Minister: Fairmont Southampton Hotel Act

May 6, 2022 | 1 Comment

The Fairmont Southampton Hotel Act 2022 “supports the redevelopment of more than an iconic hotel property, it is also a critical part of the overall economic recovery for Bermuda, Minister of Tourism Vance Campbell said in the House of Assembly today [May 6]..

The Minister said, “Although it proposes to extend relief for 15 years, it is in the form of those Tourism Investment Orders that have already been made under the 2017 Act.

“The Bill supports the redevelopment of more than an iconic hotel property, it is also a critical part of the overall economic recovery for Bermuda.

“The grant of concessions in support of hotel development has been the response of governments to a financial marketplace that has become wary of investment in hospitality construction and development.

“They are incentives, Mr. Speaker, designed to provide a counterweight to the aggressive stance taken by lenders who are concerned at the risky or slow rate of return on their investment. Modern luxury or resort hotel development, certainly in the 21st century, must be supported by such incentives.

“If this hotel does not reopen, there will be no business to tax. If there is no business to tax, there is no tax revenue to collect. Mr. Speaker, the Government will have more tax revenue [both direct and indirect] with this hotel open and with this Bill passing than it will have without this hotel and without this Bill.

“Without this hotel, there are no jobs during the redevelopment phase or after the reopening. There is no group business coming to the Island. There is no enhancement of our tourism product, no improvement in our hotel bed capacity, no improvement in our attractiveness as a destination. Without this hotel we fall further behind our competitors. Without this hotel there is less work for our taxi operators, less business for our restaurants and retail establishments.

“If this hotel does not reopen, we will have another massive structure, sitting empty and dilapidated, situated in a prominent position on prime real estate, dominating the skyline for a mile in every direction and spoiling some of Bermuda’s best vistas.

“Surely Mr. Speaker, there are no Members of this Honourable House, that believe this is a better alternative to passing this Bill, approving the tax relief and getting this hotel redeveloped and back open.

The Minister’s full statement follows below:

Mr. Speaker, the Bill before this Honourable House is not complex on its face. Although it proposes to extend relief for 15 years, it is in the form of those Tourism Investment Orders that have already been made under the 2017 Act.

Mr. Speaker, even though this is a very simple Bill, it causes us to review our tourism past, capitalize on our tourism present and lay the foundation of hope for our tourism future.

Mr. Speaker, as I indicated to Honourable Members and the public on the tabling of this Bill last month, it is of national importance. Let me repeat that, Mr. Speaker, it is of national importance! The Bill supports the redevelopment of more than an iconic hotel property, it is also a critical part of the overall economic recovery for Bermuda.

Mr. Speaker, to ensure that Honourable Members and the public have a fulsome understanding of the genesis of the Bill and its importance to Bermuda, I will take the time to canvass several areas related to tourism in an effort to elevate the discussion from some of the very basic criticisms levelled since the Bill was tabled.

Mr. Speaker, as part of the recent debate in this Honourable House on the Estimates of Revenue and Expenditure for the Fiscal Year 2022/23, Honourable Members also took under consideration the 2021 National Economic Report.

That Report set out the state of Bermuda’s economy in 2021 and in referring to tourism said this:

“Although there was significant upward movement from 2020, the 2021 Year-end statistics highlighted stark declines in key metrics compared to 2019 baseline figures.

  • Total leisure air visitors down 71.2 per cent compared to 2019
  • Total air capacity was down 59.1 per cent compared to 2019
  • Total spend by air leisure visitors was down to $122.57 million [69.3 per cent less than 2019]
  • Cruise Arrivals were 97.6 per cent down from 2019

It can therefore be seen, Mr. Speaker, that the impact of the pandemic on Bermuda’s tourism has been harsh. But 2019 was not a year without challenges and arguably signaled to Bermuda that key elements of our strategy were not working.

The BTA’s 2019 Visitor Arrivals Report alluded to this Mr. Speaker and said, in part:

“Decreased air capacity contributed to a more challenging landscape for Bermuda’s tourism industry in 2019, resulting in a measured year-over year performance compared to 2018’s record-breaking results. Yet, despite reductions in some areas, the island’s overall visitor tally proved the highest ever, air arrivals were the second-best in more than a decade, and increasing investment in our tourism sector moved the island strategically forward. Certain metrics fell due to recent barriers forecast by the BTA early last year: Bermuda experienced a 5% decline in air capacity in 2019, for example, pushing down leisure air arrivals by 6%. Two airlines cut back flights from New York’s crucial John F Kennedy hub, and flight schedules from Boston were also reduced. As a direct result of lower volume, spending performance by travellers was relatively flat, with $419.3 million in leisure dollars [from both air and cruise visitors] injected into our economy, up 2% from 2018.”

Mr. Speaker, that 5% decline in air capacity from critical markets was the beginning of a challenge that we are yet to address. It tells us that prior to the pandemic we had not successfully tackled seasonality and that we were not doing the job required to fill planes.

What was happening, however was an increasing reliance on cruise arrivals. That same 2019 BTA report confirms that “Cruise passengers made up the largest share of arrivals…”

Mr. Speaker, I do not propose to rehearse the well-known statistics on the contributions of air vs cruise arrivals to the economy. That is a well-worn argument with which we are all familiar. But Mr. Speaker, the welcome presence of cruise ships and their passengers must be complimented by an air arriving leisure component that justifies the marketing spend and strategy of the BTA and likewise stimulates the economy.

Mr. Speaker, this Bill has a direct causal connection to the restoration and development of additional air service for Bermuda. The groundwork has been laid for the public understanding of the importance of the redevelopment of the Fairmont Southampton Hotel and of the necessity of this Bill. I would refer Honourable Members to a Ministerial Statement made in this Honourable House in February by the Honourable Premier in which he said:

“Mr. Speaker, Honourable Members will be aware of the reductions in air service to Bermuda and the rationale publicly stated by our valued airline partners. Their message is clear and we must heed it. We must address the seasonality of our tourism and renew a targeted strategy of air service development. Mr. Speaker, two essential elements are required to give us the fighting chance to address the airlift issues. In this regard I would refer Honourable Members to the recent comments of the President of Skyport who, reflecting on the announcement of seasonal reductions in air service to Bermuda by Jet Blue said: “In addition to streamlining border entry requirements, getting the Fairmont Southampton hotel property back online as soon as possible, are absolutely critical to Bermuda recapturing the optimum number of air passengers and ultimately safeguarding our air service options.” ..

Mr. Speaker, I would invite Honourable Members to note the following:

  • for the years 2016-2019, Fairmont Southampton guests represented 12% of Skyport’s total passenger traffic;
  • The hotel’s employment was a high of 845 people, 77% of whom were Bermudian; and
  • The hotel housed 28.5% of hotel guests arriving into Bermuda.

Mr. Speaker, I have taken the time to reiterate matters which are in the public domain because they must not be forgotten in the course of this debate. The Honourable Member, the Premier and Minister of Finance will speak to the Terms agreed between the Government of Bermuda, represented by the Ministry of Finance, and the owners of the hotel, but I wish to make it clear that an argument about government sacrifice of revenue and that being a flaw of this Bill and this Government’s approach is nonsense.

It is nonsense, Mr. Speaker, because when confronted with clear evidence of the importance of the hotel to airlift and air service development, when reminded of the millions of dollars paid by the taxpayers of this Island to Skyport because of lacking passenger numbers through the airport; when we know that hundreds of jobs can be created in the construction, redevelopment, design / fit-out stages; when we know that hospitality careers can be developed for Bermudians by this redevelopment and when we know how many sectors of this economy stand to benefit from the commercial trade that comes from a fully functioning hotel; It would be borderline criminal and undoubtedly tone-deaf to hide behind a revenue argument. This is far bigger than that and anyone who fails to understand that is either being disingenuous or naïve.

In fact. Mr. Speaker, it makes me wonder if those making this argument about how much revenue is being sacrificed would prefer that the Government not provide the tax relief as outlined in the Bill, and instead, have the hotel remain closed and pay out millions of dollars in financial assistance to those workers who would otherwise be gainfully employed as a result of this redevelopment project.

That may be what others want for the people of Bermuda, Mr. Speaker, but this Government is determined to provide dignified work and economic security for its people.

Mr. Speaker, most of us, if not every Member Parliament in this Honourable House, have constituents who will have the opportunity to benefit directly from the passing of this Bill. We are talking about jobs! Which Member[s] is prepared to knock on the doors of those constituents and say to them that I denied you that opportunity by voting against this Bill?

Mr. Speaker, Honourable Members will by now have had the opportunity to review the provisions of the Bill and will have noted that the Bill proposes to grant to the developer relief from customs duty, hotel occupancy tax, land tax and the employer’s portion of payroll tax for a period of 15 years. The grant of relief is set out in terms identical to the Tourism Investment Act 2017 and Honourable Members will note that the criteria of applicability and qualification for relief respectively is set out as terms and conditions of the grant.

Additionally, Mr. Speaker, Honourable Members will note that the Bill specifically imports the relevant provisions of the 2017 Act to provide the necessary oversight and safeguards that ordinarily apply to the grant of relief in this way.

Mr. Speaker, the grant of concessions in support of hotel development has been the response of governments to a financial marketplace that has become wary of investment in hospitality construction and development. They are incentives, Mr. Speaker, designed to provide a counterweight to the aggressive stance taken by lenders who are concerned at the risky or slow rate of return on their investment. Modern luxury or resort hotel development, certainly in the 21st century, must be supported by such incentives.

It may assist Honourable Members to take note of how other jurisdictions approach this process:

  • 1. Barbados’ Tourism Development Act 2002 makes a variety of provisions for the grant of similar and more expansive relief for hotel development and in the case of customs duty and investment tax credits, they are for a period of 15 years.
  • 2. The Bahamas Hotels Encouragement Act provides duty free entry of approved construction materials, furnishings and fixtures for hotel development as well as provides for exemption from real property tax for the first twenty years of operation of a hotel/resort.
  • 3. St. Lucia’s Tourism and Investment Stimulus Act 2014 provides for the grant of concessions for a period of not more than 25 years.

Mr. Speaker, I could continue to list the approaches of other jurisdictions but these three Regional tourism success stories are enough to paint the picture. What we must do now is examine their tourism performance. A snapshot of each shows the following for 2019; the year against which many seek to make comparisons in measuring any tourism recovery:

  • Barbados – 966,000 visitors [their first decline since 2012]
  • The Bahamas – 7.2m visitors of which 1.7 were air arrivals and 5.4m cruise arrivals
  • St. Lucia – 1.2m visitors
  • Bermuda – 808,242 visitors of which only 191,417 were by air

Mr. Speaker, the importance of the grant of concessions which fueled hotel development in these jurisdictions is borne out by these numbers. But there is more to note, Mr. Speaker. Whilst the parameters of this Bill may not permit us to have a broad debate on marketing, relevance and seasonality, we can look at product and in particular, hotel product.

In Barbados they have Sandy Lane, the Fairmont Royal Pavilion, the Sandpiper and more. In The Bahamas they have the Rosewood Baha Mar, the Four Seasons’ Ocean Club, and the iconic Atlantis. In St. Lucia they have the Sugar Beach and the Jade Mountain Resorts. Mr. Speaker, I mention these properties because they represent what we need more of. The St. Regis and The Loren have made tremendous additions to our hotel stock and have complimented The Rosewood Tucker’s Point and the Fairmont Hamilton Princess. Mr. Speaker, let’s not forget The Azura, a hidden gem of a property on the South Shore.

Mr. Speaker, in these properties we have a concentration of luxury hotels but our product offerings can and must be expanded to provide the choice that travellers demand and allow us to renew group business for Bermuda.

Mr. Speaker, I should also be clear that the destinations I have mentioned do not owe their success only to hotel product. This is a key element of success but it is only one of them. This also may well be for another debate but a hotel product without an event strategy or brand relevance that supports its price point is not enough to succeed. The hotel product is part of a symbiotic relationship between relevance, events and price point. Our success will be defined by our ability to combine all those elements. In basic terms, Mr. Speaker, we must have things to do! We must provide our visitors with value for the money that they spend!

Mr. Speaker, Honourable Members will be aware that the site of the Fairmont Southampton Hotel was the subject of a Special Development Order in 2009. I am advised that that Order remains valid and that subject to its provisions the owners are able to develop as it permits. I also understand, Mr. Speaker, that as part of a consultative process last year, certain entities met with the developers and were made privy to a conceptual rendering that varies from the development permitted by the 2009 SDO.

Mr. Speaker, let me be clear, beyond a shadow of a doubt on this point. Any development that proposes to go beyond the parameters of the 2009 SDO will be subject to the ordinary processes under the Planning legislation. As I will reiterate in Committee, the Bill before this Honourable House makes it clear that nothing in the Bill shall be taken to modify the requirements of the Development and Planning Act 1974 with respect to obtaining any planning permissions necessary for the hotel redevelopment. That could not be plainer.

Mr. Speaker, a residential component is fundamental to modern hotel development and each of the local properties I cited earlier has such residences [save for the Fairmont Hamilton] and this is part of their attraction and the formula for their success.

Mr. Speaker, Honourable Members will have noted that this Bill has a commencement provision. Mr. Speaker, that means that the provisions of the Bill will only be brought into operation once the Government is satisfied that all necessary provisions and conditions under the agreed Terms and related matters have been fulfilled. This is not a provision inserted by accident; it is deliberate. The Government has spent innumerable hours, days, weeks and months hammering out an agreement that is designed to provide the maximum benefit to and for the people of Bermuda. That agreement will be honoured and this Bill will support that agreement.

Mr. Speaker, recent commentary suggested that this Bill and the proposed relief provided was a rush job, being done “…in a hurry and with inadequate scrutiny.” Mr. Speaker, this is a classic tactic employed by those who fear the success of change. In the case of all aspects of this Bill and the wider construct of the Heads of Terms, nothing could be further from the truth. Since my appointment I have learned that these discussions have, in fact, been taking place over the past three[3] years and have occupied lawyers and technical advisors in several jurisdictions, meeting and negotiating through countless meetings on weekends, late nights and on holidays. However, Mr. Speaker, beyond the undeniable man and woman-hours devoted to realizing this redevelopment, the entire initiative falls squarely within the goals and objectives of Bermuda’s National Tourism Plan.

Mr. Speaker, Honourable Members will no doubt recall that the National Tourism Plan was launched in 2019 and represented the results of leadership provided by the BTA, its Board and the Honourable Members Jamahl Simmons and Zane DeSilva who respectively had charge of the tourism portfolio.

Mr. Speaker, that Plan sets out a path to success by 2025. There is no denying that path has been interrupted by the pandemic, but the principles, goals and objectives remain sound.

Mr. Speaker, a key success indicator of the Plan aims to have tourism contribute $1.2bn to the Island’s GDP by 2025, requiring an average of 4.5% growth in leisure visitors per annum. Having essentially lost two years of opportunity to achieve that growth, it is a definite challenge to meet that target but the development of the Fairmont Southampton Hotel is the ‘shot in the arm’ necessary to make that concerted effort.

Mr. Speaker, under the National Tourism Plan, that contribution to the Island’s GDP is to be achieved through advancing specific strategic pillars. There are seven pillars Mr. Speaker, and for the purposes of this debate I would invite Honourable Members to focus on four of them:

  • Local Involvement – Growing through our people
  • Innovation – Thinking like a visitor
  • Teams and Groups – growing through groups
  • Year-round – embracing all seasons

Mr. Speaker, The National Tourism Plan, although written in 2019, contains a ‘call to action’ that is even
more relevant today. It says in part:

“..many young Bermudians currently don’t see tourism as an appealing career, and many locals do not yet view tourism as vital to our economy. As the largest private sector employer in Bermuda, and a proven growth engine, we need to change these perceptions and engage all residents in the tourism industry. It is imperative that all parts of the community believe in the importance of tourism and its ability to effect positive change for all residents.”

Mr. Speaker, that community outreach, that stimulus of interest in tourism careers, that engagement of Bermudians into the industry stands to be achieved with this project. The sheer quantity of jobs that will be available because of the Hotel’s redevelopment will speak volumes to those persons seeking to start their working life, re-tool after another career or enter fresh into the industry determined to make it their long-term employment choice.

Mr. Speaker, we must determine what it is that our visitors are looking for from their Bermuda experience. We must then ensure that we provide what they are looking for. As stated in the National Tourism Plan, “Ensuring that we all think like a visitor in anticipating and meeting their needs.”

Mr. Speaker, the spectrum of tourism stakeholders agree that our growth has been stymied by an inability to effectively compete for group business. Within the pent-up demand for travel post-pandemic is the meeting / conference business. The return of a block of rooms of this magnitude will position Bermuda for that opportunity. The BTA is pursuing a sports tourism strategy that forms part of this strategic pillar of the National Tourism Plan and the ability to add to that marketing effort with a clear group business strategy is key to tourism growth.

Mr. Speaker, the National Tourism Plan describes the opportunity in this way:

“Bermuda will become known as an exclusive, convenient and sought-after destination for specific groups – especially in the non-summer months.”

That, Mr. Speaker, leads to the final Strategic Pillar of the National Tourism Plan to which I have invited the attention of Honourable Members: Year-Round – Embracing all seasons.

Mr. Speaker, the National Tourism Plan refers to the “massive ebbs and flows” encountered by tourism-related businesses and sets a goal by 2025 for Bermuda to offer an attractive value proposition for visitors to come any time of year; and specifically indicates that success in this regard should be measured by “more than 56% of our arrivals [coming] from the non-summer months.”

Mr. Speaker, a hotelier with whom I recently met gave the best answer to the question how to address seasonality: “It’s about things to do!” I endorse this view 100% and will issue the challenge to the BTA to capitalize on golf as the anchor but to extend to art, fashion and film; things which are not weather- dependent and which will drive both group and leisure travel in those traditionally slower tourism months.

I am pleased to advise this Honourable House that the owners of the Fairmont Southampton Hotel share this vision and as part of the redevelopment will incorporate direct strategies to eliminate seasonality and ensure higher occupancies in those months of the year. Mr. Speaker, if we can eliminate seasonality, another benefit is that the industry becomes more attractive to Bermudians as a career choice as they will know that they are guaranteed employment for 12 months a year. This then feeds into the success of the pillar focused on local involvement and growing through our people.

Mr. Speaker, in his foreward to the National Tourism Plan, the then Minister of Tourism and Transport, the Honourable Member Zane DeSilva said this:

“..constant change now becomes the norm, and as we all know, there can be significant inertia to change. However, we must overcome any impediments to innovation and embrace a new mind-set of change that will elevate entrepreneurs and increase tourism’s attractiveness to our young people when they seek careers. The necessity for agility cannot be stressed enough.”

Mr. Speaker, if we fail to change we end up standing still [continuing with the status quo]. If we are standing still we are actually falling behind our competitors.

Mr. Speaker, I wish to address one more issue. Since the tabling of this Bill, one of the sentiments that we have heard, is that the Tourism Investment Act 2017 only caters to rich overseas investors looking to develop hotels and the Government is doing nothing to assist the people of Bermuda in this area.

Mr. Speaker, that could not be further from the truth. The relief provided under the Tourism Investment Act 2017 [TIA] is open to both overseas and local investors who wish to invest in the following:

  • A new hotel
  • A refurbished Hotel
  • A new restaurant
  • An existing restaurant
  • An attraction

Mr. Speaker, the TIA defines an attraction as “…a site that residents and overseas visitors visit that has an identifiable operation and management structure and can be characterized as natural, historical, cultural or man-made”.

There are specific criteria that must be met under each category in order to qualify for this relief. Mr. Speaker, Mrs. Rhonda Woods-Smith of the Tourism Regulations and Policy Unit will gladly assist interested individuals with any questions and provide them with the guidelines for the application process. Her email is rwsmith@gov.bm.

Mr. Speaker, as Minister for Tourism, I am not only committed to promoting the development of hotels. I am also committed to the improvement of our tourism product. As the Premier and Minister of Finance stated earlier this year in the Budget Statement, we will be reviewing the TIA and I am looking forward to bringing amendments to this Act that will further assist with the revival and rebuilding of the Tourism Industry and the economic recovery of Bermuda. In bringing amendments to the Act, it is vital that we incentivize investors locally to invest in these types of products.

Mr. Speaker, there is further support provided for the development of the tourism product for interested Bermudians under the Bermuda Tourism Authority’s Experience Investment Program. Qualifying applicants can receive up to a maximum of $75,000 in support of their tourism related venture. Details of this can be found on the BTA’s website gotobermuda.com/bta.

Mr. Speaker, the Government has been providing training and assistance to local entrepreneurs and small and medium sized businesses for many years through the various programs at the Bermuda Economic Development Corporation, such as its General Micro Loan Program and loan guarantees.

Mr. Speaker, in a 2019 Impact Report conducted by PricewaterhouseCoopers Advisory Limited on behalf of the owners of the Fairmont Southampton Hotel, it was estimated that, if this hotel was to close permanently the loss of contribution to GDP for the years 2022-2025 would be “an accumulated $404.1 million … which is an average of $100 million loss on GDP per year.” Mr. Speaker, that is a staggering amount.

Mr. Speaker, if this hotel does not reopen, there will be no business to tax. If there is no business to tax, there is no tax revenue to collect. Mr. Speaker, the Government will have more tax revenue [both direct and indirect] with this hotel open and with this Bill passing than it will have without this hotel and without this Bill. Without this hotel, there are no jobs during the redevelopment phase or after the reopening. There is no group business coming to the Island. There is no enhancement of our tourism product, no improvement in our hotel bed capacity, no improvement in our attractiveness as a destination. Without this hotel we fall further behind our competitors. Without this hotel there is less work for our taxi operators, less business for our restaurants and retail establishments.

Mr. Speaker, if this hotel does not reopen, we will have another massive structure, sitting empty and dilapidated, situated in a prominent position on prime real estate, dominating the skyline for a mile in every direction and spoiling some of Bermuda’s best vistas. Surely Mr. Speaker, there are no Members of this Honourable House, that believe this is a better alternative to passing this Bill, approving the tax relief and getting this hotel redeveloped and back open.

Mr. Speaker, as I commend this Bill for the consideration of this Honourable House, I urge the unanimous support of Honourable Members. This is the “new mind-set of change” we must embrace. We have a responsibility to channel and deliver hope for the people of Bermuda; not to derail growth and opportunity against a backdrop of worn-out, tone-deaf arguments that are insensitive to the needs and aspirations of the people we serve. We are on the cusp of that social renewal and economic recovery that this Island so desperately needs and is counting on us to deliver. The vote we cast today is not just a vote to pass a Bill, but it is an affirmation that we are prepared to lead in these challenging times, defying our traditional reserve and resistance to change and taking a bold step to create opportunities for success for the people.

Thank you, Mr. Speaker.

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  1. Ringmaster says:

    Apart from all the flowery puffery from the PLP, who cannot even today say how much this will cost Bermuda, there is one person who does know the numbers and likely consequences. His background is financial, and he resigned as FM because he couldn’t get the Premier to understand. Cabinet of course merely do what the Premier tells them. Today that person again explained why he will not support the Bill, and yet the PLP merely fall at the feet of the Premier and support a Bill which has no detail behind it, and which none of them understand.

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