Despite investor concerns about the ripple effect that tighter monetary policy could have on global markets, benchmark indexes hit record levels in the quarter. The Dow Jones Industrial Average rebounded from a full year loss in 2005 to its first first-quarter gain in four years, up by 3.6% to 11,109. European stocks continued their strong performance in 2005 with an overall increase of 7.9% for the quarter. Individual countries of particular interest to the Caribbean include the UK up 7.3%, France up 14.4%, Germany up 14.5% and Spain up 12.5%. Analysts remain upbeat about prospects for European stocks as the pace of money moving into Western European shares increased in the quarter. Germany was particularly positive and stronger retail sales reported there raised hopes that consumer spending is finally on the rebound. On this side of the Atlantic, Brazil, Canada and Mexico all outperformed the US percentage-wise with increases of 7.9%, 21.2% and 4.7% respectively.

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Finally, in Asia, the best performer in the first quarter was India where the benchmark Sensex Index topped 11,000 for the first time which should bolster the growing interest in this developing market shown by some Caribbean tourism leaders. The shadow of inflation remains the biggest concern and it is inextricably linked to the price of oil which has topped $67 a barrel once again. In early March, the Organization of Economic Cooperation and Development OECD released figures that showed that energy prices had driven inflation to an average of 3% among its 30 members. Although this was considered a manageable level at the time, it almost certainly won’t remain so if energy prices continue rising as they are now. THE DOLLAR The US dollar suffered a sharp sell-off in the middle of March falling to a several-week low against the Euro. The principal reasons were continuing concerns over the massive current-account deficit and the diversification of currency reserves out of the dollar by overseas central banks. The quarter ended with the dollar at $1.212 against the Euro and $1.736 against the British pound and it continues to trade within a narrow range around those figures. OUTLOOK FOR TRAVEL We have been plagued by conflicting reports of both results and forecasts of late but it seems fairly clear to us that the rest of 2006 may not be as strong as we had once hoped in the US market in spite of a resurgence in consumer confidence released at the end of March. Our monthly survey of the largest US wholesalers for the Caribbean and several key agency chains matched with six-months-out advance bookings from American Airlines shows that business has flattened out considerably. Caribbean business is showing a slight increase overall excluding the Mexican coastal resorts which are still sharply down. There are exceptions, most notably the Dominican Republic, which probably benefited the most from Katrina’s ravages. US domestic business is off also and Canada’s tourism has been hurt by the new curbs on cross-border traffic. Visitor traffic from the US to Europe continued its virtually flat-growth trend that began last November with less than 1% growth in January and February and the outlook is not good for the spring according to the Trans-Atlantic Travel Market report from Donald N. Martin Company in New York. The latest riots in France, growing bird flu scares on the continent and in the UK, and a mounting anti-US feeling among publics in much of Europe are all bound to further slow demand while Trans Atlantic airfares for the summer are on the rise as capacity is cut by several airlines. All in all, with so many key competitive regions in trouble, the Caribbean should be doing better than it is with the only real cloud on the horizon the coming hurricane season. Governments and private sector tourism marketers in the Caribbean should be asking why. AIRLINE UPDATE • The big question of the moment is whether Delta will make it through the summer. Our best guess is yes

and that the company and its principal lenders will not accept liquidation. However, the threat is very real since Delta pilots voted overwhelmingly for a strike should the bankrupt carrier void their labor contract with the pilots. Delta, the third largest US carrier which has recently increased levels of service to the Caribbean and other international markets, is seeking court approval to scrap the current contract and impose new

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terms unless their pilots agree to harsh new pay cuts and benefits reductions. The latest deadline comes just prior to the Easter weekend after which the arbitration panel can let Delta void the contract if no agreement is reached. The dispute is already causing cancellations and future booking away from Delta. A strike would almost certainly result in Delta going under and we hope that will not happen to this once-proud airline.

• On a happier note, Air Canada, recently reported an excellent performance for the start of 2006 with the

highest January load factor in the carrier’s history together with increased capacity for both Air Canada and its regional subsidiary, Jazz.

• The merger between US Airways and American West is already showing signs of strain which historically

has been true for almost all airline mergers in the past including the earlier absorption of Piedmont by US Air. As could be expected, there are both cultural and work rule differences between the two carriers which have resulted in arguments among staff and even violence. Unfortunately, these differences appear to be having a negative result on performance as US Airways received the worse scores for on-time performance and mishandled baggage out of 14 airlines covered in the just-released 16th Annual Airline Quality Rating figures.

INTERVIEW A verbatim interview follows between the Tourism Executive Brief Editor, Michael J. Youngman (MJY) and Terry L. Dale (TLD), President and CEO of the Cruise Line International Association at CLIA’s headquarters in New York in late March. MJY: Thanks Terry for giving me your time today. It’s been good to see the new spirit of cooperation

prevailing these days between virtually all key elements of the Caribbean tourism industry including the cruise lines and hospitality industry working together with governments. On behalf of our members, I’d like to get caught up with what CLIA is doing, particularly for some in the Caribbean who may be more familiar with FCCA than your marketing organization. Let’s start with an update on your travel agent program since I know that agent education is at the core of your activities.

TLD: We are all about education. Today, we have over 13,000 agents who CLIA has certified and that

means they have reached accredited cruise counselor, master cruise counselor or elite cruise counselor certification levels. You know we think that it’s so important to engage the agent and keep them up to date on what’s going on with our cruise line members and to motivate them. This is a national sales force that we need to keep constantly informed on behalf of the cruise industry. While there have been other agency associations that have suffered over the past decade and there was certainly a period of time where CLIA saw some erosion in its membership, today and for the past two years, we have been in a growth mode and, in fact, we are now the largest travel association in North America with other 17,000 dues-paying members.

I think that because of this relationship, a stronger partnership has been established between

the agents and the cruise lines, and Michael, what is so important for our partners in the Caribbean to understand about this natural sales force is that our research shows that while 48% of leisure sales of the mix for our agents is cruise, the other 52% is resort and land-based business, so this is a sales force which should be mobilized, obviously for the cruise industry, but also for the Caribbean at large. These travel agents are smart enough business people to

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understand that they have to have a diverse portfolio of products to sell and, while we want them, of course, to think of a cruise vacation first, they are advisors on leisure travel and that’s what they are trained for by CLIA. So this is a sales force that I want to make available to the Caribbean.

MJY: I think that’s a fantastic opportunity which must be exploited, but I also realize that most of the

cruise lines help to keep travel agents motivated to sell their product by making sure that their best rates are always available through selected travel agent counselors and not direct. The cruise lines make it easy and profitable for agents and the consumer and earn loyalty because of that.

TLD: I think what the consumer has to keep in mind is that a cruise isn’t a commodity. So while there

is a certain comfort level to go online to purchase say a Marriott hotel room in San Diego or San Juan, you know, because brand Marriott tells you so, that they’re going to be consistent and that one room in one location is going to be similar in quality to the other, so that’s the comfort level and its similar with the airline industry. But when you think about a cruise vacation, we have over 150 ships in our fleet right now and they range from a 140-passenger sailing yacht to a 3,600 passenger mega-ship. Very few consumers have the luxury of being able to make a mistake in spending their vacation dollars or time and if you’re not dealing with someone who is a trained professional with knowledge of those ships and their itineraries and ports, you’re going to run the risk of getting the wrong product for you and we’re so confident that if you get it done right, you will return for another cruise vacation again and again.

NJY: That’s true, but isn’t it very important to get the right agency, even within your membership,

because they don’t all know the full range of ships and itineraries or how to match the client with the right ship and when you drill down you find that some cruise lines, particularly at the luxury level, have identified certain agencies who are familiar with virtually every cabin and facility on each of their ships. From personal experience, I can tell you that I’ve changed agencies several times before getting proper satisfaction for the same cruise booking.

TLD: Absolutely. While on the topic of education, I want to stress that this year, we’re introducing

two new on-line training programs including tours of ports. My background is all about destinations from the Convention and Visitors Bureau industry and I feel that we have a responsibility to educate and train our agents on what to do when passengers get off that ship so that they have a base of knowledge on the attractions and history of the country they’re visiting. We feel that training like this will go far towards building the important relationship with the Caribbean at this crucial time for the travel industry.

MJY: By the way, Terry, do you have any recent research to share with us. I know that the cruise

industry continually takes the pulse of consumers and both governments and private sector interests in the Caribbean always want to hear about what percentage of cruise visitors return for a land-based stay.

TLD: We will be releasing our 2006 Consumer Profile within a couple of weeks and we will be able to

share the executive summary and any specific topic like that in detail shortly. The preliminary report suggests that most people are still satisfied with their cruise experience and that some 30 million Americans plan to take a cruise within the next three years so it’s still a big positive.

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MJY: One of the questions that I wanted to ask is perhaps a silly one in view of your position but here goes anyway. Do you think that the Caribbean has in any way peaked out for cruising because of all these huge ships that have come on line and keep coming?. How many more can small destinations take? I’m sure that you’re aware of mounting criticism of the cruise industry of late on the impact of over-capacity on communities and the environment in places like Belize and the BVI,for example. I’m wondering where the limit is since the Caribbean is already the biggest cruise playground in the world.

TLD: I think there’s still room for growth. Particularly when you see the kind of port development

that’s going on in the region like Carnival’s big investment in Grand Turk. I don’t think they would be investing those kinds of dollars in infrastructural development if they weren’t very confident that there was still room to grow. No, I don’t think that we’ve hit the peak in the Caribbean yet.

MJY: What are the hottest growth areas for the cruise industry at the moment? TLD: Alaska and Europe have been selling particularly well this year and what’s interesting for 2007 is

that almost all of our members with luxury lines are doing world cruises next year. There appears to be an increasing demand for what we characterize as wanderlust and there is a desire to get out and see exotic locations on board a ship. Carnival is also going into Asia through its Costa subsidiary.

MJY: On the subject of sales, while I have no intention of dwelling on the recent run of problems and

attendant bad publicity, as I’m sure it’s temporary, I have to probe a little on possible impact. Some of the large wholesalers and agency chain management tell me that their cruise sales have diminished somewhat during this wave season and this has been duly reported in Travel Weekly and elsewhere in the media. Has there been a slowdown?

TLD: It’s been characterized as a mixed bag to use that old cliché, depending on the travel agency or

the cruise line you speak to. Obviously, there have been several factors leading into the wave season this year that I think have impacted it. First, we had an extensive pre-wave season in mid-November and early-December that was very strong so we entered the traditional wave season with a lot of unexpected business on our books. When you remove that inventory you obviously don’t have the same capacity available to sell. So we had a strong pre-wave booking period plus a very warm January in the Northeast that immediately followed and cut into sales.

MJY: I’m sure this crazy weather particularly hit the last-minute impulse buyers that have been such a

feature of the market in recent years for cruise and land-based vacations alike. They certainly had little incentive to escape the winter that wasn’t!

TLD: Right, so all of those factors made the wave season solid but not spectacular compared to the

last couple of years. A couple of other things we have seen on our surveys of key agents this winter is that almost 50% of them report that their advance booking period has been extended to six months or more. Consumers are booking further and further out and are not waiting for the last minute bargains which is good for us, while 70% of the agents surveyed said the wave season was as good if not slightly better for them than last year. As an industry, we’re optimistic that it’s going to another very strong year.

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MJY: There is another big concern which may impact the cruise industry in the Caribbean this Summer/Fall although not as much as for fixed-base operators and that, of course, is the forecast for yet another bad hurricane season. We speak monthly with the bellwether wholesalers and agency groups and they are naturally concerned and are hedging their bets by avoiding large commitments to the region for this period which stretched into six months last year;

TLD: Exactly, and we feel a responsibility to educate the consumer through our travel agents that

while we appear to be in a period of ferocious storms, the beauty of a cruise vacation is the ability to adjust an itinerary quickly to adverse weather patterns and to still offer a great experience. We have to do an even better job in communicating that.

MJY: I have a few more minor topics to cover. For instance, I’ve noticed lately that a number of

cruise lines including Royal Caribbean have been paying a lot of attention to opportunities created by this year’s World Football Cup in Germany by providing packages which include broadcasts of all matches onboard ships with European itineraries. Next year, it’s the Caribbean’s turn with the World Cricket Cup taking place in many different countries in the region. Do you know if we can expect a similar level of interest by the cruise lines in promoting alternative accommodation and coverage of the matches?

TLD: I don’t know anything specific but I’m sure that it’s strictly a business proposition which makes

good sense to partner with Caribbean destinations to provide accommodations and coverage of the events. It’s not surprising to me to hear what they’re doing in Germany as they did something similar last year when the Super Bowl was in Jacksonville because when cruise ships pull into a destination hosting a high-profile event, its not only good business, it’s excellent exposure.

MJY: One other small item: my wife and I were on a WindStar cruise this February in the Eastern

Caribbean and we noticed Easy Cruise ships in various ports – you could hardly miss their bright orange paint job! From conversations we had with local residents and articles in local media, I gather that the Easy Cruise expansion from Europe to the Caribbean has had some impact, at least on local demand for a flexible, low cost cruise product within the Caribbean. Do you think this could be a trend with further expansion possibilities or is it just filling a small niche?

TLD: I don’t know what the market potential could be but it’s certainly a unique business model and

something that it will be interesting to watch. MJY: Any thoughts about Cuba as a cruise destination with big potential when it finally opens up? Is it

going to be a hot spot as most in the business predict? TLD: Absolutely, the interest is there to experience Cuba and see it first hand. I’ve never been but I

look forward to the day when I can. The day it does open up, you’ll see the cruise industry there in full force.

MJY: The Caribbean is looking to widen it’s identity by creating a new-look logo which it will use on all

it’s communications from the regional tourism organizations like CTO and CHA and encourage appropriate industry members to do the same. Would CLIA have any interest in helping us with this endeavor?

7

TLD: Absolutely, I would personally recommend that our cruise line members where appropriate (i.e.

members serving the Caribbean) adopt the logo and I think that an extension just as important would be to our 17,000 travel agency members as another way for them to communicate to consumers that the Caribbean is important and that they are knowledgeable about the Caribbean as a destination. So we would really encourage both cruise lines and travel agents to use it.

MJY: We could hardly ask for a stronger endorsement than that and I hope that it will help to energize

others to use the logo. Do you have anything else to add that we haven’t already covered? TLD: Yes, there are some items I want to be sure to cover. First, new builds. There are 29 ships that

will be introduced into the market between 2006 and 2009. They represent over 14.5 billion dollars in new ship development so obviously there’s lot of confidence in the future market.

MJY: That gets us back to the issue of whether the Caribbean has peaked out or whether there’s still

room to grow. TLD: It certainly tells us that the industry believes the growth potential is there. We’re forecasting an

increase of 500,000 passengers worldwide. We’re also anticipating that the industry will again exceed 100% occupancy and so you know we’re really confident.

MJY: How do you do that? It sounds like one of those hotels I knew at the Nandi airport in Fiji when I

was working for American Airlines years ago. Those hotels had over a 120% occupancy year round turning over sometimes twice a night but how does it happen in the cruise industry?

TLD: (laughing) Our occupancy numbers are based on two berths to a cabin so anything over that like

a pullout couch or extra beds for children gets us above 100%. MJY: Thanks again, Terry. It’s been fun and informative. I know that CTO’s Director of Marketing,

Hugh Riley, will be following up with you shortly and we look forward to continued cooperation with CLIA.

CARIBBEAN TOURISM ORGANIZATION (www.onecaribbean.org)

INTRODUCTION

Last summer, we responded to a World Bank report on Caribbean development in the 21st century, which

called on countries in the region to move beyond “decades of reliance on traditional markets and

preferences,” by offering snapshots of markets of opportunity from Asia to Latin America. One of them was

India and we turn our sights back on India with an expanded market profile in this edition. Cricket is by far

the most popular sport in India which shares a passion for the game with the West Indies and we are now

less than ten months away from the opening match of the 2007 Cricket World Cup when teams from 16

nations, including India and Pakistan, will be hosted by the West Indies from March 11 to April 28. Add in

long-time Commonwealth ties and a sizeable VFR market and it seems timely for at least the English-

speaking Caribbean to make its move for a share of India’s rapidly expanding outbound tourism market. But

first, a quick look at what remains a hard-to-read global picture.

ECONOMIC OUTLOOK

1 United States

Volatility continues to be the watchword as the US economy surged in the first quarter at a 4.8% growth

rate, the fastest pace since the summer of 2004. Consumer spending increased by an annualized rate of

5.5% over the first quarter of last year and business investment had its largest quarterly increase in nearly

six years. These numbers were clearly unsustainable and consumer confidence has already been shaken by

a combination of soaring gas prices at the pump, higher interest rates and some cooling in sectors of the

housing market. The University of Michigan reported in May that its consumer confidence index fell for a

second straight month to its lowest level since the impact of last summer’s hurricanes in the Gulf which last

sent gas prices through the roof.

Investors were also disappointed by the new Federal Reserve Chairman’s perceived lack of clarity about the

Fed’s future intentions on interest rates as it raised its key rate for the 16th consecutive time. Inflation fears

sent stocks and bond prices tumbling after it seemed likely that the Dow Jones would challenge its all-time

high earlier in the month. The big question remains what the impact will be on overall spending this

summer. Consumers appear rattled enough to change some of their lifestyle habits, but will their spending

merely be redistributed and medium to long-haul travel remain unaffected? That’s the big question.

2. Canada

The new conservative government of Prime Minister Stephen Harper presented its first budget to parliament

on May 2nd with an announcement of $20 billion in tax cuts over two years reflecting a huge federal budget

surplus and a surging economy. The Canadian dollar surpassed US 90 cents for the first time in 28 years,

helped by increasing world prices for Canada’s exports of oil, gold and other commodities.

TOURISM EXECUTIVE BRIEFMay - 2006

The rising value of the loonie, new tax breaks, lower gasoline prices and only modest inflation should all

encourage a rise in consumer spending, including for more Caribbean vacations.

EURO ZONE

The Euro zone doubled its rate of economic growth in the first quarter in spite of a weaker than expected

performance in Germany. The 12-nation bloc grew 0.6% during the quarter, in line with the European

Central Bank (ECB) forecast for the year of 2.1% growth. Spain enjoyed the fastest growing economy, while

Italy and France also showed relatively strong expansion.

However, in Germany, Europe’s biggest economy, GDP expanded by only 0.4% falling short of most

economists’ forecasts while industrial production fell by 2.4% in March – the steepest monthly decline in six

years. Retail sales in Germany were also weak in the first quarter as consumers were still hit by high energy

costs and unemployment. The ECB is expected to raise interest rates next month (as is the Bank of

England) and it is apparently committed to a strong Euro even though that policy held back the zone’s last

economic recovery in 2004.

THE BELEAGUERED DOLLAR

For the second time this year, the dollar has suffered a major sell off. In mid-March, the dollar value fell for

four consecutive trading days for the first time in 12 months after the release of soft US economic data and

speculation that the Fed was about to pause in its long string of interest rate increases. That hasn’t

happened, but the dollar has been falling again in May against other major currencies including the Euro.

After a week’s slide, the psychologically important $1.30 to the Euro level was nearly breached before falling

back slightly on profit-taking. The trade deficit and anticipated interest rate increases by the European

Central Bank, Japan’s Central Bank and the Bank of England remain the biggest problem. There is also a

suspicion in financial circles and media that the US Treasury actually wants a weaker dollar, an issue that is

highly controversial. For the moment, at least, current exchange rates tend to favor the Caribbean in the

dollar-tied areas which prevail through most of the region.

OUTLOOK FOR TRAVEL

United States

All indications now suggest that the Caribbean will be flat at best for most destinations with the hurricane

season only days away and gloomy predictions from the US Weather Bureau (although they have been

focused more on the US East Coast in early forecasts than the Caribbean.) Advance bookings for six months

out from May through October from our monthly survey of bellwether airlines and wholesalers show an

increase of nearly 7% but that is almost entirely due to the movement of all-inclusive bookings from Mexico

to all-inclusives in the Dominican Republic and Jamaica which are still recording double-digit increases.

We are about to see a major sea-change occurring in the distribution system which will affect the Caribbean

and the way we do business. Suppliers, particularly the airlines which are struggling to adjust to higher oil

prices that are likely to be with us indefinitely, are cutting costs everywhere and wholesaler contracts at low

net fares are on the chopping block. We are reliably told that such contracts at American have been cut by

more than 60% and US Airways is in a similar mode. We will be reporting more on these developments in

the months to come.

Cruise bookings are also down for the Caribbean while bookings to Alaska and Europe and up and bargain-

basement cruise prices for our region are easy to find. Carnival Cruiselines issued a profit warning

statement blaming a combination of increased fuel costs and soft second-half bookings for the Caribbean.

CANADA

Summer business to the Caribbean looks good out of Canada. 59% of Canadians expect to take a summer

vacation trip away from home, up from last year, and 27% of those plan an international trip with the

Caribbean gaining in outbound share according to the Conference Board of Canada.

Traffic to the US is already taking a hit with the new passport initiative on the way in spite of opposition by

US border state governors.

More consolidation in the travel trade continues to be a major issue as Transat completed its purchase of the

Thomas Cook agencies making it the largest retail agency in Canada.

UK/EUROPE

The UK market this summer is forecast to be very strong as British travelers continue to spend more money

on vacations and go away more often that their Continental European counterparts. However, a survey by

Europe Assistance (EA) of 3,535 Europeans found that British holiday makers are more likely to be changing

their summer travel plans because of the World Football Cup in Germany than in any other European nation.

This could affect travel to the Caribbean at least marginally. The same survey found that the British spend

an average of $3,900 on their holidays against an average of 3,500 for the rest of Europe. Overall growth

from Western Europe to the Caribbean is declining as airline capacity development in the Euro Zone is

shifting to Eastern Europe, the Middle East, Asia/Pacific and South America.

AIRLINE UPDATE

• The good news is that the potential disaster at Delta has been averted with a tentative agreement

reached between the company and its pilots. While a final vote has yet to be notified, the 11th hour

agreement by the union has been overwhelmingly supported by its executive committee and seems

certain to be accepted by the rank-and-file members. Delta still sees Latin America and the Caribbean

as crucial to its international growth and it is expanding fast from Atlanta to the region on routes where

there has been limited competition. New service from Atlanta includes Kingston,Jamaica and Aguadilla

and Ponce in Puerto Rico. Delta is now tied with US Airways for the number 2 spot in service to the

Caribbean. We also note that Delta, together with United, has signed a full content deal for published

fares and inventory with SABRE Travel Network that will expand their distribution options.

• More good news came from another struggling carrier, US Airways, which reported a first quarter profit

of $65 million on one-time gains and a double-digit increase in passenger revenue. However, the

improved results could complicate upcoming negotiations with its pilots for a new contract. US Airways

Chairman, Doug Parker, said he expects the carrier to be profitable for the rest of the year, even with

continued high fuel cots.

• The traditional carriers like American, Delta, United and US Airways are being helped by capacity-cuts in

some markets and rising fares from the discount airlines AirTran, JetBlue, Southwest and Spirit which

have all been boosting fares in recent months to the point where the legacy carriers are competitive or

even occasionally cheaper.

TECHNOLOGY/INTERNET AND DISTRIBUTION

• In the UK, a new report by Mintel, “Holidays on the Internet” reveals that the large traditional tour

operators which have more control of product have streamlined their internet operations and are

successfully challenging companies like Expedia and Travelocity. Despite the overall growth of internet

travel bookings Expedia reported a poor first quarter with net income of $23.3 million compared to $48

million a year ago.

• In Canada, online travel buying has lagged behind that of the US and the UK although Canadians are on

a par for shopping and searching. Some 58% of Canadians are now online with a clear majority

connected to high speed lines. Canada is about two years ahead of the US in broadband penetration.

Usage of the internet measured in time spent per week and pages viewed also exceeds that of the US.

The youth market dominates in Canada with 90% of Canadians aged 18 to 24 online and we can expect

the rate of online buying to increase over the years as we have noted before that the willingness to buy

increases among older segments of the population in other markets like the US and UK.

• Canada lags the US in internet advertising where industry giants among packaged goods companies like

General Mills, Kraft and Unilever are spending more aggressively online and increasing the range of

products promoted on the Web. This is a big change from the past when online advertising had been

largely driven by financial services, insurance and personal computer companies. The explosion of

online video has also contributed heavily to this shift and we found it interesting that Anheuser-Busch is

sponsoring World Cup soccer content online, including video highlights on Univision Communication’s

site among over 25 sites from sports to arts and culture.

INDIA: MARKET PROFILE

Background

India has a population exceeding one billion which is growing and aging. Currently more than half of its

citizens are under 25 but that is changing rapidly and the 25-44 age segment is considered to be the

principal target for international outbound travel including for the Caribbean. India currently has the world’s

9th largest economy and it is expected to grow by around 7% this year. Forecast continued growth will put

it in the number three position among global economies by 2040 according to Global Insight. The

population is ethnically and culturally diverse with at least 16 languages spoken, although Hindi is the

national language and English is widely taught and spoken especially among middle and upper class

households. Indians enjoy an average of 30 days annual vacation, which is comparable to much of Europe.

As we noted last year, India is poised to realize its potential as one of Asia’s leading outbound travel markets

and is in process to become one of the most powerful consumer forces in the world.

A Burgeoning Middle-Class

The Indian middle-class is now estimated between 250 and 300 million people, more than the size of the

entire US population and growing by around 30 million each year. This massive block has a spending power

estimated at around $420 billion over the next four years and disposable income of middle-class families has

risen more than 20% per year. Concurrently there has been a huge demand for new horizons and

international travel. Last year, Indian outbound traffic was well over four million with an increasingly high

percentage of FIT travelers who are highly educated, English-speaking and open to Western cultures and

influences. Most have their own credit cards and do not wish to travel in the group tours that typify many

other Asian vacation markets. 2006 numbers are expected to be much stronger with rising incomes and

many new airline services that have come with increased aviation liberalization and reductions in travel taxes

and exercise duties.

The booming economy has meant an incredible transformation and generational shift from a culture prizing

saving and frugality to one more of self-indulgence and living well. Indian travelers to the UK, for example,

spend more than twice the world average on purchases in Britain with business-related visitors spending

even more according to the BTA.

Aviation Access

India’s ongoing civic aviation reforms have included open skies agreements and more US and European

carriers are now flying long haul operations into a variety of metro areas including Delhi, Mumbai, Bangalore

and Kolkata. BA alone serves five metro airports in India.

Air India is reported to be purchasing 50 new aircraft from Boeing to be phased in over the next 10 years

which would more than double its present fleet of long-haul-capability aircraft. With India’s cultural ties to

several Caribbean nations, it is entirely possible that direct service will one day be provided by Air India into

the region, perhaps on an interchange basis with a local carrier.

Market Share

The most recent statistics available show that the US was in fourth position for Indian outbound travel and

the UK eighth; the other top ten countries were in Asia with Singapore at number one. Aspirational

destinations chosen by Indians in a 2005 Brand Index study for leisure travel if price were no object include

Switzerland, Canada, Australia, New Zealand, Japan and France. Switzerland topped the list for its “natural

scenic beauty.”

The Caribbean Product Fit

Key aspects in choosing a destination for Indian travelers include the following: safety, ease of getting a

visa, value for money, scenic beauty and friendly people. High standards of hygiene and cleanliness are also

important to this market.

However, the Caribbean’s main attraction for Indians may well be a shared passion for sport as noted in the

introduction. The Indian middle classes, especially men, are sports mad with cricket dominating all. Other

sports such as golf, racing and tennis offer lesser opportunities. According to the Guardian Unlimited, when

India bats against Pakistan, the TV audience in India exceeds the entire population of Europe! Need we say

more? We note that the Australia Tourism Commission appointed retired cricket team captain, Steve

Waugh, as Australia’s Tourism Ambassador to India. He is participating in a range of marketing initiatives as

well as charity and fund raising events in India. Perhaps this is a lead the West Indies might follow with one

of its own remarkable ambassadors from the cricket world.

Some Indian Cultural Dynamics

The Indian visitor wants verbal reassurance and it is important to be courteous at all times even

when being firm on an issue.

Young people tend to wear western clothes, more women are working and the trend is away from

the traditional family structure.

Indian consumers want value for money and are likely to save on hotel accommodations and spend

more on shopping.

Food is important and the availability of a good vegetarian cuisine is particularly apropos together

with plentiful fresh water and large portions of bread and rice with gravy-based dishes. Many West

Indian restaurants will fit these needs.

Indians do not feel confident driving overseas and are unlikely to rent cars. They tend to be

spectators rather than participants.

Reaching Indian Consumers

Bookings for outbound travel mostly still go through traditional travel agents – up to 95% of the total,

although the internet is becoming more important.

Customers expect an extremely high level of service from their travel agents and can be very demanding.

Indians have a comparatively short lead-time for booking holidays, considering their long-haul nature,

ranging from three to six weeks on average. They will usually comparison-shop and bargain with agents.

Media Sources

There are three major travel trade magazines, several consumer travel magazines and all the major

newspapers have extensive travel sections. Among the most important newspapers reaching the target

audience are the Times of India for Delhi and Mumbai; Hindustan Times in Delhi; The Statesman in Kolkata;

the Deccan Herald for Bangalore and Hyderabad markets. TV, both national and cable and local radio are

widely used media, particularly for sporting events coverage.

The Bollywood Effect

The Indian film industry is among the largest in the world producing more than 800 movies a year. The

earning potential of Bollywood is enormous for destinations which are used for location shooting through the

free publicity and interest generated when millions of viewers are treated to a virtual trip of their homeland

or region. It is indirect advertising on a scale unaffordable for most national tourist offices and virtually

every NTO is wooing this multi-billion dollar industry to shoot movies, TV spots and documentaries at their

home destinations. The Caribbean should not be left behind and this is a segment which deserves special

attention by regional marketers.

The Internet

India is well-advanced in information and communications technology which is part of the boom fuelling the

Indian travel industry. Although Internet access in India stands at only 4.5% of the population, a small

proportion until you consider that represents 35 million users, the number of Indian internet users has

grown 269% in the past four years and around 40% of those users are broadband connected.

US venture capitalists quickly recognized the potential in online travel portals in India and have invested

millions of dollars in travel portals which feature the US-Indian market. Consumers are more comfortable

using the internet for searches and planning but not yet for booking which is still heavily slanted towards

travel agents. That is certain to change soon as in other markets.

The Travel Trade

The retail travel trade in India is largely reactive and last-minute oriented. Most agents are only ticketing for

the lower end of the market. The top five agency producers in India are Kuoni India, Thomas Cook, Cox &

Kings, Raj Travels, and Orbit. Other agencies with significant overseas travel volume are SOTC, Kesari, Club

7, Dewan Travels, Narula Travels, Faraway Places and Xpress Holidays. All of these agencies produce

printed brochures which are still important in the Indian marketplace. There are approximately 150 key

agencies in the 5 major cities of Delhi, Mumbai, Chennai, Bangalore and Kolkata with thousands of smaller

IATA and non-IATA agents elsewhere throughout the country.

October to March is the best period for undertaking a sales mission and Delhi, Mumbai and Bangalore are

the must-visit cities. There are many trade shows to consider in India and other Asian locations like SATTE

held every spring. Many important Indian travel agency representatives also travel to London in November

for the annual WTM and they are all looking for new product.

Conclusion

Indian is a huge and difficult market to target but one we believe is likely to repay the time and effort

needed to prospect there many times over.

Certainly, competitive markets around the globe are doing just that now and the Caribbean should set up a

public/private sector taskforce to develop a workable game plan which will meet the challenge. The

upcoming meetings during Caribbean Week in New York could perhaps provide the venue.

Acknowledgement is due to VisitBritain for the use of some of their material in this report.

PERFORMANCE IN 2006 A summary of the latest available statistics on tourist and cruise passenger arrivals is given in the Table below. Note that the sharp decline in visitation to Cancun and the above average increases to the Cayman Islands and Grenada reflect the impact of hurricane activity in 2005 (Cancun) and recovery from hurricane activity in 2004 in the case of Grenada and Cayman Islands.

BARBADOS One Financial Place Collymore Rock St. Michael,Barbados Tel: 246-427-5242 Fax: 246:429-3065 ctobar@caribsurf.com

NEW YORK 80 Broad Street, 32nd Floor New York, NY 10004,USA Tel: 212-635-9530 Fax: 212-635-9511 ctony@caribtourism.com

LONDON 22 The Quadrant Richmond Surrey, TW9 1BP, England Tel: +44-208-948-0057 Fax +44-208-948-0067 ctolondon@caribtourism.com

CANADA 130 Bloor Street West Suite 301 Toronto, Ontario, Canada M5S 1N5 Tel: 416-935-1896 Fax: 416-935-0939 ctotoronto@caribtourism.com

TOURIST (Stop-Over) ARRIVALS AND CRUISE PASSENGER VISITS IN 2006

Tourist Arrivals Cruise Passenger Visits

Destination Period Tourist % Ch.

2006/05 Period Cruise Passengers

% Ch. 2006/05

Anguilla Jan-Mar 20,441 9.7 - - -

Antigua Jan-Mar 73,500 2.1 - - -

Aruba - - - Jan-Mar 209,450 9.9

Bahamas Jan-Feb 238,556 3.9 Jan-Feb 536,839 -8.3

Barbados Jan-Apr 207,391 4.5 Jan-Apr 241,639 -19.1

Bermuda P Jan-Mar 38,896 -1.3 - - -

Bonaire Jan-Feb 10,918 -12.7 - - -

British Virgin Islands Jan only 29,849 -0.5 Jan only 68,315 0.6

Cancun (Mexico) ** Jan only 84,748 -62.8 - - -

Cayman Islands Jan-Mar 76,660 84.2 Jan-Mar 645,477 3.2

Curacao Jan-Mar 61,428 -0.2 Jan-Mar 130,126 15.9

Dominican Republic* Jan-Apr 1,488,912 11.4 Jan-Mar 157,017 -0.1

Grenada Jan-Apr 44,071 30.5 Jan-Feb 81,580 -14.9

Guyana Jan-Apr 39,047 19.6 - - -

Jamaica Jan-Apr 599,834 15.7 Jan-Apr 515,376 8.8

Martinique Jan-Feb 92,641 -0.6 Jan-Mar 45,653 -2.1

Montserrat Jan-Feb 1,206 -7.8 - - -

Puerto Rico - - - Jan-Mar 445,128 -8.2

St. Lucia Jan-Mar 79,445 -4.9 Jan-Mar 165,528 -8.0

US Virgin Islands Jan-Mar 205,248 -2.8 Jan-Apr 795,737 -11.1

* Non-Resident Air Arrivals **Non-Resident Hotel registrations P Preliminary figures - No Cruise figures reported n.a. Figures not available

Source – Statistics supplied by member countries as at June 7, 2006; subject to revision

CARIBBEAN TOURISM ORGANIZATION (www.onecaribbean.org)

THE ECONOMY AND GENERAL OUTLOOK

Fate in the form of a sudden and unexpected escalation of Middle East conflict has once again conspired to stall a

promising recovery in travel and tourism.

For the airlines, in particular, the impact of the renewed fighting between Israel and the Hezbollah in Jordan has

sent their fuel bills soaring once again, interrupting the industry’s slow but steady climb back to health this year.

IATA’s Secretary General, Giovanni Bisignani recently forecast that the world’s airline industry fuel bill for 2006

would grow by $21 billion to $112 billion to account for 26% of operating expenses assuming an average price of

$26 a barrel for London benchmark Brent crude. That prediction now seems overly optimistic and IATA’s forecast

for a net annual loss of $3 Billion is almost certain to be much higher. More carriers around the globe are likely

to be facing bankruptcy or shutdown.

Consumer confidence is another early victim of these developments. The Conference Board’s Index for June

showed modest improvement in consumer expectations but the University of Michigan poll in July quickly

reversed that trend and the outlook is decidedly pessimistic for the balance of the year. Inflation continued to

top consumer concerns. Even before the latest spike in energy prices, the core consumer price index which

excludes energy and food jumped by 0.3% in June, an increase of 2.6% over a year ago. US Federal Reserve

chairman Ben Bernanke, in his semi-annual report to Congress on July 19th, seemed to soft-pedal on inflation

even though his testimony confirmed that it was well above the Fed’s target ceiling. Analysts concluded that a

pause in the long cycle of uninterrupted increases in short-term interest rates could be expected from the Fed’s

next meeting. Wall Street and international markets reacted positively but further reading of support

documentation suggested otherwise and stocks and bonds fell again. Wall Street was set for another wild roller-

coaster ride with daily three-figure losses and gains following each other. Adding to the inflation fears, was a

number of poor earnings reports, particularly in the technology sector, and bad news from the Middle East and

North Korea.

UNITED KINGDOM/EUROPE

The inflation rate in the UK grew by 2.5% in June after a 2.2% increase in May. The increase in consumer prices

was well beyond Bank of England forecasts and raised the possibility of an interest rate hike in early August, even

though the Bank’s monetary policy committee voted unanimously at their last meeting to keep interest rates at

current levels. While inflation was up in Britain, so were wages as average earnings increased by 4.1% in the 3-

month period March-May. However, unemployment also soared to a five and a half year high of 5.4%. High

prices for fuel, gas and heating oil kept inflation in the Eurozone at 2.5% in June, also well above the European

Central Bank’s target ceiling of 2%.

TOURISM EXECUTIVE BRIEF July - 2006

Where are Oil Prices Headed?

The extreme volatility in the oil markets makes this a question without any clear answers, only indications. Light

sweet crude prices on the New York Mercantile Exchange traded up to nearly $80 a barrel immediately after

Israel’s massive retaliation against the Hezbollah. London’s Brent benchmark was virtually in tandem. Prices

have since fallen back to around $75 a barrel but most energy analysts expect them to resume their climb in the

days and weeks ahead as demand is still growing and there appears to be more elasticity in the market than

most had predicted. Eyes remain focused on Iran which continues its threat of using oil as a weapon in its

dispute with the West over its nuclear ambitions. Continued rebel action in Nigeria has also cut that nation’s

production by more than 500,000 barrels a day. If there is any good news to be found in this mess, it is that

spare capacity and stockpiles have increased marginally while further production is coming on board as new

oilfields are being developed in other parts of the world. Supply and demand should gradually become more

balanced. At least one internationally prominent energy expert in France believes that current oil prices are over-

valued by as much as 50%

THE DOLLAR

Little has changed in the value of the dollar against the euro and sterling since the last edition of the Brief

reported on currency issues. The dollar’s slide, which occurred over several months earlier this year, seems to

have halted at a more sustainable level and the dollar is currently trading around $1.29 to the euro and $1.91 to

the pound. The European Central Bank’s decision not to raise interest rates appears to have been a factor in

slowing the dollar’s fall. These levels remain favorable to the Caribbean in attracting visitors from both sides of

the Atlantic.

OUTLOOK FOR TRAVEL

United States of America

• Our monthly survey of key players in the supply chain continues to show marginal increases for most of the

Caribbean, with some destinations like Jamaica, the Dominican Republic and Bermuda doing better than

average. Cruise business to the region is flat and revenues are down due to extensive discounting. It remains

to be seen whether the widespread publicity given to the unfortunate incident involving the new mega-ship

Crown Princess will have any wider impact on this class of vessel. The cruise lines report very few cancellations

to date and the ship has sailed again from New York after receiving a clean bill of health from the coast guard.

Elsewhere major leisure destinations in the US, including Hawaii, are showing only modest gains in occupancy

but sharply rising revenues from increases in room rates. Las Vegas and Hawaii for instance have both

increased REVPAR (Revenue per Available Room) by nearly 14% this year. Increased yields for the hotel and

airline industries have not only come from higher prices: reductions in transaction costs were major

contributors including doing more business online, lowering commissions and over-rides, and eliminating or

reducing allocations of low fare seats or discounted room rates to third parties.

Europe

• Travel to Europe this summer is doing much better than expected in spite of the weak dollar and big increases

in airfares and room rates in major European cities. The European Travel Commission (ETC) has increased its

forecast for the year and expects US visitors to surpass the record 13.1 million that traveled to Europe in 2000.

Much of this success is due to a big jump in the number of flights being offered nonstop from a record number

of US cities. According to US Today, foreign and US airlines are offering 386 nonstop flights a day between

various continental US cities and Europe with Amsterdam, Frankfurt and Rome getting the most new services.

Struggling US carriers like Delta and Continental have switched significant inventory to international flights and

fares on trans-Atlantic routes are at a 3-year high.

Latin America

• Latin America routes are also performing well in load factors and high revenues for both US based and regional

carriers. Continental reported its best quarterly results for the second quarter since 2001 with Latin America

accounting for the highest percentage growth in revenue for the system with an increase of 30.6%.

OTHER AIRLINE NEWS

• American Airlines remains the only major US airline that has never filed for bankruptcy protection and CEO

Gerard Arpey is planning to keep it that way. In an extensive interview with the New York Times, Arpey

discussed his program that has a ‘’relentless focus on efficiently’’ combined with open dialogue with the

employees, collaboration with their unions and re-instilling a spirit of teamwork that seems to have been lost at

the nation’s largest carrier. Arpey says ‘Our fundamental objective is to make organised labor and our frontline

employees our business partners.’’ He is clearly making progress but he has a long row to hoe. American’s

biggest problem right now is in the cockpits and cabins of its fleet. Productivity talks with pilots and flight

attendants are at a standstill after earlier negotiations broke down when it disclosed that it was paying bonuses

of more than $1 million to several top executives (Arpey himself not included). Union leaders and employees

were livid and the talks have yet to resume. We all hope that reason will prevail and Arpey’s philosophy will

pay off for American and its customers.

• British Airways and several of its competitors are currently under investigation by American and British

authorities for anti-trust activities involving trans-Atlantic routes. This followed an earlier investigation

announced by the European Commission and US Justice Department into possible collusion in the air-cargo

market by a number of carriers including BA. Two of BA’s executives including the head of communications and

commercial director have been given leaves of absence and the news sent BA’s shares lower wiping out most of

its year-to-date gains. It later transpired that two US citizens have filed a price-fixing lawsuit in New York

Federal Court charging that BA together with American, Virgin Atlantic and United have conspired to use fuel

surcharges unlawfully to artificially inflate ticket prices in the closed market between London’s Heathrow and

the US. The latter three carriers say they are cooperating with investigators. In view of the huge increases in

the airlines’ fuel bills and the long-standing practice of using fuel surcharges to recover added costs, it seems

unlikely that this action can succeed as a class-action suit. However, it is something else that the airlines didn’t

need at this time. Stay tuned.

TECHNOLOGY AND COMMUNICATIONS

New Media

New advertising models based on Internet technology are rapidly replacing traditional media and the old

approach to advertising based on scattershot messages to huge audiences in the hope that something will stick.

The standard 30-second TV commercial is the prime example which may soon go the way of the dinosaur. An in-

depth article in the Economist titled The Ultimate Marketing Machine makes a strong case for new tools to reduce

advertising waste now offered by a host of entrepreneurial companies from giant Google to tiny Silicon Valley

specialists. All of them have the same major objective to provide a scenario in which advertisers pay only for real

and measurable actions by consumers by clicking on a web-site, printing out a coupon, sharing a video or making

a purchase. The largest category of Internet ads is search advertising according to the Interactive Advertising

Bureau. Businesses and service providers of all sizes and types including travel and tourism are discovering that

advertising on Web search engines can be a strong booster for their sales. However, to be effective it requires

skill and savvy from dedicated staffers because consumer search patterns are constantly changing. Google has

two systems for search advertising. Adwords which puts advertising links adjacent to relevant search results and

charges only for clicks (plus an option to bid for keywords in an online auction).

The average cost to an advertiser is 50 cents which corresponds to a CPM of $500. This compares to an average

CPM of $20. in traditional exposure media. In other words, a consumer’s action is 25 times as valuable as his

exposure. Need we say more? Google’s second system is AdSense which goes beyond search-results pages and

places sponsored links on the web pages of newspapers and other partner publishers. Adrienne and Adworks

together produced $6.1 billion in revenues for Google in 2005.

Other major companies, including Yahoo, Microsoft’s MSN and EBay, offer similar systems. Most businesses

profess to be very satisfied with the results from Search engine advertising. One familiar to us, Wyndham Hotels

and Resorts, calculates that it generates $14 in revenue for every dollar spent. Two-thirds of its online ad budget

and close to 15% of its overall marketing budget now goes to search ads with keywords such as ‘Bahamas Hotel’

and ‘Phoenix Golf’. Still other companies like ZiXXo near San Francisco allows advertisers to issue coupons on-line

and places them in on-line maps and similar sites, charging advertisers only when a consumer prints one out.

Another West Coast firm Ingenio places toll free telephone numbers on local search pages (it’s largest partner is

AOL) and charges advertisers only when they receive a call from a customer.

The same article in the Economist quotes Greg Stuart – head of the Interactive Advertising Bureau, that

advertisers waste an estimated $220 billion worldwide or more than half their total spending on messages that

never reach their target audience. Consumers are becoming increasingly immune to the cliches of broadcast

media advertising and more likely to tune out or click off. Online, they will accept advertising if it is relevant and

unobtrusive and best of all it takes some consumer action to find the ad in the first place.

ONLINE BOOKINGS CLIMB

A survey of airline IT trends by communications and technology solutions provider SITA concludes that the

number of people booking flights online has increased by 40% this year. An estimated 560 million or 28% of

today’s two billion airline passengers now use the Internet to make their bookings. SITA’s first passenger self-

service survey was carried out in May at three of the world’s busiest airports, Atlanta, Heathrow and Hong Kong.

INDUSTRY PERFORMANCE

The latest statistics of tourist and cruise passenger visitation to our member countries are given in Table 1

overleaf. The unusually high growth rates for the Cayman Islands (+81.1% through June) and Grenada (+30.5

percent through April) reflect in part their robust recovery from the impact of hurricane activity in 2004, while the

sharp decline for Cancun (-45.9% Jan-May) is directly due to the fall-off in business following Hurricane Wilma in

2005. Needless-to-say, these figures skew the overall regional picture, especially in the case of Cancun, which is

the third largest tourist destination (after Puerto Rico and the Dominican Republic) in the Caribbean.

However, if we exclude the figures for these three destinations to obtain a more realistic picture of the underlying

trend, CTO estimates that tourist visitation to the region during January-May 2006 grew by approximately 5

percent when compared with the same period in 2005. Cruise passenger arrivals, on the other hand, declined by

an estimated 2.6 percent during this period.

POSTSCRIPT

Now that the FIFA World Cup is behind us and the 2007 Cricket World Cup only 9 months away, it is interesting

to look at some of the extraordinary statistics that came out of the FIFA matches in Germany, pre-tournament

estimates of 30 billion for the cumulative worldwide TV viewing audience, were easily exceeded topping the last

FIFA World Cup audience by more than fifty percent. An average of 21.9 million viewers watched each live

broadcast compared to 14.5 million in 2002. Viewership in the United States where soccer is not a major sport,

except among the young, surpassed all expectations and surprised the TV station, ESPN, which carried the

matches.

There was a marked increase in the number of women watching the matches, with a female audience rising 40%

over 2002. One of the most interesting aspects involved both visitors and local fans without tickets. All twelve

cities in Germany organized FAN FESTS in 15 venues with the help of FIFA who provided the concept, giant

screens, stages and other installations. Some 17,000 employees looked after millions of visitors plus 5500

journalists from around the world who reported on these fan-friendly street parties. The additional revenues from

food and beer sales and the publicity generated were enormous. It is estimated than an additional 12 million

viewers watched the Germany-Ecuador match alone on giant screens outside the stadium. While cricket does not

have the same global reach that football enjoys, it is clear that the impact of the 2007 Cricket World Cup on the

Caribbean will be extraordinary, and the opportunities for promotion endless.

Table 1: TOURIST (stop-over) ARRIVALS AND CRUISE PASSENGER VISITS IN 2006

Tourist Arrivals Cruise Passenger Visits

Destination (Stop-Over) Period

Tourists

% Change 2006/05 Period

Cruise Passengers

% Change 2006/05

Anguilla Jan-May 35,299 16.3 - - - Antigua & Barbuda * Jan-Jun 137,157 1.8 Jan-Jun 278,691 -1.9

Aruba Jan-Apr 237,744 -11.4 Jan-Apr 266,852 4.0

Bahamas * Jan-Apr 569,481 5.4 Jan-Apr 1,169,164 -5.7

Barbados Jan-Jun 287,948 4.6 Jan-Jun 287,032 -17.0

Belize P Jan-May 119,743 4.4 Jan-Jul 406,509 -22.4

Bermuda Jan-Jun 140,029 6.5 Jan-Jun 102,249 34.9

Bonaire Jan-Apr 22,998 10.9 - - -

British Virgin Islands P Jan-Apr 143,792 3.3 Jan-Apr 261,168 12.9

Cancun (Mexico) ** Jan-May 623,737 -45.9 - - -

Cayman Islands Jan-Jun 150,486 81.1 Jan-Jun 1,052,831 2.3

Cuba P Jan-May 1,128,261 4.3 - - -

Curacao Jan-Jun 116,528 4.9 Jan-Jun 174,527 15.3

Dominican Republic * Jan-Jun 2,106,388 11.4 Jan-Mar 157,017 -0.1

Grenada Jan-Apr 44,071 30.5 Jan-Feb 81,580 -14.9

Guyana Jan-Jul 67,193 2.8 - - -

Jamaica Jan-Jun 892,161 17.1 Jan-Jun 686,774 10.5

Martinique P Jan-May 224,817 1.6 Jan-May 56,922 -3.8

Montserrat Jan-May 3,293 -10.4 - - -

Puerto Rico ** Jan-Apr 591,675 7.6 Jan-Mar 445,128 -8.2

Saba Jan-May 5,273 -3.4 - - -

St. Eustatius Jan-Jun 5,236 -1.2 - - -

St. Lucia Jan-Jun 160,505 -6.5 Jan-Jun 221,413 -10.6

St. Maarten * Jan-May 215,380 -3.0 Jan-Apr 640,263 -5.1

St. Vincent & the G’dines Jan-Mar 24,692 -2.2 Jan-Mar 49,636 66.7

Trinidad & Tobago Jan-Mar 121,406 -7.8 - - -

US Virgin Islands Jan-May 338,166 0.4 Jan-Jun 1,022,383 -8.1

* Non-Resident Air Arrivals **Non-Resident Hotel registrations only - No Cruise Figures are Reported P Preliminary figures n.a. Figures not available N.B: Figures are subject to revision by reporting countries SOURCE - Data supplied by member countries and available as at August 16, 2006

BARBADOS One Financial Place Collymore Rock St. Michael, Barbados Tel: 246-427-5242 Fax: 246:429-3065 ctobar@caribsurf.com

NEW YORK 80 Broad Street, 32nd Floor New York, NY 10004,USA Tel: 212-635-9530 Fax: 212-635-9511 ctony@caribtourism.com

LONDON 22 The Quadrant Richmond Surrey, TW9 1BP, England Tel: +44-208-948-0057 Fax +44-208-948-0067 ctolondon@caribtourism.com

CANADA 130 Bloor Street West Suite 301 Toronto, Ontario, Canada M5S 1N5 Tel: 416-935-1896 Fax: 416-935-0939 ctotoronto@caribtourism.com

1

CARIBBEAN TOURISM ORGANIZATION (www.onecaribbean.org)

ECONOMIC CONDITIONS AND OUTLOOK

Inflation figures for July in the US marketplace showed a slight decrease and the Federal Reserve reacted

as expected by finally calling a halt to its long cycle of uninterrupted increases in short term interest rates

at its August 8 meeting. The American housing market continued to cool down with July housing starts

falling to their lowest level in 20 months. Concurrently, the National Association of Home Builders

reported that its index of industry confidence was at its lowest level in 15 years. Industrial production in

the US rose by 4.9% in the first six months but productivity growth slowed with labour costs rising more

than expected.

Wall Street continued to see-saw wildly, reacting to daily good news/bad news scenarios coming out of

the Middle East and elsewhere plus changing storm predictions for the vital oil-producing areas in the

Gulf of Mexico. The price of crude oil has fluctuated by as much as 10 full points over the last few weeks

and at the time of writing had briefly fallen below $70 a barrel on both the New York Mercantile

Exchange and London’s ICE Futures Exchange. At the same time, the Dow Jones was back above 11,300

but storm clouds continue on the near-horizon with further wild rides to be expected for investors in all

the major international stock markets. Immediately troubling is a sharp decline in consumer confidence

in late August. The New York-based Conference Board Index, which had posted a modest increase in

July, dropped 7.4 points a month later in both its Present Situation Index and the Expectations Index

which measures consumer outlook for the next six months ahead. This is the largest decline since

Hurricane Katrina’s aftermath last year and coupled with growing uneasiness about travel by air (see

below) does not bode well for Fall and early Winter business to the Caribbean.

Unfortunately, this measure of likely consumer behaviour tracks closely with comments from our

bellwether wholesalers and airline analysts who report that advance booking activity is extremely slow for

most vacation destinations including cruises. A broader survey which will include Canada and UK/Europe

will be undertaken and reported on in late September prior to the annual CTC in Grand Bahama.

CANADA

According to Reuters, Canada's economy lost momentum in the second quarter with GDP slowing to

2.0% from the preliminary figure of 3.8% in the previous quarter as weaker exports and a slower pace in

consumer and business sales activity took its toll. Statistics Canada also reported zero growth in June

after a mere 0.1% in May.

TOURISM EXECUTIVE BRIEFAugust - 2006

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The good news is that Canadians are spending more money traveling abroad than ever before, a

government report said in late August. Tourism spending outside of Canada rose 1.4% to a record

C$5.9 billion in the second quarter over the first quarter on a seasonally adjusted basis. Spending abroad

by Canadian residents has now risen in 10 of the last 12 months.

EURO-ZONE ECONOMY

The Euro-zone’s GDP grew by 0.9% in the second quarter, its best result since 2000, and the annual

growth rate of 3.7% puts the single-currency area ahead of the US, Britain and Japan for the first time in

seven years. Within the euro-zone, France had the best quarterly results with Germany and Spain

growing at the same percentage rate as the area as a whole.

Most forecasters on both sides of the Atlantic do not expect this summer’s euro area financial boom to

last and the most optimistic of them predict only a 2.6% growth in real GDP for the full year compared to

a low-end forecast for the US of 3.1%. And the Euro Central Bank is expected to continue raising

interest rates until the end of the year and possibly beyond while several new taxes on the consumer are

said to be forthcoming in Germany and Italy which could blunt rising consumer confidence in those

countries. Nevertheless, the signs are certainly encouraging for improved growth and employment in the

Euro-zone enhancing its attraction for Caribbean tourism marketers.

FEAR OF FLYING

Perhaps the industry’s biggest concern of the moment, outside of another major terrorist attack or

natural disaster, is the impact of recent events on the consumer psyche when it comes to flying or even

the contemplation of a trip by air.

The thwarted plot to blow up as many as ten large commercial jets en route from Britain to America has

been followed by a series of incidents involving both international and domestic flights which graphically

illustrate how deeply troubled both passengers and crews are at this time. On-board behavior thought

to be suspicious and minor misunderstandings have caused a number of flights to be diverted or return at

considerable expense, disruption of schedules and high anxiety. Two airline crashes, unrelated to

terrorism, and the upcoming fifth anniversary of 9/11 are adding to the trauma. The stress level for flight

attendants is tremendous and their major union representing more than 55,000 employees at 20 airlines

reports large numbers of calls to an employee assistance line from attendants worried about their own

safety. Union president, Patricia Friend, was quoted recently as saying “It’s one more level of stress on

top of several years of severe stress.”

Since the foiled British plot, increased levels of security and an unprecedented crackdown on the contents

of hand baggage which may be carried on board have created long lines at airports and more reasons

not to fly unless you have to. Just how severe is the impact on passenger traffic and how long will it last

are the big questions.

Although airlines initially reported few cancellations in the days immediately after the foiled attack and

most said bookings were near normal levels, the full financial impact is yet to be measured. While

passengers are remarkably resilient and demand is bound to recover barring fresh incidents, the longer

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term impact may be resistance to the new security and baggage limitations. One measure of this

concern is shown by results from Euro-star which operates train service between London and the

Continent. Their passenger numbers jumped by 27% in the first four days after the new airport security

controls were enforced.

In the US, federal officials say there are no plans in place to lift the ban on carrying liquids onto aircraft,

other than for mothers with infants, creating still another burden on an already over-burdened baggage

handling system. More delays and increased lost luggage are likely to happen.

We will be monitoring this situation very closely, particularly at those airlines most important to the

Caribbean region and reporting back in the weeks ahead.

NEW MARKETS – continued

We continue our look at new markets in the Asia Pacific region with extracts from a recent report on

mega-trends organized by the World Tourism Organization (UN) and compiled by the Hong Kong

Polytechnic University. We also acknowledge once again the contribution of our friend and colleague

Imtiaz Mugbil, Executive Editor of Travel Impact Newswire.

INTRODUCTION

Asia continues to be the world economic powerhouse. According to the United Nations, China, India,

Japan and Korea will be four of the top ten economies in the world by 2020 and Asia will account for 12

of the 22 cities with populations of more than 10 million. The important travel trends in this report were

compiled through an analysis of articles in trade and consumer publications throughout the region and

selective news from a major regional TV news organization. THE FINDINGS

1. Travel Becomes More Activity/Interest Oriented

More and more travelers are deciding what activities they want to partake first and only then

choose the destination that offers them. Personal motivation is getting stronger and it is important

for NTOs to associate their destinations with certain “unique” activities/offerings that can only be

purchased and experienced in that destination. For example, one can do the daring bungee

jumping in many places around the world, but if one wants to see the movie settings of a hit film,

one has to go to the destination where it was filmed. The powerful influence of destination images

has most recently been expressed in our region by the success of “Pirates of the Caribbean.”

• Other niche activities are wellness and medical tourism. Spa tourism is the most-mentioned

wellness activity and the new emerging segment for spa holidays is the age group 26-35

where the range of treatments is more important than the design of the spa. Spa

treatments are also one of the most important activities for Asian female travelers and

women are expected to travel more frequently than men as a continuing trend. The

Caribbean has experienced this phenomenon in the past with significant numbers of young

women visitors from Japan.

- 4 -

• Cruise travel is another large potential growth market within the region and China and India

are two markets that cruise companies are considering for expansion.

• Schoolchildren traveling overseas to gain a better understanding of other cultures, history

and heritage is an ongoing part of the education process in China, Japan and Korea. With

the emergence of a large middle class in China, this trend is expected to gain momentum.

• Adventure tourism is on the rise. However, adventure tourism often involves venturing into

off-the-beaten track destinations and fragile marine environments and a balance between

tourism development and conservation needs to be struck.

• The global phenomenon of money-rich and time-poor consumers has hit Asian markets and

spawned the development of integrated resorts where theme parks, casinos, entertainment

facilities, hotels and convention centers are all combined into one place.

• Overall, North-east Asia is more associated with culture and heritage tourism and South-east

Asia more closely associated with wellness/medical, marine and adventure tourism.

2. Attracting Chinese Tourists

We have previously profiled China as a major source of outbound tourism. Last year China had an

estimated 40 million outbound travelers, an increase of 38% over 2006 and the WTO predicts that

by 2020, at the latest, China will become the world’s 4th largest tourist-generating country with

over 100 million outbound travelers. As Chinese tourists become more sophisticated, the following

recommendations are put forward:

• Aim for working-age empty nesters, the silver-haired segment, provincial capital residents,

high-end FITs, small meetings and incentive travelers.

• Provide more cultural activities as travel is a form of education for Chinese.

• Bundle destinations into attractive combinations with easy access between them.

• Cultivate business relationships with local companies.

• Think locally while maintaining good international management practices.

3. Online Travel Bookings and IT Demand Keep Rising

The growth in online bookings is leading to more e-marketing by airlines and hotels. Travel agents

in Asia, as in the West, will be gradually forced into becoming travel consultants. Low-costs

carriers (LCCs) have sped up this transformation by pushing direct online bookings and the full-

service traditional carriers have followed suit and slashed commissions. Currently, online travel

consumers in Asia tend to be FIT travelers, aged between 25-40, affluent and traveling without

children. However, tourism and hospitality are industries that will always rely heavily on human

contact. The growth of online bookings will not entirely replace personal service and a co-

existence of online booking and call centers can be expected. Further consolidation between

airlines, agencies and GDS/technology providers is inevitable. As for the technology itself,

metasearch technologies that simultaneously access several search engines are the drivers in the

Asia-Pacific online markets.

- 5 -

4. Low-Cost Carriers Critical Role In Tourism Boom

Low-cost carriers are having a profound impact on travel industry stakeholders throughout the

region. LCCs have forced traditional carriers to lower their fares in spite of rising fuel costs,

encouraging more frequent trips to more destinations.

Some LCCs are already venturing into long-haul markets and the lines between the LCCs and full-

service carriers are blurring. In the near future, air transport has to become a low-cost industry to

survive. Rising fuel prices are forcing all carriers to cut operations costs, commissions and

intermediary marketing channels while pressuring airports and governments to reduce fees and

taxes.

Regional body ASEAN will implement an open skies policy in 2008 which will further create alliances

and cooperation among regional carriers. India is considering the same policy and open skies will

soon become the norm throughout the region.

5. Cooperation Imperative

We have long preached the virtues, indeed the necessity, of cooperation within the Caribbean and

Asia is following suit. China and India are two major tourist generating markets that other

countries within the region endeavour to tap cooperatively; for example, Singapore and Indonesia

combine their individual strengths and jointly promote themselves. Hong Kong has been working

to strengthen an alliance with Thailand, Malaysia and Singapore. ASEAN countries are promoting

their destinations as a whole while the countries of the Greater Mekong Subregion GMS are

coordinating their efforts in tourism infrastructure development.

6. Hotel Trends And Developments

• Demand is increasing for serviced residences, particularly in India and China.

• There is increasing demand for hi-tech communications amenities as the line between leisure

and business travelers gets thinner.

• Boutique hotels are becoming popular

• Demand is growing for niche hotels located in areas that feature cultural tourism and/or soft

adventure activities.

• Hotel and resort designs are taking a more holistic approach which combines social

environmental, community and financial elements.

7. Safety And Health Considerations/Timely Communications

Travelers are more and more concerned about pandemic outbreaks and terror attacks and the

Asian travel market is no exception. Long-haul travelers are observed to be especially sensitive to

negative news. Chinese people also emphasize security issues in choosing travel destinations.

The threat of a pandemic outbreak such as bird flu calls for a coordinated effort among NTOs and

other government agencies. Timely, accurate and responsible communication to the marketplace is

even more important. Since Asian visitors make decisions based not only on risk itself but the

- 6 -

perception of risk, crisis communications need to be proactive in a world full of news and

information channels.

The following suggestions relate to timely communications.

• Further development of NTO websites with multilingual versions.

• More cooperation and exchanges of information between the NTOs and foreign counterparts.

• Close coordination between NTOs, related government agencies, foreign ministries,hotel

associations and international agencies in the preparation of accurate travel advisories.

• Establishment of links with websites of travel agencies important to the region and GDS

websites.

8. Visa Simplification/Political Influences

Political influences that impact tourism include foreign relations, internal security regulations, tax

and levy, immigration and visa rules. Exchange rates also significantly influence inbound tourism

and play a more influential role than fuel surcharges in travel decision-making.

The following trends in this area have been identified.

• Tensions between China and Japan, Japan and South Korea might disrupt North-east Asia’s stability and tourism flows.

• Visa simplification will continue as it boosts travel, especially among countries that have

close political, economic and geographic ties.

• More countries will relax their visa requirements for Mainland China visitors, but the

problem, of overstaying might create a backlash.

Details of the research methodology are available in the full report. To get a copy contact

hhwang@unwto.org

BARBADOS One Financial Place Collymore Rock St. Michael,Barbados Tel: 246-427-5242 Fax: 246:429-3065 ctobar@caribsurf.com

NEW YORK 80 Broad Street, 32nd Floor New York, NY 10004,USA Tel: 212-635-9530 Fax: 212-635-9511 ctony@caribtourism.com

LONDON 22 The Quadrant Richmond Surrey, TW9 1BP, England Tel: +44-208-948-0057 Fax +44-208-948-0067 ctolondon@caribtourism.com

CANADA 130 Bloor Street West Suite 301 Toronto, Ontario, Canada M5S 1N5 Tel: 416-935-1896 Fax: 416-935-0939 ctotoronto@caribtourism.com

- 7 -

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Tourist (stop-over) Arrivals and Cruise Passenger Visits in 2006

Tourist Arrivals Cruise Passenger Visits

Destination (Stop-Over) Period Tourists % Change

2006/05 Period Cruise Passengers

% Change 2006/05

Anguilla Jan-Jun 41,144 17.2 - - -

Antigua & Barbuda * Jan-Jul 159,921 2.4 Jan-Jun 278,691 -1.9

Aruba Jan-May 289,794 -10.6 Jan-Jun 321,099 6.0

Bahamas * Jan-Jun 860,120 4.0 Jan-Jun 1,637,461 -3.9

Barbados Jan-Jul 340,263 2.9 Jan-Jul 306,737 -16.0

Belize Jan-Jun 141,226 4.5 Jan-Jul 406,509 -22.4

Bermuda Jan-Jul 178,558 9.1 Jan-Jul 185,906 61.6

Bonaire Jan-Jun 32,266 -5.9 - - -

British Virgin Islands P Jan-Jun 205,148 2.2 Jan-Jun 276,25 6.1

Cancun (Mexico) ** Jan-Jul 947,686 -41.2 - - -

Cayman Islands Jan-Jul 174,742 75.2 Jan-Jul 1,175,612 5.4

Cuba P Jan-May 1,128,261 4.3 - - -

Curacao Jan-Jun 116,528 4.9 Jan-Jun 174,527 15.3

Dominican Republic * Jan-Jul 2,526,653 9.7 Jan-Mar 157,017 -0.1

Grenada Jan-Jul 70,270 21.7 Jan-Jul 140,287 -24.4

Guyana Jan-Aug 75,226 -4.8 - - -

Jamaica Jan-Jul 1,072,176 17.4 Jan-Jul 772,709 13.4

Martinique P Jan-Jul 296,818 -1.3 Jan-May 56,922 -3.8

Montserrat Jan-Jul 4,423 -18.9 - - -

Puerto Rico ** Jan-May 711,370 7.4 Jan-Mar 445,128 -8.2

Saba Jan-May 5,273 -3.4 - - -

St. Eustatius Jan-Jun 5,236 -1.2 - - -

St. Lucia Jan-Jul 193,419 -3.5 Jan-Jul 231,903 -9.0

St. Maarten * Jan-Jul 299,010 0.3 Jan-Jul 869,866 -4.0

St. Vincent & the G’dines Jan-May 41,632 6.3 Jan-May 63,120 86.6

Trinidad & Tobago Jan-Mar 121,406 -7.8 - - -

US Virgin Islands Jan-Jul 459,896 0.2 Jan-Jul 1,140,953 -5.5

* Non-Resident Air Arrivals **Non-Resident Hotel registrations only - No Cruise Figures are Reported P Preliminary figures n.a. Figures not available N.B: Figures are subject to revision by reporting countries SOURCE - Data supplied by member countries and available as at September 25, 2006

1

CARIBBEAN TOURISM ORGANIZATION (www.onecaribbean.org)

ECONOMIC OVERVIEW AND TRAVEL OUTLOOK

Expect the unexpected! That aphorism could well be the catchphrase best describing the bewildering

sequence of events that have typified late summer and early Fall this year.

Not even the most bullish of economic forecasters or energy market analysts back in mid-July could have

predicted that prices for crude oil futures in world markets would drop below $60 a barrel by the end of

October or that stocks in major financial markets led by Wall Street would be reaching record highs. Even

as U.S. economic growth cooled somewhat, the Dow Jones blue chip indicator roared past the 12,000

level for the first time pulling other markets on both sides of the Atlantic along with it.

Although these events are well known to the majority of our readers, the impact of energy price

fluctuations, up or down, on the regional economy is so profound that we have attempted a brief recap

of the background to help suggest what might follow. Oil prices skyrocketed in early summer to the point

where several analyst/traders were predicting that the price of crude would reach $100 a barrel by year

end. However, it topped out near $80 and in late August, prices began to fall sharply as tropical storm

Ernesto veered away from the oil platforms in the Gulf of Mexico.

A milder-than-forecast hurricane season coupled with a drop in gas usage by U.S. consumers has kept

prices falling by a cumulative 25% before bottoming out. OPEC ministers, meeting in Vienna this

October, agreed to cut production by one million barrels a day in an attempt to stabilize prices but the

market initially shrugged it off. Later in the month, OPEC pledged a further cut of 200,000 barrels daily

but after early gains in London and New York trading, prices quickly fell back to their lowest levels of the

year on skepticism that the oil cartel could actually enforce the cuts. However, Saudi Arabia, the world’s

biggest oil exporter, and the United Arab Emirates appeared determined to hold the price line at or near

current levels around $60 a barrel in New York and an average of $55 in other markets while forecasts of

a cold winter to come in the Midwest and Northeast U.S. is tightening crude prices.

Will energy prices soar again in the near-term? While there are bound to be more blips along the way,

no one expects a rapid rise and we should see some stability for a while barring fresh incidents of

terrorism in oil-producing nations or in the supply chain. International demand seems to be slowing and

the International Energy Agency IEA has once again lowered its forecast for growth in world oil demand

in 2007 by another 9% and that is very good news.

TOURISM EXECUTIVE BRIEFOctober - 2006

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Meanwhile, there are more conflicting signals from the U.S. economy. Economic growth in the third

quarter slowed to an anemic 1.6%, the worst performance in three years. This was mainly due to a huge

downturn in the housing market coupled with slower auto sales.

However, consumers still seem fairly upbeat and willing to spend on other items including travel. The

University of Michigan revised its index of consumer confidence upward to 93.6 for October, a significant

improvement from the 85.4 reported for September. The Fed held interest rates at current levels as

expected for the third straight month and, while cautioning about the continued threat of inflation,

forecast modest growth in the economy.

The Impact on Travel

The largest direct beneficiaries of the moderating oil prices are clearly companies in the transportation

business, in which for this purpose we include the cruise industry. Airlines are breathing a collective sigh

of relief as prices came down in the nick of time for some carriers and demand for air travel was

unexpectedly strong in the third quarter. Fuel accounts for up to 30% of operating costs for an airline so

the impact of price changes on the bottom line is tremendous. American Airlines, the world’s biggest in

revenue passengers flown, calculates that each drop of $1 dollar a barrel in the price of jet fuel saves

about $80 million a year in operating costs. The reverse is also unfortunately true. Ironically, the airlines

gaining the most from the current price drop are those without major fuel hedge contracts in place.

Hedges which are designed to protect airlines from big price increases in a rising market can backfire if

prices drop below the contract level.

United Airlines, for example, had locked in a good portion of its estimated fuel requirements for the third

quarter at nearly $70 a barrel but declining prices in August and September meant a loss on some of

their contracts. Still most U.S. and European carriers reporting thus far show improved results. American

managed a second straight quarterly profit for the first time since the 9/11 disaster. CEO, Gerard Arpey

says he is cautiously optimistic as fourth quarter bookings at AA are ahead of last year and unit revenue

continues to grow at a healthy pace. In fact, six of the 10 largest U.S. carriers are expected to show a

third quarter profit including Continental, United and US Airways, all with improved earnings. Of the

major airlines serving the Caribbean from the U.S., only discount carriers JetBlue and AirTran have

reported losses after limited profitability for the same period last year; something of a role reversal with

the legacy carriers.

Advance Bookings for the Caribbean

The low-impact hurricane season and an early advent of cold weather are already picking up the pace of

bookings for Thanksgiving and the winter season beyond. Business had been sluggish according to our

last survey of the U.S. marketplace with one major exception Travel Impressions and perhaps was

suffering comparatively from strong demand for Europe as the dollar strengthened and security eased at

the airports for long haul passengers.

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After a very strong second quarter for the cruise industry, there is some evidence that demand may have

slipped a little although a CLIA spokesman says its members report that Caribbean bookings are running

at about the same level as last year while keeping up with increased capacity. Four new large ships were

deployed in the Caribbean this year including the Crown Princess and Freedom of the Seas. The

concentration of cruiselines in the U.S. marketplace is an extraordinary business model. According to the

North American Maritime Administration (MARAD, a government agency), just three holding companies

Carnival, RCCL and the Star Group now account for 96% of all North American cruise passenger nights.

Passports and their Impact on Discretionary Travel

There is little doubt that the passport issue, which favors the cruiselines after January 8, 2007, will create

new bookings for them although so far they do not appear to be overtly promoting their advantage, while

pricing for Caribbean cruises this winter remains very competitive.

It is still too early to gauge the full impact of the new passport requirements on stay-over visitor numbers

from the US to the Caribbean but a recent incident may be revealing. It was brought to our attention

that the websites of 2 major US airlines serving the Turks and Caicos were showing an effective date of

November 1st 2006 for the implementation of the new passport requirement for visitors returning to the

US from that destination. While CTO took prompt action to get this situation corrected, at least one large

agency Libgo reported some booking diversion away from the Turks and Caicos.

UK Market

The upcoming World Travel Market in London will provide the venue for a full briefing on the

performance and outlook for the UK outbound long-haul market. We note here that Britain’s economy

grew by just 0.7% in the third quarter which nevertheless did exceed expectations. Year-to-date GDP

growth is now at 2.8%. The annual inflation rate declined to 2.4% in September due to falling energy

prices but some analysts believe that interest rates may be going up soon. The unemployment rate

increased slightly during the summer but so did average pay and bonuses which rose by 4.2% for the

year to August. Certainly Britons are still traveling in large numbers overseas and borrowing heavily to

do it. A recent survey on moneysupermarket.com, a website which measures expenditures, showed that

57% of Britons use credit cards to pay for their holidays and that 41% of those card holders do not pay

their balances monthly incurring big credit card debt as a result.

On the eve of WTM, we could not resist sharing the following extract from a recent column in the

International Herald Tribune by a fellow traveler on Britons and their urge to roam:

“Britain may be among the fastest growing European economies, the land with low

unemployment, the brisk Main Street stores, and fast growing house prices. But it is also

the land, par excellence, of the budget airline, the cut-price escape, the second home in

another land, the yearning of the malcontent to be somewhere else. Up to 14 million

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Britons, more than a quarter of the population spend at least part of the year overseas

and, at any one time, about 4.5 million British passport holders are out of the country.”

US AIRLINES EXPAND OUTWARDS

A sea-change has been occurring in the US airline industry and to a lesser extent among some of

Europe’s major carriers as well. In a world of higher and higher costs, cutting those costs can only go so

far and many airlines are pinning their hopes for survival and growth by shifting emphasis on to profitable

international long-haul routes where premium class cabins are still enjoying high load factors with top-

paying passengers. This is nowhere more evident than on North Atlantic routes where about 54 million

passengers are expected to set a new record this year in spite of fallout in August and September over

the foiled UK bomb plot and increased security. This growth has occurred because of a concurrent

increase in new flights to new destinations across the Atlantic. Delta alone has added 12 new

transAtlantic routes since March with three more slated for this fall. Continental has also been

accelerating its latest expansion into Europe using a combination of wide body jets and more flexible fuel-

efficient 757s to reassert its international expansion objectives as the impact of post 9/11 fears on

overseas air travel recedes. Both Continental and Delta share a strategy of seeking out second-tier cities

in Europe and serving them directly from different US gateways around the country. This has created

more competition for the big European flag carriers which still rely more on hub and spoke operations

while several of them like Air France/KLM and Iberia are taking a leaf from the same book by increasing

direct services to Latin America without stopovers in the US or the Caribbean. American continues its

dominance of Latin America routes while focusing most of its transAtlantic route resources into the UK

market which has bounced back strongly after the mid-summer terror threat. European advance

bookings for American for the late fall and winter are running well ahead of last year. United is betting

heavily on its Pacific routes and it is shifting emphasis and resources there away from Europe. This

ability of the legacy carriers to shift resources into long-haul international operations has at least

temporarily turned the tables on their low cost carrier competition which is generally unable to take

similar measures. The principal impact of these developments thus far on the Caribbean appears to be in

higher fares for economy class passengers but if these levels cannot be maintained through reduced

demand, as some agencies fear, we can expect some attrition in lift to the region as those carriers with

equipment flexibility may shift resources again. A strong Air Jamaica and a revitalized and re-branded

BWIA as Caribbean Airways in January have never been more important.

CRUISE DEVELOPMENTS

Five new ships with complete or seasonal itineraries in Caribbean waters are set for launch between

December 2006 and the end of next year. NCL starts off with the first of two new entries in its jewel

class. Norwegian Pearl homeports in Miami this winter offering Western and Southern Caribbean cruises

and October will see the launch of sister ship Norwegian Gem sailing out of New York. Each carries 2,376

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passengers in NCL’s increasing popular free-style cruising mode Carnival will launch its latest in the

111,000 ton Destiny Class with its Carnival Freedom. After cruising in Europe during the summer,

Freedom will start Caribbean cruises out of Miami in November. This spring will also see the launch of

two more behemoths destined to sail the Caribbean from Princess Cruises and RCCL. The 3,110

passenger Emerald Princess sets sail in April for Europe before repositioning in October to Ft. Lauderdale

and the Caribbean. In May, RCCL follows with the launch of the still larger Liberty of the Seas carrying

up to 3,634 passengers and home-porting in Miami.

The big growth in cruising continues to be in short-term itineraries of up to five days, which have

increased by 724% since 1980 (CLIA). Another related trend in the cruise business which was inevitable

if the cruise industry was to expand into different market segments in tandem with the increased tonnage

has been a move to more flexibility and the idea of choice in varying length itineraries, dining options and

shipboard amenities. Perhaps the optimum in flexibility is provided by easyCruise which will again be

offering Caribbean itineraries for a second season with a minimum requirement of only 2 nights aboard

and the ability to stay ashore until late at night for dining and entertainment options off the ship. Prices

are for the basic cabin, everything else is à la carte. EasyCruise is a very minor player in the Caribbean

but its apparent success seems to confirm the trend.

HOSPITALITY INDUSTRY – DESTINATION CLUBS

The concept of Destination Clubs which operate in a largely unregulated way in many countries around

the world, including the Caribbean and Mexico, has been growing for several years as an alternative to

second-home ownership or time shares.

Members are required to make substantial deposits that are supposed to be refundable as well as to pay

annual dues which cover operating expenses of the clubs. The largest of the Destination Clubs, Exclusive

Resorts, has the co-founder of AOL, Steve Case, as its majority stake holder and about 2,400 current

members who pay between $225,000 and $425,000 in deposits plus $10,500 in annual dues. The Club

owns nearly 400 properties including some in construction. At the lower end of the market, the High

Country Club has membership deposits starting at $50,000.

Now this fledgling industry has been shaken up by the high profile bankruptcy this summer of one of its

big players Tanner and Haley Resorts. Destination Clubs, unlike time share properties, are not regulated

by specific local laws and Tanner and Haley members are unsecured creditors in their attempt to get all

or partial restitution of their deposits which range between $85,000 and $1.3 million.

There is a Destination Club Association headed by Exclusive Resorts’ general counsel Adam Wegner

which has introduced legislation to regulate the industry in Hawaii. Wegner says that its member clubs

are responsible and safe for consumers and that his association will push for more legislation elsewhere

to make its voluntary best practices mandatory under law.

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Concerns over the Tanner and Haley bankruptcy don’t seem to have slowed the growth of new

memberships for now with several clubs reporting strong results this summer. However, caveat emptor

should the watchword for buyers while local governments in countries where Destination Clubs are

permitted should monitor their performance.

POSTSCRIPT

As part of our ongoing commentary on ecotourism issues, we note with interest a report from the British

think-tank The Center for Future Studies (CSF) which proposes a lottery system to limit the numbers of

tourists who visit some of the world’s most popular ecotourism destinations. The report used the Great

Barrier Reef in Australia as a major example of the conflict between environmental concerns and

commercial interests. CFS director Shaw says “In pursuit of economic goals, other problems are being

overlooked.” The study has angered the tourist industry in Australia as well as the government and

scientists who pride themselves on careful monitoring of the Reef, which attracts about 1.8 million

visitors a year and generates over A$5 billion in income. However, it seems to us that there is the germ

of a good idea in the lottery concept for eco-sensitive attractions in the Caribbean region. Do any of our

readers have thoughts on this subject?

BARBADOS One Financial Place Collymore Rock St. Michael, Barbados Tel: 246-427-5242 Fax: 246:429-3065 ctobar@caribsurf.com

NEW YORK 80 Broad Street, 32nd Floor New York, NY 10004 USA Tel: 212-635-9530 Fax: 212-635-9511 ctony@caribtourism.com

LONDON 22 The Quadrant Richmond Surrey, TW9 1BP, England Tel: +44-208-948-0057 Fax +44-208-948-0067 ctolondon@caribtourism.com

CANADA 2 Bloor Street West, Suite 2601 Toronto, Ontario Canada M4W 3E2 Tel: 416-935-0767/1-866-997-0096 Fax: 416-935-0939 ctotoronto@caribtourism.com

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Tourist (stop-over) Arrivals and Cruise Passenger Visits in 2006 Tourist Arrivals Cruise Passenger Visits

Destination (Stop-Over) Period

Tourists

% Change 2006/05 Period

Cruise Passengers

% Change 2006/05

Anguilla Jan-Aug 53,818 17.9 - - -

Antigua & Barbuda * Jan-Aug 180,678 3.7 Jan-Jun 278,691 -1.9

Aruba Jan-Jul 407,786 3.7 Jan-Aug 362,554 5.5

Bahamas * Jan-Aug 1,124,631 1.1 Jan-Aug 2,108,791 -4.8

Barbados Jan-Sep 420,962 4.1 Jan-Sep 351,574 -11.5

Belize Jan-Aug 181,717 4.7 Jan-Aug 440,384 -23.1

Bermuda Jan-Sep 236,682 10.1 Jan-Sep 287,027 47.3

Bonaire Jan-Jun 32,266 -5.9 - - -

British Virgin Islands P Jan-Jun 205,148 2.2 Jan-Jun 276,525 6.1

Cancun (Mexico) ** Jan-Aug 1,092,216 -40.0 - - -

Cayman Islands Jan-Sep 202,961 69.0 Jan-Sep 1,430,762 5.5

Cuba P Jan-May 1,128,261 4.3 - - -

Curacao Jan-Aug 154,932 4.2 Jan-Aug 193,964 14.0

Dominican Republic * Jan-Sep 3,072,429 9.0 Jan-Jul 219,651 2.0

Grenada Jan-Aug 84,938 24.3 Jan-Aug 140,287 -24.4

Guyana Jan-Sep 81,295 -6.2 - - -

Jamaica Jan-Sep 1,294,204 17.2 Jan-Sep 950,329 15.0

Martinique P Jan-Jul 296,815 -1.3 Jan-May 56,922 -3.8

Montserrat Jan-Jul 4,423 -18.9 - - -

Puerto Rico ** Jan-Jul 954,331 4.5 Jan-Aug 909,701 1.8

Saba Jan-Sep 8,830 -0.2 - - -

St. Eustatius Jan-Jun 5,236 -1.2 - - -

St. Lucia Jan-Sep 236,304 -2.8 Jan-Sep 249,558 -8.3

St. Maarten * Jan-Jul 299,010 0.3 Jan-Jul 869,866 -4.0

St. Vincent & the G’dines Jan-Jun 50,102 7.5 Jan-Jun 63,332 85.9

Trinidad & Tobago Jan-Jun 232,743 -1.0 Jan-Apr 62,897 63.9

US Virgin Islands Jan-Sep 528,303 -1.0 Jan-Sep 1,371,649 -0.8

* Non-Resident Air Arrivals **Non-Resident Hotel registrations only - No Cruise Figures are Reported P Preliminary figures n.a. Figures not available N.B: Figures are subject to revision by reporting countries SOURCE - Data supplied by member countries and available as at November 6, 2006

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CARIBBEAN TOURISM ORGANIZATION (www.onecaribbean.org)

INTRODUCTION There’s a new buzzword these days in travel marketing circles around the world. It’s known as BRIC, an acronym for Brazil, Russia, India and China. These four huge countries are rapidly becoming power houses in international travel, both inbound and outbound, and their growing importance to destinations that are economically dependent on tourism cannot be overestimated. They are centers for international and domestic investment in the hospitality, transportation and attractions industries and each one has become a lodestone for travelers seeking new cultural experiences. Above all, each has a fast-rising core of affluent and middle classes with huge amounts of discretionary income to spend and the freedom to travel, in some societies for the first time.

According to the 2006 Asia-Pacific Wealth Report put out by Merrill Lynch, India’s affluent class has grown by almost 20% in the last year, disposable income among China’s middle class has more than doubled and Russia and Brazil are not far behind. Martin Raymond, founder of London-based Future Technology which forecasts trends was recently quoted in the New York Times to the effect that as BRIC national economies boom and middle classes swell, everyone gets wanderlust and the world shrinks a little bit more. Raymond says, “There’s a cultural exchange in place” with exchange being the key word for Caribbean tourism interests.

In a neat turn of phrase, the same Times article says “BRIC nations are building like ancient pharaohs” to accommodate the rising demand for these destinations and air service from major markets in all directions is keeping pace. India, for example, has four international airports with service from Europe and US gateways and direct flights to the other BRIC nations are increasing rapidly. CTO has previously provided market profiles on three of the four BRIC countries and we follow here with a thumbnail sketch of Russia after our monthly economic update and forecasts for the winter season ahead. US ECONOMIC OVERVIEW AND TRAVEL OUTLOOK

Amid concerns about a slowing economy and the possibility of rising interest rates, the US economy now appears to be in position for a soft landing in 2007 following an upward revision in the third-quarter GDP numbers released in late November. The new figure of 2.2% considerably exceeded the expectations of both government and Wall Street analysts although a continuing plunge in new home starts and bulging corporate inventories suggest that there is little momentum in play for the final quarter.

Consumer confidence has also dropped this month in both the University of Michigan’s poll and the Conference Board Index which declined to 102.9 from 105.1 in October. Both the Present Situation Index and the Expectations Index also declined and consumers’ short-term outlook was less optimistic in November. Retail sales are a concern, particularly at the low end of the market, in spite of heavy mall activity at the start of the holiday shopping peak. The world’s largest retailer, Wal-Mart, had disappointing results for November while high-end stores like Tiffany’s and Bloomingdales are performing very well. A survey of shoppers in malls and stores across the country found that only one in five consumers intend to spend more for the holidays than in 2005.

TOURISM EXECUTIVE BRIEFNovember - 2006

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In spite of economic concerns, including another spike in energy costs at the end of November, and the continuing passport issue, the outlook for the Caribbean winter season appears to be very positive throughout. Our current reading of the likely impact of the new passport re-entry requirements on potential visitors to the region suggests that the negative effect is likely to be short-term as a last minute rush to get passports may cause delays at the issuing offices. However, the extension of the deadline to January 23 should help.

Some diversion of business to Puerto Rico, the USVI, Florida and Hawaii can be expected although business to the USVI is currently reported flat by major wholesalers and agency chains while Hawaii’s tourism arrivals have fallen on concerns about recent earthquakes in an already soft visitor market. The largest percentage drop in mainland visitors to Hawaii has been from the Eastern US states, the Caribbean’s major market.

There is also no sign as yet that the passport requirement, which does not apply to returning cruise passengers, is having any diversionary impact on stayover numbers in the Caribbean to the cruise segment of the market as cruise business seems to be on a plateau or even down slightly as we reported in last month’s Brief and steep discounting is still prevalent. Airline Capacity Overall capacity should be around the same as last winter season’s with some individual routes showing increases including new direct service from the US to places that have had to rely on inter-island connections for several years. A small percentage decrease in available seat miles(ASMs) from number one carrier to the region in lift, American, has been largely offset by new flights from other carriers including Delta, Air Jamaica, Continental and Jet Blue. Agency Outlook Our bellwether wholesalers and reporting retail agency chains are all enjoying much stronger advance bookings for most, but not all, Caribbean destinations after sluggish growth in recent months. Double digit increases are reported starting in December and running through March for many places. High end properties are doing better than the average and this appears to be very much in line with the general retail sales results reported at the start of the holiday shopping peak. THE DOLLAR SHRINKS AND ENERGY PRICES CLIMB AGAIN

That old philosopher Yogi Berra once said in his inimitable style “It’s tough to make predictions, especially about the future” and so it continues to be! After trading in a narrow range for most of the year against the euro and pound sterling the dollar began a precipitous slide prior to the Thanksgiving holiday. A combination of euro strength in a more buoyant European economy, disappointing US economic data and diversification in some central bank reserves has sent the dollar to its lowest point against the euro since March 2004 and to a 14-year low against the pound. Currency traders say even sharper losses may be on the near horizon if more corporate and institutional investors start hedging large dollar positions by buying other currencies. China is adding to the nervousness by signaling it may pull out a significant part of its huge dollar holdings to invest elsewhere including a build-up of its crude oil reserves.

In the short term, at least, the current weakness in the dollar should actually help business to the Caribbean where pricing in most countries is tied to the US currency. The advantage for UK and euro-

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zone based tourists is obvious and Europeans are already flocking back to the US for shopping bargains with the biggest single group by far being the British. Although demand for UK/Europe travel from the US remains strong for the moment, one can speculate that the loss of purchasing power in the already expensive environment of Europe today should soon put a damper on it. Of course, if the continued drop in the dollar contributes to a broader drop in the US economy as some bears predict, then all bets are off.

Crude Oil Rises Crude oil features started to climb again in tandem with the decline in the dollar and briefly topped $63 a barrel as the Saudi Oil Minister Ali Naimi threatened that a further cut in OPEC’s production levels may be forthcoming at the December 14 meeting in Nigeria, depending on the level of US stockpiles which diminished on heavier-than-expected consumer demand over the Thanksgiving holiday and the first cold weather to hit the Midwest and Northeast US.

Prices have since fallen back to around $62 a barrel and most energy analysts expect levels to remain in that range in the New Year with the high forecast around $65 for the average daily price a barrel. The stock market appears comfortable with this price range and remains in positive territory. Meanwhile, the US consumer continues to benefit from retail gasoline prices that are still well below summer levels adding significantly to the available dollars for other discretionary purchases including vacation spending. EUROPEAN ECONOMY While this issue of the Brief has focused largely on the US economy and forecasts, there is good news out of Europe which bodes well for outbound tourism, particularly from Germany. The euro-zone economy continues its solid growth pattern on the strength of domestic demand according to new data on third-quarter GDP. Growth of investment is encouraging and the European Commission’s sentiment surveys shows confidence rising among euro-zone business and consumers.

The Commission’s index of economic sentiment is now at 110.3, the highest number since the last economic boom while Germany’s unemployment figure fell below 4 million in November, the lowest level in nearly four years. There was a rise in euro-zone inflation to 1.8% in November causing the European Central Bank to raise its benchmark interest rate by a quarter-point. The ECB however gave little indication of when it might raise it again. CANADA In Canada, consumer confidence is increasing as the Canadian economy is performing well and the Canadian dollar is strong. According to a survey by the Tourism Industry association of Canada 46% of those polled said they planned to take a vacation between November and April 2007, up from 32% last year. Since most of those probable travelers will be “snowbirds” heading south for the holidays, it’s more good news for Caribbean prospects for a good season. In another positive indicator, Air Canada reported its best-ever November with a 4.1% increase in RPMs over 2005. November is normally one of the slowest months for Canadian travelers. AIRLINE NEWS The big news of the month in the airline industry, without a doubt, was the $8 billion bid by US Airways for its much larger rival Delta. Such a merger would create an airline which would top American in size, making it the largest in passenger miles flown, and could challenge American for dominance in a number

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of markets, including the Caribbean where Delta has recently been expanding its route network. Although Delta would be the surviving name if the deal were to go through, Delta’s management is resisting the hostile takeover saying it expects to emerge from bankruptcy during the first half of 2007 as an independent carrier. However, US Airways has considerable support from a number of its bondholders who are urging Delta’s management to accept the deal. The first meeting between the two carriers and Delta’s unsecured creditors committee was to take place in New York around the time this report was written but its findings were not expected to be publicly released. The US Airways proposal is contingent upon a merger approval while Delta is still in bankruptcy in order to achieve some $1.6 billion in annual savings over two years. The merger would require Department of Justice approval if the two carriers can agree and almost certainly some of their parallel route systems like the North East Shuttle would have to be sold off to avoid anti-trust issues.

The implications of such a merger are huge for the Caribbean. Stay tuned on this one which we will follow and report on to resolution. RUSSIA: MARKET PROFILE Background Russia has a population estimated at 144 million, currently the world’s 8th most populous nation. However, Russia’s population is rapidly declining, particularly in the younger age groups which contain the best prospects for overseas travel (25-34 and 35-44, well educated and from higher income households.) The language is Russian but English has taken over as the preferred foreign language to study especially among the increasing numbers of the nouveau riche who see it as a status symbol.

The Russian economy is largely based on a plentiful supply of natural energy sources and the increase in prices for oil and gas, worldwide, has brought unprecedented wealth to the country this decade. Russia’s last reported GDP figures showed a growth of 7.4% for the second quarter and a balance of trade plus 142.7%. Her foreign reserves stood at $265 billion through October, second only to China.

While the average per capita income in Russia this year will be $12,143, according to the IMF, wealth is unevenly distributed, typical of emerging market nations, with the largely rural areas of the country at the low end of the scale and a rapidly increasing number of millionaires and even billionaires at the other with Moscow and environs weighing heavily as the center of the rich. Russia’s new wealthy elite are extremely status-conscious and tend to seek luxury goods and trendy vacation destinations as well as new cultural experiences. Russian visitors typically spend freely on accommodations, restaurants and services but they demand high standards and good values. While France, Italy and the UK are at the top of the list of most desirable destinations, other countries are demonstrating that proper attention to this market can pay off handsomely. These include the Dominican Republic, most recently, which has stepped up its marketing in Russia and the CIS (Confederation of Independent States), as well as Cuba with its long-standing political ties to the former Soviet Union.

Russia’s currency is the ruble which has been fairly stable trading around 26.1 to the dollar in November. Aviation Access Two countries in the Caribbean now enjoy direct flights from Russia. Cuba has Aeroflot with scheduled service between Moscow and Havana with interline links to other destinations in the region, and the Dominican Republic with regularly scheduled charter service from Moscow to Punta Cana during the

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winter months on the privately-held Russian airline Transaero, which has been operating successfully for five years with a fleet of mainly Boeing and Douglas jet aircraft and could well be considering expanded routes to the Caribbean and beyond to South America. Excellent service is available via both US and European gateways on Delta, British Airways, Lufthansa, Air France/KLM and others. Market Size Up-to-date figures on the number of visits abroad from Russia are hard to come by but the number is probably between 7 and 8 million. The last-year where numbers are available is 2004 which recorded over 6 million and a considerable expansion in both the overall market size and the number of destinations visited has occurred since then. Southern European resorts have proved very popular with Russian tourists in the past with Turkey and Spain leading the way in both visitors and promotion.

According to the Dominican Republic, Russian tourists have increased by 14.38% in the past eight months of this year for a total of 10,516 arrivals. Adding in arrivals from the Ukraine, which also use the Transaero charter, the total is over 18,000 passengers.

While we are lagging in arrival statistics from Russia to Cuba, it too has reported a big increase in Russian tourists. The government is said to be purchasing a number of Russian long-haul jet aircraft to carry them on Cubana and is interested in other bilateral developments related to tourism. The Caribbean Product Fit Key aspects in choosing a Caribbean destination for Russian travelers include great scenic beauty, cultural attractions, beautiful beaches, sporting opportunities and good shopping.

Participation in almost any sporting event is a strong attraction for Russians who are likely to try their hand at almost anything the island or resort has to offer including watersports, fishing, horseback riding and spa facilities (fitness.) Packages offering these opportunities should be negotiated with Russian tour operators in advance.

Many Russians are also into various forms of gaming. Casinos will be a plus.

Best prospects for the Caribbean are likely to be couples with spouse or partner although we believe that the Caribbean also has strong appeal for the family market with teenage children and younger (6-12.) Some Russian Cultural Dynamics

• Russian visitors can be demanding in regard to accommodations (large rooms) and service standards. Expectations will be high.

• Although many educated Russians speak English and some Spanish and French, Russian speaking personnel would be a plus and promotional material in Russian a must. A number of Spanish and Turkish resorts are providing menus and on-site information pieces in Russian.

• Russians tend to be big eaters, particularly at lunch times. While meat is preferred by many, the availability of plenty of fresh fruit will be expected in the Caribbean. Many Russians are also big consumers of beer, wine and spirits.

• Shopping, as we have noted, is important and there is a good opportunity to flaunt many of the Caribbean’s gifted fashion designers.

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Reaching Russian Consumers and Agents The vast majority of Russian travelers will use a travel agent to make their bookings although the internet has become the primary source of information when planning a trip. Booking engines are virtually unknown in Russia due to banking regulations which do not permit credit cards for online transactions. Internet comparison shopping is largely used to select a destination by the style of vacation desired. Comparison price shopping will then be done through more traditional media and agency visits. Having said that, 24% of Russian households have Internet access with a much higher percentage of prospects for an overseas vacation being online. According to an eMarketer study released in October 2006, 41% of online shoppers in Russia are in Moscow, our primary market area. Only St. Petersburg at 10% has any other significant level of online shoppers. Over one third of best prospects are accessing international websites for information purposes. Travel Agents Agencies doing international business are licensed by the State. Although agency locations are found throughout Russia, only Moscow has a significant number holding licenses, estimated in 2005 at 4217.

While travel agency brands or chains are the exception rather than the rule, there is extensive pooling of functions among many otherwise independent agencies. This means a level of cooperation between competing travel agents unknown in the West and is a hangover from the old Intourist state-owned structure. There is a travel agency association similar to ASTA known as RATA (Russian Association of Travel Agents) and most successful agencies are RATA members. Tour Operators There are about 20 tour operators of interest for international markets, most of them in Moscow with a small group in St. Petersburg. They distribute through a retail agency network while accepting direct bookings from consumers.

Many of these tour operators offer single destinations like Turkey or a narrow regional product and there is considerable pooling of product for multi-destination packages. The smaller operators deal mainly with FIT business only. There are a number of tour operators already offering Caribbean destinations and CTO can help interested members in identifying those likely to be a good product match. Trade Shows There are two major trade fairs in Russia, one in the Spring and one in the Fall, both are held in Moscow. The Moscow International Travel and Tourism Fair MITT is considered to be the leading annual travel industry event in Russia. It is held every year in March and most recently attracted over 2,500 companies from 100 countries and nearly 100,000 visitors. Close to MITT in importance is the Leisure Fair held at the Crocus Expo in Moscow during September. There is an added attraction for some exhibitors at the Leisure Fair due to the parallel event at the same site MIBEX RUSSIA dealing with the meetings and incentive industry. Thanks are due to the British Tourist Authority for some of the material used in this report.

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BARBADOS One Financial Place Collymore Rock St. Michael, Barbados Tel: 246-427-5242 Fax: 246:429-3065 ctobar@caribsurf.com

NEW YORK 80 Broad Street, 32nd Floor New York, NY 10004 USA Tel: 212-635-9530 Fax: 212-635-9511 ctony@caribtourism.com

LONDON 22 The Quadrant Richmond Surrey, TW9 1BP, England Tel: +44-208-948-0057 Fax +44-208-948-0067 ctolondon@caribtourism.com

CANADA 2 Bloor Street West, Suite 2601 Toronto, Ontario Canada M4W 3E2 Tel: 416-935-0767/1-866-997-0096 Fax: 416-935-0939 ctotoronto@caribtourism.com

TOURISM EXECUTIVE BRIEF

December - 2006

CARIBBEAN TOURISM ORGANIZATION (www.onecaribbean.org)

INTRODUCTION As we stand on the threshold of a new year which is filled with early promise, we take this opportunity to wish all our readers and their families and associates good health and much success in the months ahead. Throughout 2007, we will continue our regular overview on the state of business for Caribbean tourism, the competition, and the many factors that influence them through a combination of first-hand interviews with key movers and shakers in the travel and tourism industries and a compilation and analysis of current information and statistics from relevant media sources, including the Internet, around the world. We start with a look back at some of the principal trends and issues that occupied us last year and where they may take us in 2007. 1. THE US ECONOMY-SOFT LANDING OR RECESSION?

The consensus of leading economists taken from a survey in December supports the direction for a soft landing with a pickup in momentum towards the end of the year: Early signs suggest that their optimism, while cautious, is well founded.

2006 ended with major stock markets closing at their highest levels in three years after a strong second half rally sparked by a big decline in energy prices which relieved some of the fears of inflation affecting investors in the Summer. Forecasters now predict that GDP rates adjusted for inflation will grow at a modest annualized rate of 2.3% in the first half, expanding to 2.8%-3.0% by December. The big drop in housing prices and new starts and slumping sales by U.S. auto manufacturers have been countered by excellent results in the service industry sector which currently accounts for about 80% of the entire U.S. economy. The service industry which includes discretionary consumer services like travel, entertainment and restaurants added 1.1 million new jobs in the six months ending November ’06 and information technology companies and related consulting firms are growing and hiring.

We must note that the optimism among forecasters is well short of unanimous. In a year-end poll of 60 economists taken by Wall Street Journal, 16 were predicting a recession within the next 12 months. This gloomy minority based their forecasts on a belief that inflation and interest rates are likely to rise again and that oil prices will be back to levels last seen in the summer of 2006 or even higher. Other concerns expressed, which everyone shares, include the proliferation of nuclear weapon development among unstable nations like North Korea and Iran and the ever-present threat of more severe terrorist attacks.

However, consumer confidence appears to be more encouraging while remaining volatile. Consumers’ assessment of current conditions has improved considerably since November and their outlook for the six months ahead is also more positive according to the mid-December survey by the Conference Board. Confidence levels are substantially higher among upper income families and this was clearly reflected in the strong sales reported so far this season by high-end stores, up-market hotels and cruise lines and expensive tour packagers. The publisher of Travel Market Indicators, Jim Cammissa, has focused on the widening gap between America’s different income groups and the implications for discretionary travel purchases. He notes that a number of recent government and private sector research sources reveal the following:

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The top 20% of U.S. households now control more than half of aggregate earned income; the highest percentage ever recorded.

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The top 10% of U.S. households control 37% of earned income. Their average net worth is $3.1 million, a full 70% of the total net worth of all U.S. households.

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The average income of corporate CEOs is 431 times that of the average salaried employee, up from 107 times in 1970.

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•

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Real hourly wages of production and non-supervisory workers have declined in four of the last five years. They are 11% below the level of 20 years ago.

Among middle-income households, one third say they cannot afford adequate family healthcare costs and 20% say that they have problems meeting the costs of other necessities like food, clothing and fuel.

We believe, with Jim, that this is not a problem that will go away in the foreseeable future and that major expansion in travel expenditures is likely to be skewed more and more towards the upper income levels of society to the benefit of luxury products and services.

The performance of the dollar against the euro, sterling, Swiss franc and others will further narrow the market for lower/middle-income travelers to international destinations tied to those currencies. The declining purchasing power of the dollar, which had double-digit percentage decreases against both the euro and pound in 2006 created sticker shock for vacationing Americans in most of Europe and other countries outside the eurozone like Australia, Brazil and Scandinavia where the dollar also lost an average7% of its value.

Where is the dollar headed next? For the time being it is moving in a narrow band around the $1.30 level to the euro but that could change quickly if the European Central Bank follows the Bank of England and raises interest rates while the Federal Reserve holds steady. There is no big government push to protect the dollar and in fact there is some desire in the U.S. to see it weaken further to reduce the huge balance of trade deficit. We can only repeat our earlier mantra-anything likely to happen to the dollar this year will have little or no serious impact on Caribbean tourism prospects. 2. THE PRICE OF OIL ─ WHERE IS IT HEADED? We have covered the roller-coaster ride of crude oil prices through the July high point of $73.03 a barrel to its current and surprising fall-back to around $50. It is instructive to note that in spite of its turbulent course throughout 2006, crude oil prices on the New York Mercantile Exchange finished up on December 31st at almost exactly the same level recorded when the year began. Nevertheless, the high price of oil and instability of supply and demand will remain a Sword of Damocles over all our heads for an indefinite future. Current price levels reflect reduced demand in the U.S. and much of Western Europe due to the unusually warm weather experienced thus far this winter bringing down the price of home heating oil and natural gas.

2006 was the warmest year on record suggesting that this phenomenon may not be short-lived. Investment in alternative energy sources, long lagging in the U.S. behind Europe, has recently blossomed there, including a big increase in the production and usage of ethanol. Ford and General Motors are following the lead of Japanese auto makers into the design and production of more-efficient hybrid vehicles and dependency on foreign oil in the U.S. should slowly diminish. We noted with interest recently that a prominent American energy expert recommended that the U.S. look to the Caribbean for a major, long-term source of sugar cane since cane is a much more efficient crop than corn in the

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conversion process to ethanol and it is not a viable crop in most of the U.S. due to climate conditions. Could there be a rebirth here in the sugar industry to provide a much-needed secondary revenue stream to tourism for many small island nations?

In the near term, however, all eyes are on OPEC and the implementation of production cuts that the organization has already agreed. The first cut of 1.2 million barrels a day officially took place on November 1st last year and the second is due in February. Some OPEC Members like Venezuela are pressing for additional cuts now to prevent crude prices from sliding further and leading producer Saudi Arabia has let it be known that it will do all possible to protect a floor price of $55 a barrel which has already been breached. According to expert energy watchers, compliance has been less than effective with estimates of cuts to date ranging between 700,000 and 800,000 barrels a day, well below the level of the November agreement. The next two months should tell the tale while the airlines and the rest of us are holding our breaths.

3. THE PASSPORT ISSUE ─ HOW BIG AN IMPACT? We tend to live in the present, including facing up to the issues of the moment, which is natural, so it’s easy to forget just how long the debate over the requirement for passports for foreign nationals and returning residents has been raging in Washington. In 2004, Congress passed the Intelligence Reform and Terrorism Prevention Act which required passports to enter or reenter the U.S. for all travelers by air, land or sea by January 1, 2008. Subsequently, in one of several actions, the Department of State and Homeland Security proposed a three-phase plan with the first phase requiring passengers entering the country by air or sea from Bermuda, the Caribbean and South and Central America to have valid passports effective December 31, 2005. Intense lobbying from destinations and travel industry groups, plus problems in implementation of a proposal for a low-cost I.D. alternative to passports for U.S. residents called PASS, caused a further delay. After more confusion and conflicting signals from the administration, yet another deadline of January 23rd was finally implemented for all passengers entering the U.S. by air. Cruise line passengers have been temporarily excluded for an uncertain period giving rise to predictable complaints from land-based tourism interests.

A number of destinations and private sector entities, including many in the Caribbean, have reacted with special promotions and educational programs to lesson the impact. The Nassau/Paradise Island Promotion Board, for example, is advertising free passports for qualified stayovers while many hotels from Jamaica to St Kitts are making similar offers online and in the media. Mexico has an impressive program with a number of initiatives being heavily promoted including consumer contests designed to encourage U.S. citizens to get passports, distributing video news releases, micromedia flashes and free passport holders. Further checks have confirmed our report last month from the marketplace that the new passport requirement is having little measurable impact on travel to the Caribbean or Mexico (by air) although there is considerable public confusion over dates and details. What is more certain is that the number of Americans who have valid passports is growing exponentially from the current estimate of 70 million (27 %.)

The number of new passports issued in 2006 jumped to an estimated 12 million, up by 2 million from the year before and this year’s numbers will almost certainly exceed that. In contrast to the U.S. brouhaha over cross border identification, Europe continues to expand the so-called Schengen Zone which eliminates passport checks at common borders. The Schengen Zone already includes 13 European Union countries plus Norway, Iceland and Switzerland joining in 2008. The latest expansion includes all 10 new members of the E.U.; only the U.K. and Ireland have elected to remain outside the Zone.

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4. THE AIRLINE INDUSTRY ─ RETURN TO PROFITABILITY/MERGER FRENZY Is this the year when major consolidation in the U.S. airline industry will actually happen? Basic economics would suggest the answer is yes. Compared with results for airlines based in other parts of the world, U.S. carriers have been poor financial performers. Beset by soaring energy costs, bankruptcies and low-cost carrier competition, they posted a collective loss of $6.7 billion in 2005, while Asia-Pacific airlines posted a $2.1 billion profit and the Europeans had a $1.6 billion profit. Results for 2006 will be somewhat more positive with jet fuel going down in the final quarter and cost cutting measures starting to take hold but consolidation seems inevitable as four of the six largest U.S. carriers with international routes are in active merger talks or hostile takeover play. Consolidation would help airlines shed excess capacity and sell more seats at higher fares, essential elements for a return to profitability. Looking at some of the airlines in play, we start with the hostile bid last November by US Airways Group to take over Delta before it emerges from bankruptcy. The bid was rejected by Delta’s management as expected but US Airways is persistent and raised its offer to $10.2 billion in cash and stock. Delta is still not impressed but at the end of the day, Delta’s largest creditors will be the determining factor.

Meanwhile, United Airlines, which emerged from bankruptcy last February, and Continental are engaged in early merger talks. United’s Chairman, Glenn Tilton, is a strong proponent of consolidation and while such a merger will face many challenges from regulators, unions and competitors, the shaky condition of the U.S. industry at large compared to its international competition (almost a carbon copy of the U.S. auto industry today) may make the Department of Justice Antitrust Division more receptive to mergers than in the past. The Commerce Department is holding a hearing in late January to examine concerns in Congress about airline consolidation although it was unclear at the time of writing who would be called to testify.

The wild card in all this is Northwest Airlines, another candidate for consolidation, which remains under bankruptcy court protection for now. It has a strong interest in Continental’s future through an earlier partnership agreement and is itself a logical candidate for a merger with Continental. Further complicating matters, it has now been revealed that Delta and Northwest have quietly been discussing consolidation, which would appear to be a more popular outcome than a takeover by US Airways with Delta’s management. All five of these carriers in play currently serve the Caribbean at various levels of importance and any consolidation will have an impact on routes and fares.

Is the recent return to profitability sustainable? In a related topic, most U.S. airlines are about to report their first annual profit in six years. The Air Transport Association ATA, the leading group representing major U.S. carriers, estimates that their member airlines will report 2006 earnings between $2 billion and $3 billion while they forecast a net profit of some $4 billion for this year. If that forecast is realized, it would make 2007 the best year since the record earnings set in 1999. However, the recovery is fragile and a number of positive factors need to stay in place. First, the price of jet fuel needs to remain stable or retreat and second, the economy needs to maintain a modest growth of at least 2.6% in GDP for the year. Right now those numbers seem attainable and the expansion by the U.S. airlines into more profitable international routes with higher yields is helping to offset higher fuel costs.

None of this is likely to block the path to consolidation. The big airlines have done a good job in cost-cutting and restructuring labor agreements, much of it at the expense of the traveling public in terms of reduced capacity, trimming of routes and higher fares. We must expect more of the same in 2007 as the leading U.S. airlines recorded an unprecedented collective load factor of 80.19% for the first 11 months

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of 2006. Hopefully, a resurgent Air Jamaica and the newborn Caribbean Airlines, together with more low-cost carrier interest in the region, can fill some of the capacity gap that exists between current demand and seat availability in some of our markets.

5. THE CRUISE INDUSTRY OUTLOOK FOR THE CARIBBEAN THIS YEAR By any standard, 2006 was another banner year for the cruise industry. Looking at the macro picture through available figures thus far, CLIA member cruise lines carried 5.76 million passengers worldwide over the first six months of last year, an 8% increase over the same period of 2005. North America accounted for 4.94 million, up 4.5%. Cabin occupancy rates were also up. In terms of market capacity, the Caribbean maintained its wide lead with 48.4% of all bed nights. Europe was second with 21.1% although that percentage actually declined as the cruise lines actively sought new international destinations as well as new source markets outside North America. For example, RCCL acquired Spanish cruise marketing company Pullmantur and Carnival entered into an agreement with TUI to promote in Germany. Both companies also tiptoed into the China outbound tourism marketplace.

Demand for Caribbean cruises was slightly soft in the second half of 2006 and the trend has apparently continued into the new year although heavy discounting has helped to keep occupancies up. Some of that softness in the American market may be attributed to the extensive media coverage given to a big increase in reported incidents of norovirus flu.

The Center of Disease Control in Atlanta says that 22 serious outbreaks of norovirus occurred on cruise ships last year including episodes on megaships Freedom of the Seas and Carnival Liberty.

Capacity in the Caribbean will also be up again with five new ships entering the region’s waters including still more megaships from Carnival, Princess and RCCL.

What else may we expect from the cruise industry in 2007? The big growth in the wider luxury travel market mentioned earlier in this report has not gone unnoticed by the cruise industry in spite of their recent focus on building larger and larger ships for the masses. The cruise lines have the deep pockets necessary to both build new ships in the luxury category and market them aggressively together with redesigns like NCL’s featuring garden villas, deluxe suites and exclusive areas for top-paying guests reminiscent of the class distinction in the golden age of Transatlantic liners We also expect that the cruise lines will continue their quest for new ports in more exotic locales and we may also see additional shifts in home-porting away from Florida, including to the West Coast if Caribbean business gets any softer. Overall, we see little to rock the boat, to use a bad pun, for the Caribbean’s continued dominance but nothing is forever and those countries which rely heavily on cruise business for their economic wellbeing should take nothing for granted, particularly for the longer term.

6. GLOBAL HOTEL INDUSTRY TRENDS-THEIR RELEVANCE It’s been an excellent year for the hotel industry, too, with strong profits accruing from high occupancy levels and even higher REVPAR (revenue per occupied room) contributing to a flood of available capital for investments into new hotels and upgrades of existing properties around the world. Hilton and Intercontinental alone have some 1,500 new properties in the development or construction stages in the U.S. and overseas. Marriott International and its franchisees will pour $ one billion over the next three years into upgrades for its Renaissance brand while InterContinental recently announced major renovations to its properties in Latin America and the Caribbean.

Other channels for development include a number of new boutique and life-style hotel projects from some of the biggest names in the international hotel business. Prominent among them is a new five-star brand from Starwood Capital Group, the huge real estate investment firm, simply called Hotel 1. The first

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Hotel 1 will open next year in Seattle and Starwood’s goal according to Travel Weekly is to become “the greenest of the green” of hotel brands. All new construction must conform to international green building design standards, land use, water and energy usage, lighting; indeed every aspect of development and operation will be undertaken to minimize environmental impact. Additionally, Starwood has pledged that one percent of operating revenue will go to environmental causes in the community. Travel Weekly comments that if Starwood is successful in transforming the eco-friendly label from a marketing platform to a fundamental principle of design and operation, it may set a new goal for the industry at large while setting a new standard of luxury – a worthy objective.

Electronic bookings continue to grow in importance for the hotel industry. According to travelClick’s consolidated third quarter results, eTrak data showed the Internet contributing forty percent, or more than eight and a half million, to the total central reservation office bookings at major hotel brands, a huge 25% increase compared to the same period in 2005. The data also maintains the importance of e commerce to hotels through the travel agent – focused GDS systems. This accounted for 34.7% or over 7.4 million bookings. Internet bookings surpassed GDS bookings in a continuing trend for the second straight quarter and reservations by phone continue to fall. Hotel brand websites gained more ground over third-party merchant and opaque websites and were the source of 81.2% of CRO internet reservations. The importance to regional hoteliers, particularly for independents and smaller properties of having a search-engine-friendly technical site structure with appealing design, rich content and easy conversion capability to direct the bookings has never been more evident.

7. AGENTS/WHOLESALERS STILL IMPORTANT The continuing importance of agents is demonstrated in part by the GDS booking figures quoted above but it is only part of the story as agents learn to live with totally different techniques in dealing with their clients and suppliers as net fares and reduced commissions from non-airline categories continue to take their toll. Although direct bookings for simple vacation itineraries will continue to rise, there will be a concurrent need for expert advice on more complicated journeys and exotic locales as well as for well-versed destination specialists. One thing is certain, the downward pressure on commissions is here to stay and some other segment of the travel industry in addition to air is bound to go eventually to zero, although probably not this year.

Last year GDS pricing was a big news maker in the travel industry and affected agents as the major airlines and GDS operators battled it out. In a development unthinkable only a few years ago, Sabre and American, its creator, stopped talking to each other in a fight over content charges. Some airlines threatened agents with a booking charge of $3.50 per transaction if they used a “non-preferred” GDS. Big competitors Amadeus and Sabre entered into a mutual assistance pact to provide content to each other if a major airline withdrew from either system. Eventually the old contracts dating from 2003 were re-negotiated and the airlines got price reductions from the GDS operators who quickly cut their losses by trimming their incentive payments to agents by an average of 80 cents per segment. Where will it all end? Not soon, at any rate.

The picture is further clouded by two large acquisitions scheduled for later this year. Sabre has agreed to be taken over by two private equity firms in a $5 billion deal some time in March and Worldspan will be acquired by Travelport, parent of Galileo and Orbitz, a few months later. There are also several smaller firms emerging as potential players in the technology of distribution business which will bear watching. One of them is ITA Software currently involved in developing a new hosting platform for Air Canada.

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It remains to be seen what changes these deals will make and how quickly to the current travel distribution channels but if anything is certain, changes there will be.

Tour Operators Based on our own survey of major tour operators for the Caribbean and an overview from the U.S. Tour Operators Association President, Bob Whitley, 2007 should be an excellent year for most firms. Whitley says that the industry is more stable now than it has been in several years although consolidation could also turn out to be a factor among tour operators in 2007. In fact, it appears more and more that this may be the year of the merger for the entire travel industry.

8. Other Developments Ahead in Technology/Communications This topic cannot be left entirely on the sidelines but it is too complex and profound to be summarized in a brief overview of trends such as this. We will devote a separate issue to developments in technology shortly and provide here some updated statistics and information of broad interests:

In the U.S. the population reached a new milestone of 300 million in October last year according to the U.S. Census Bureau. Shortly after their report was issued, EMarketer research updated its estimates on the size and demographic makeup of internet penetration in the U.S. According to EMarketer, 63% of the population, including children as young as 3, or 180 million people, uses the internet at least once a month. White users make up 74.8% of the total while Hispanics have increased by 9.3% to 16.7 million users. The number of Hispanics is projected to more than double by 2010 and this market segment should be of great interest to the Caribbean, not only to Hispanic destinations but to other islands, as this audience is predominantly bilingual and better educated. 77% of online Hispanics have broadband access and over two-thirds consider the Internet to be the best source for brand information.

Women internet users slightly outnumber men at 92.6 million. Children are also increasingly using the internet especially teenagers and should be considered great influencers for travel purchases as well as future buyers themselves.

In Europe, the UK is the most mature internet market and UK online buyers outspend their European and American counterparts for online products and services including travel. 35% of UK households have broadband access. In actual numbers, Germany has the largest base of internet users at 37 million with 9 million households having broadband access. Spain and France have the fastest growing internet populations. EMarketer estimates that the total spent in Western Europe for retail sales online last year, topped $97 billion compared to $186 billion in the U.S.

The European online market is growing by 70% per annum, considerably faster than the U.S. growth rate which is currently forecast to range between 15% and 25% over the next four years.

Broadband is both the now and the immediate future for tourism marketers with more than a quarter of a billion people world-wide connected to broadband networks of ever-increasing capacity. Broadband access has grown at a faster rate and has more usage than almost any other communications technology. Travel marketers are already turning to new online promotions using broadband technology. For example, Tourism Massachusetts has launched the first fifteen of planned fifty two-minute videos promoting tourism venues and activities around the state putting TV quality images in front of millions of potential new visitors at a very reasonable cost. To Massachusetts surprise the top source of responses thus far has come from mainland China. Other cities and states including Aspen, Hawaii, Miami and New York are offering similar virtual tours using broadband technology.

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9. WILL 2007 BE THE YEAR FOR NEW MARKET PENETRATION? We covered a number of new market opportunities during 2006 culminating with a look at Russia in the November issue. We hope they have been useful in the preparation of future marketing plans for some of our members. This year the World Cricket Cup provides an exceptional vehicle to reach new markets, particularly among Commonwealth countries around the globe. The anticipated influx of visitors from those countries, most of whom will be getting their first exposure to the Caribbean region, will present a wonderful opportunity to promote return visits and to spread word-of-mouth recommendations to friends and relatives after they get back home.

The growth of internet penetration everywhere makes promotion to new markets economically feasible for almost everyone. Current estimates, for example, for the online travel market in India one of the participants in the World Cricket Cup, are that travel-related online sales will top $750 million in 2006 and exceed $2 billion by the end of next year. What a target!

Some governments in the region with private sector cooperation have been doing a good job in reaching out to new markets, particularly among the BRIC nations we mentioned last month. However, we believe that this could be a watershed year with special events that will not come again for a long time and that some collective effort on a sub-regional basis could pay off handsomely.

10. THE ENVIRONMENT ─ A YEAR OF GROWING CONCERNS Global warming has finally caught the attention of governments and the public in a big way, even in Washington where the President has conceded that polar bears could be an endangered species! Consumers everywhere are being bombarded with images of melting icecaps, rising oceans and massive climate changes. People are waking up to the fact that these changes are not only of concern to generations ahead but are likely to impact them adversely in their own lifetimes. Environmentalists are clashing with governments over the development of fossil fuel exploration in hitherto protected areas and efforts are being made in the European Union to strengthen emission standards for the airline industry. The growing concern is stimulating more and stricter regulations in many parts of the world and the international tourism industry is reacting at many levels from self-imposed new standards for environmental protection to lobbying governments.

Protection of the environment has long been a critical issue in the Caribbean where beach erosion caused by overbuilding too close to the water, destruction of the reefs by cruise ship pollution and other sources are but two of the major concerns.

Yes, there has been a wakeup call and we must all redouble our efforts to ensure that it is not too little, too late.

HAPPY NEW YEAR.

BARBADOS One Financial Place Collymore Rock St. Michael, Barbados Tel: 246-427-5242 Fax: 246:429-3065 ctobar@caribsurf.com

NEW YORK 80 Broad Street, 32nd Floor New York, NY 10004 USA Tel: 212-635-9530 Fax: 212-635-9511 ctony@caribtourism.com

LONDON 22 The Quadrant Richmond Surrey, TW9 1BP, England Tel: +44-208-948-0057 Fax +44-208-948-0067 ctolondon@caribtourism.com

CANADA 2 Bloor Street West, Suite 2601 Toronto, Ontario Canada M4W 3E2 Tel: 416-935-0767/1-866-997-0096 Fax: 416-935-0939 ctotoronto@caribtourism.com

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Tourist (stop-over) Arrivals and Cruise Passenger Visits in 2006

Tourist Arrivals Cruise Passenger Visits

Destination (Stop-Over) Period

Tourists

% Change 2006/05 Period

Cruise Passengers

% Change 2006/05

Anguilla Jan-Sep 56,014 18.7 - - -

Antigua & Barbuda * Jan-Oct 210,315 3.0 Jan-Sep 304,569 -2.3

Aruba Jan-Oct 573,628 -7.7 Jan-Nov 507,458 7.8

Bahamas * Jan-Oct 1,276,377 0.5 Jan-Oct 2,509,263 -6.4

Barbados Jan-Sep 420,962 4.1 Jan-Sep 351,574 -11.5

Belize Jan-Aug 181,717 4.7 Jan-Aug 440,384 -23.1

Bermuda Jan-Nov 283,258 10.0 Jan-Nov 335,573 36.5

Bonaire Jan-Jun 32,266 -5.9 Jan-Dec 61,844 54.3

British Virgin Islands P Jan-Nov 320,334 4.2 Jan-Nov 381,630 0.1

Cancun (Mexico) ** Jan-Nov 1,425,833 -31.4 - - -

Cayman Islands Jan-Nov 239,871 64.1 Jan-Nov 1,719,889 7.6

Cuba P Jan-May 1,128,261 4.3 - - -

Curacao Jan-Nov 212,417 5.0 Jan-Nov 273,179 14.8

Dominican Republic * Jan-Nov 3,577,186 8.2 Jan-Sep 231,990 3.0

Grenada Jan-Oct 98,188 21.9 Jan-Oct 147,813 -22.5

Guyana Jan-Oct 90,084 -4.9 - - -

Haiti Jan-Jul 59,800 2.5 Jan-Sep 318,874 18.4

Jamaica Jan-Nov 1,510,471 15.0 Jan-Nov 1,159,448 15.4

Martinique P Jan-Oct 427,028 2.7 Jan-Oct 61,181 0.0

Montserrat Jan-Nov 6,202 -17.5 - - -

Puerto Rico ** Jan-Sep 1,153,536 2.4 Jan-Sep 972,901 2.8

Saba Jan-Sep 8,830 -0.2 - - -

St. Eustatius Jan-Jun 5,236 -1.2 - - -

St. Lucia Jan-Nov 275,449 -5.0 Jan-Nov 301,248 -10.5

St. Maarten * Jan-Sep 355,206 0.7 Jan-Sep 1,027,047 -1.2

St. Vincent & the G’dines Jan-Sep 73,742 3.6 Jan-Sep 63,872 85.8

Suriname Jan-Mar 34,887 -6.3 - - -

Trinidad & Tobago Jan-Jun 232,743 -1.0 Jan-Apr 62,897 63.9

US Virgin Islands Jan-Oct 563,507 -1.4 Jan-Nov 1,681,793 -1.7

* Non-Resident Air Arrivals **Non-Resident Hotel registrations only - No C uise Figures are Reportedr i

P Preliminary figures n.a. F gures not available N.B: Figures are subject to revision by reporting countries SOURCE - Data supplied by member countries and available as at January 19, 2007

© Copyright: The Carib ean Tourism Orgganization ©© CCooppyyrriigghhtt:: TThhee CCaarriibbbbbeeaann TToouurriissmm OOrrgaanniizzaattiioonn Reproduction of these tables ss prohibited without sourcc ing the Caribbeaan Tourism Organization RReepprroodduuccttiioonn ooff tthheessee ttaabblleess iiis pprroohhiibbiitteedd wwiitthhoouutt ssoouurrciinngg tthhee CCaarriibbbbeeann TToouurriissmm OOrrggaanniizzaattiioonn

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