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Ad Group Gets Snapshot Of Financial Storm

Nov. 21, 2008 — Hunkering down in the face of the oncoming tempest of the mainland's economic downturn, V.I. economic experts are looking at ways to weather the storm. (See: "Governor, Cabinet Focus on Capital Improvements, Reducing Costs.")
Local industry leaders gave a snapshot Friday of the impact of the economic downturn on the Virgin Islands as well as recommendations for facing it at a luncheon.
The lunchtime panel discussion at Room With A View was sponsored by the American Advertising Federation – USVI.
Moderated by Brian Squires, president of Austin Advertising, the panel from across the spectrum of the V.I. economy forecast the short term and long term, and had some suggestions for business response.
The panelists included Lisa Hamilton, president of the U.S.V.I Hotel and Tourism Association; Tom Brunt, president of the St. Thomas-St. John Chamber and MSI and Cassan Pancham, executive vice president and the Eastern Caribbean region executive of FirstBank.
Their advice for weathering the oncoming storm included adding value to visitor and customer experience, examining business processes and redistributing resources to realize greater efficiency, retaining the workforce and not hoarding cash.
"Spend responsibly, act responsibly and invest with care," Pancham told the advertising community. "We'll have to figure out how we deal with costs when revenues are down, but I hope we don't start with some really silly action like laying people off."
Hamilton said former Federal Reserve Chairman Alan Greenspan, who was keynote speaker at a recent tourism conference, had forecast eight quarters of decline, two of which we had experienced already.
The decline and cost of fuel have had dire consequences in the Territory. After American Eagle announced that it was dropping a number of flights into the territory, the number of air seats into the Territory was down by 21 percent for St. Thomas, and 41 percent into St. Croix, according to Hamilton.
Hamilton explained that quick action on the part of the V.I. Department of Tourism regained the seats by working with Cape Air and legacy air carriers like American, US Airways and Delta. The result is an increase in seats into St. Thomas between the Christmas season and March of three percent and a reduction of only nine percent for the same period for St. Croix.
Since then Hamilton said she has learned that American Eagle's cutbacks resulted in many smaller Caribbean islands losing 40 to 60 percent of their airlift.
Larger hotel properties are forecasting a 10 to 20 percent decline in revenue, for the first quarter of 2009, and a 1.4 percent decrease during the holiday season.
While the average length of stay in the territory is 4.5 nights, Hamilton said that stays might get shorter. The airline traffic into the territory would support this trend, she said.
She gave two pieces of advice for the current economic conditions.
"First, taking care of your customer is now more important than ever," Hamilton advised. "Second, you must have a consistent advertising and marketing message."
The biggest push right now is for online advertising, where you must use the best quality photos and videos to deliver the message, Hamilton said.
From the point of view of the Main Street proprietor, Brunt said smaller to medium size sales were expected and if that continued, most of that sector felt that they would be okay.
Big ticket item sales were expected to be lower, according to Brunt.
As far as hiring, Brunt said that he'd spoken with one retailer who expected to hire 20 people for high-power sales.
"That's a good sign," Brunt said.
The outlook for the construction sector is mixed. There is a lot of local business, with people building their own homes, or adding second stories, and there is some second home building, but the activity is permit-dependent, Brunt said.
V.I. Water and Power CEO Hugo Hodge Jr. chided the business community for not doing enough to reduce their power consumption in a recent speech, Brunt said.
Brunt had two other recommendations for the community.
"Buy locally," Brunt said. "And get the government to buy locally. They are bypassing the local business community."
The Territory should adopt regulations similar to those in Puerto Rico proscribing government purchases must come from a local vendor.
Pancham addressed the audience from a banking point of view.
"The U.S. is clearly in a recession, and the Virgin Islands is entering one," Pancham told the audience.
Gross receipts have fallen over the last two quarters, which ended in March and June, and reports during September show a dramatic fall-off, according to Pancham. He said the federal government's financial industry bailout package had put money into institutions that have a strong chance of survival.
Weaker institutions had engaged in very bad lending strategies, dropping underwriting standards and homes went to people who could not afford them, Pancham said.
"The industry is going to have to figure out a way through all of these bad loans," Pancham said.
Pancham said that prudent businesses would examine their business processes to realize efficiencies, such as taking measures that would reduce utility costs. He reiterated that businesses needed to hold onto employees and save jobs.
"On the flip side, employees can't expect huge increases in salaries or benefits," Pancham said.
Pancham also said that now was a critical time for people to take care of their credit.
"It is important to come in and have an upfront talk with their lender, so you don't harm yourself or the creditor," Pancham said for those who anticipate payment problems.
He also said that companies that were going green before oil prices started to decline should continue to do so.
"Those investments will pay off even with the short term price of oil falling off," Pancham said. "This is best for the home, the economy and the environment."
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