Skift Take

Puerto Rico hasn't had the chance to grow up as a destination over the years, and its tourism industry finally thinks it has a shot to do that. But to become known for more than its beaches and golf, it'll have to overcome an intense political establishment that's been defined by its financial woes and disorganization.

Six months after Hurricane Maria devastated Puerto Rico, new efforts are finally underway to lure tourists back to the island.

But it looks like another storm has already formed, this time of manmade proportions involving a possible funding threat and an ongoing identity crisis at the Puerto Rico Tourism Company, the organization that promotes tourism to the island.

To help lower the island’s crushing debt, the Puerto Rico’s government is considering a bill that would move the Puerto Rico Tourism Company under the island’s Department of Economic Development. But the proposal has the island’s tourism industry concerned. As a self-funded organization, the tourism company fears its money would be diverted to other cash-strapped agencies.

The move to consolidate the tourism company is meant to cut costs and merge various government agencies as the island confronts a massive debt crisis and hurricane recovery efforts.

It’s not certain how the consolidation bill would impact the Puerto Rico Destination Marketing Organization, a new privatized consumer-facing tourism board that will begin operations on July 1. It would get its funding through the tourism company.

The destination marketing group will spearhead all consumer marketing while the broader tourism company will focus on economic development for Puerto Rico, a shift some tourism officials on the island say is necessary to break from the status quo that’s failed the destination for years.

The catch-22 is causing uncertainty for private sector investors and developers interested in Puerto Rico, representing the disarray the island’s tourism industry was already facing before Hurricane Maria wreaked havoc.

Puerto Rico Tourism Company declined to comment for this story, but Brad Dean, the new CEO of the new Destination Marketing Organization, said his mission is to launch Puerto Rico’s first global brand to help the island compete on the world stage.

Dean, who spent the last 19 years as CEO of the Myrtle Beach, South Carolina Chamber of Commerce, both a chamber and tourism board for the destination, said he turned down the Puerto Rico job twice before accepting it. His wife is Puerto Rican.

While Dean ran the Myrtle Beach chamber, it faced allegations of corruption, fraud and illegal political contributions in Myrtle Beach. But the South Carolina Department of Justice and the Internal Revenue Service closed the investigation in 2016 and found that there was no wrongdoing or illegal activity.

Dean prefers to look to his new role. The vision for a destination organizartion began a couple of years ago, said Dean. “Puerto Rico has never had consistent tourism branding because every time the government changed so would the tourism branding,” he said. “Many people recognize Puerto Rico as a great beach and golf destination, but there are also history, culture, music, and cuisine that will excite everyone.”

“This is not simply a rebranding or rebuilding but truly the launch of a new destination,” said Dean. “It will be a long climb. I don’t think Puerto Rico will reach the pinnacle of its success without an exceptional DMO.”

Puerto Rico’s Global Branding Goal

Puerto Rico Tourism Company has separate meetings and conventions, Meet Puerto Rico, and leisure travel, See Puerto Rico, arms that represented the destination’s fragmented approach to tourism marketing, said Dean.

There’s been a growing recognition that those traditional silos haven’t been effective, said Dean. The Zika virus and Hurricane Maria postponed some of the plans for the new tourism board, but Dean said he’s currently full-steam ahead.

Dean didn’t offer details about the new branding but said he’s not waiting until the July 1 ribbon-cutting of the new group to start working on it.

“We won’t outspend the competition, but we will outsmart the competition,” said Dean. “This mission is about positioning Puerto Rico to be something it’s never been before – an aspirational destination. I can’t control headlines about the power grid but I can control the narrative and message around it.”

Dean said the tourism board also plans to work with Brand USA, the United States’ national destination marking organization. “It will be a new level of participation in working with Brand USA for Puerto Rico,” he said.

Of course, launching a global brand is no small investment. Between the island’s debt crisis, the proposed bill, hurricane recovery and President Donald Trump’s demonstrated unwillingness to make the situation better, it’s unclear what the tourism board’s budget will look like.

“I’m going to beg and borrow from trade associations and DMOs to help us recover more quickly and share tips and ideas,” said Dean. “We’ll be exploring the moral imperative with the media that covered the devastation to figure out how to cover the recovery.”

Dean said he views his current hiring opportunities like an NBA draft. “Unfortunately for us we need several LeBron Jameses, one isn’t going to do it for us,” he said. “We’re also going to reach out to celebrities like Lin-Manuel Miranda, who’s already doing some advocacy work for Puerto Rico, to have them help us tell the recovery story.”

Dean said he’s hiring a chief marketing officer, chief sales officer, and other executive team positions. “Our short-term (recruiting) challenge is the headlines,” said Dean.

Figuring out who isn’t coming to Puerto Rico is more important than who is visiting, said Dean. “Historically, Puerto Rico has aligned itself with other Caribbean destinations,” he said. “But considering other brands in the same hemisphere the consumer has many more choices today than ever before.”

Tourism Funding Cut Fears

The tourism company is funded through hotel bed taxes, the island’s gaming industry, and licensing fees and fines. Puerto Rico’s government typically collects $70 to $75 million in bed taxes per year.

The tourism company will still need to allocate funds to the tourism board’s budget. But it looks like the tourism board, which will be responsible for all consumer-facing marketing efforts and boosting tourism to the island, will still receive far less than what the tourism company will get.

Some $30 million of the bed taxes goes to debt service for the Puerto Rico Convention Center in San Juan, $4.5 million goes to Meet Puerto Rico, and $35 million goes to the tourism company. Of the $35 million for the tourism company, the new tourism board will get $25 million.

Revenue from slot machines is much higher. The tourism company gets about $53 million of the $126 million generated by slot machines on the island. That means the tourism company will get $63 million – more than 2.5 times more than what the tourism board will get.

The legislation that established the new tourism board states that the organization could get an additional $5 million from the bed tax if the private sector invests $5 million. In the best-case scenario, that would still leave the tourism company with $28 million more in funding than the tourism board.

Puerto Rico’s general fund doesn’t allocate any government funding to the tourism company because of the room taxes. “Once the tourism company is brought under the department, we’re concerned that they’ll eliminate the board of directors which had participation from the private sector,” said Miguel Vega, president of the board of directors for the Puerto Rico Hotel & Tourism Association, which represents various hotels and attractions across the island.

“They want to dismantle the tourism company and bring it underneath the economic development department with other agencies that don’t produce any income and aren’t self-funded,” said Vega. “But the tourism company is the only agency that is self-funded. All funds, including the tourism company’s, will be merged into the general fund and get diluted. They’ll be able to dispose of them as they wish.”

Vega said the tourism company could be run more efficiently but said the proposed bill is making the private sector uneasy. “If you start changing the rules of the game for investors, that creates uncertainty,” he said. “The DMO itself was a move in the right direction and it still needs some tweaking.”

The plan to move the tourism company under the economic development department is part of Puerto Rico Governor Ricardo Rosselló’s long-shot austerity plan to consolidate 135 agencies to 35 to reduce the island’s debt. Some analysts are skeptical of Rosselló’s plan and feel that it’s overly optimistic and that proposed spending cuts will worsen the island’s recovery.

Dean’s on-boarding last week in Puerto Rico was a little rough because of questions about his salary and benefits, he said. “Within the first five minutes of the press conference I had journalists asking me ‘how much is your salary?'” said Dean.

“They just assumed I was making more than I was making in Myrtle Beach, but I’m actually taking a big cut,” said Dean. I told the journalists that I would get them a copy of my contract because in Myrtle Beach we just put all this information online. All our meetings were open tot he public. For a DMO to be effective, we must be credible and build and maintain the public trust.”

Executive Team Turnover

The high turnover rate of the tourism company’s executive team is one of the most glaring examples that the island’s tourism industry has been caught in a vicious cycle for decades.

The tourism company was founded in the early 1970s and changing governments have prevented the organization from holding onto executive directors long-term. The tourism company has had six executive directors since 2010, including the current acting executive director Carla Campos.

Vega said Puerto Rico has barely hit the tip of the iceberg with marketing to the Mainland United States, its main visitor market. “Every time Puerto Rico changes governments, they change also change executive directors,” he said. “That’s why there’s never been a consistent branding and the marketing also changes. We’re not like New York which has had “I Love NY” for years. It’s a never-ending story election after election.”

The tourism board will finally create a long-term tourism strategy for the destination, said Vega. “When the government changes in the next election this entity will survive and promote Puerto Rico with the same efforts,” he said.

2018 Outlook

The tourism company’s data show international arrivals were down nearly 11 percent in 2017, and overall Puerto Rico resident, mainland United States and international visitation were down 15.3 percent year-over-year to 2.2 million visitors.

Many hotels across the island have been filled with recovery workers during the past six months. A handful of Puerto Rico hotels said their occupancies increased 10 percent and revenue-per-available-room has grown 15 to 20 percent year-over-year for the first quarter 2018.

It’s not clear how leisure travelers factor into the mix. “From December on, we have started to experience a steady increase of leisure travelers, as well as group inquiries,” said Peter Hopgood, vice president of sales and marketing at International Hospitality Enterprises, a San Juan, Puerto Rico-based hotel development company that manages seven hotels across the island.

Hopgood said leisure and group travel both look strong for the next two months. “We are very optimistic for the third and fourth quarter as we transition into a new DMO model and renovated hotel inventory will start to open up in Puerto Rico,” he said.

Tourism is a $7.2 billion industry in Puerto Rico, said Vega. “We produce more than 12 percent of jobs in the island’s private sector,” he said. “Puerto Rico’s average occupancy in past eight years has been 70 percent. But social media today is not forgiving. You need to have a strong product and that’s why we’re seeing a lot of renovations with re-openings.”

The proposed bill, which could have a major impact on the launch of the destination’s global brand and reorganization, is slated to be discussed in Puerto Rico’s Senate in the coming weeks. “We’ve talked with everyone we can and we’re trying to communicate to the government that if Puerto Rico is to recover, tourism will need to lead that effort,” said Vega.


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Tags: destination marketing, puerto rico, tourism

Photo credit: The Puerto Rico Tourism Company, pictured here, is facing a major reshuffling and possible funding cut if new legislation is passed. Carbo Kuo / Google Maps

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