The Chinese use two brush strokes for the word "crisis". One for danger, the other for opportunity. In a crisis be aware of the danger, but recognise the opportunity. – John F. Kennedy

Since 1985 47 of Bermuda's hotels, cottage colonies and guest houses have closed. Included in those closures were such well known names as; Sonesta Beach, Lantana, Ariel Sands, Waterloo House, Harmony Hall and the Bermudiana. Clearly, Bermuda's hotel industry is in a crisis. The fragile state of the industry is so grave that the introduction of gambling alone, whilst an absolute necessity, will not completely rectify the perilous financial state of most of Bermuda's hotels.

For the majority of hotel owners, even in comparatively good years such as 2007, the net return on capital invested in Bermuda's hotel industry is either pathetically low or, as in most cases, non existent. The Gross Operating Profit margins in Bermuda, a global measure for hotel performance, historically average around nine percent. In the USA 24 percent is considered acceptable. In other competing destinations, such as Mexico, Jamaica, Dubai, Cancun, Thailand, The Dominican Republic and Costa Rica, margins of between 28 percent and 37 percent are achieved. In macro economic terms the hotel industry cost base in Bermuda, because of the high cost of labour, utilities and other inputs, is one of the highest in the world. This high cost base makes it necessary for the hotels to achieve high average rates with a minimum of 70 percent occupancy just to cover those costs. It should of course be noted that the number one requirement for tourists when selecting a destination is that it is safe.

Recently, deep discounting by many hotels with rates as low as $79 per night has been hailed by many in Bermuda as innovative marketing. In reality deep discounting is a suicidal, non-sustainable policy, particularly for smaller Bermuda properties that do not have the depth of inventory with which to balance their average rate. It is ironic that many local businesses that supply goods and services to the hotel industry applaud this deep discounting, whilst failing to cut the high prices that they continue to charge the hotels. Incredibly, many local businesses seem to have adopted a communist style economic model, where the cost of products and services is increased in ratio to their decline in sales.

Bermuda's hotels have historically lost tens of millions of dollars. In 2009 alone the losses were almost thirty million dollars. The only reason that the majority of the hotels are able to stay open is due to the fact that the hotel owners subsidise their operations by regularly injecting cash into the businesses or by increasing their bank loans.

Yes, it is true; much of the hotel industry in Bermuda survives due only to the benevolence of the hotel owners.

It is therefore apparent that a paradigm shift is required with regards to Bermuda's future. The new Ministry of Tourism marketing plans are admirable and increasingly effective, Government concessions for the hotel industry are much needed and appreciated and new hotels, when they are built, will be of great value to the Island. Unfortunately, these endeavours will never be enough. What is needed is a completely new direction for Bermuda that provides an upmarket and differentiated product for branding purposes. The Monaco Model would certainly fit the criteria and be a template for change. Without a vibrant profitable hotel industry tourism is non sustainable.

Of course new lavishly designed and constructed resorts, with marble and gold in abundance, would be a great attraction. However, it must never be forgotten that the most important facet of the perfect tourism product is service. Without exceptional, faultless, friendly service by all of those persons who are involved in Bermuda's hotel industry, the capital investments would be futile. People, who do not have a good service orientated mentality, should not be welcome in our industry.

It is clearly too late for positive change to occur through an evolutionary process. The paradigm shifts that are necessary will require fairly dramatic legislative changes that must be dealt with expeditiously. The over egged democratic political process in Bermuda has been the death knell of so many worthwhile ideas.

This is a major problem as once a genuinely innovative concept becomes political it is usually diluted or rejected through internecine or inter Party political warfare. The long term good of the Country is often a casualty of political expedience.

An instance of one of the many casualties of political discord was the 1980s Ritz Carlton project planned on the site of the South Shore Beach Club in Warwick. The project estimated to cost over $75 million was fully funded. However, the hotel was never built, due to a combination of internal wrangling within the UBP and direct opposition to the project by certain PLP Members of Parliament.

A really great historical example of brilliant innovative thinking was the introduction of the Exempt Company concept by Sir Henry Tucker. In the mid 1930s with agricultural exports in decline, Sir Henry realised that tourism alone would not be sufficient to sustain the Bermuda economy. In fact a subject of much political debate, supported by Sir Henry at that time, was the introduction of income tax. Sir Henry who had worked as a banker in New York during the early 1930s together with the lawyer Reginald Conyers came up with the idea of exempting offshore companies from the 60/40 rule that required local businesses to be majority owned by Bermudians. Sir Henry with Mr. Conyers and the law firms, Appleby Spurling & Kempe and Conyers Dill & Pearman spearheaded the legislation, which allowed companies to open offices in Bermuda and avoid paying taxes on a substantial amount of their earnings, Bermuda's first exempt company Elbon Ltd., a subsidiary of the candy company Life Savers, was set up in 1935 largely because of Sir Henry's contacts in New York. The value to Bermuda of the Exempt Company Legislation has been phenomenal. However, it is fair to say that, at that time, the exemption of certain foreign companies from the 60/40 law was not supported by everyone. Sir Henry stated that his goal was to make Bermuda "the Switzerland of the Atlantic". He travelled the world in order to bring his goal to fruition.

Because of the expense of operating hotels in Bermuda and in view of the extremely high cost of construction, the Monaco Model is required. This would provide an environment that will allow the hotels to mitigate the fixed and variable costs by increasing the perceived value of the product and thereby increasing average rates.

The first requirement of the Monaco Model is the gaming component. This component is not just about the actual gambling but more for the glamorous image that an elegant, iconic casino can convey. The form of gaming to be adopted by Bermuda is most critical. The Las Vegas model does not fit. What is needed is a casino in Hamilton housed in an iconic building of world class architectural interest located on reclaimed land on the waterfront. The reclamation is a relatively easy process achieved by pile driving and back filling. This expanded waterfront would provide space for a mega yacht marina, cafes, restaurants, promenades and boutiques, all in a park-like setting with beautiful views of Hamilton Harbour.

The share ownership of the "Casino Company" should be split in the following ratio: 30 percent individual Bermudian shareholders, 15 percent Bermuda hotel companies and 55 percent shared by The Developer Operator, The Bermuda Government and The Corporation of Hamilton. The company would be listed on the Bermuda Stock Exchange.

The second part of the Monaco Model is based on residential tourism and the option for Residential Certificates to be available, through application, for suitably qualified persons of some wealth, seeking to be non-domiciled in their country of citizenship.

The availability of financing for resort development, without a viable residential component, is difficult to find. This is due to a recession induced decline in demand for vacation condominiums, fractional units and resort properties following the leaseback formula. This lack of demand is compounded by a glut in the global inventory of resort based properties.

Allowing suitably qualified individuals to purchase units in already designated tourism zones would bring much needed revenue to the Island, give the Government a new tax stream and help to revitalise the moribund real estate sector. All of the eight tourism projects currently in development in Bermuda are dependent for financing upon a significant residential component. This component, which normally provides a comfort factor when financial institutions are involved, will almost always have a codicil whereby the disbursement of construction funds is dependent upon a certain dollar level of presales. The viability of the project will therefore be dependent upon demand, which would certainly be enhanced by the availability of the residential option.

Monaco has four types of Residency Card options, all of which require a minimum stay ranging from three months to six months and one day. To be considered for a Residency Card individuals are required to; purchase or lease a property, obtain a certificate from a local bank showing a deposit of US$500,000, provide proof of sufficient income and a certificate of good health.

The Principality of Monaco is less than one square mile in size with a population of 33,000. A decent ocean view apartment would sell for about US$2,150 per square foot. Monaco has none of the natural beauty of Bermuda nor is its climate as good as Bermuda's. It should be understood that Monegasque citizens are not allowed to gamble at the Monte Carlo Casino. This is certainly an option for Bermuda that I believe has merit and is definitely worthy of more discussion.

Bermuda already offers, in a limited number of cases, Residency Certificates to purchasers of certain properties that are available to foreigners. These Certificates could, with modification, be used to facilitate the Monaco Model.

Bermuda is a very special place with a sound infrastructure, beautiful beaches, a sophisticated legal system, no income tax and an advantageous location. Sadly, that is not enough. Reminiscing about how wonderful tourism used to be in the 1970s is not a bad thing but it will not solve our current problems. The Monaco model is the answer. Now is the time. What is needed is a small group of people with the commitment, vision, resolve and unencumberd political leadership to adopt the model and take Bermuda forward to new levels of prosperity for all.

There is a tide in the affairs of men.

Which, taken at the flood, leads on to fortune;

Omitted, all the voyage of their life

Is bound in shallows and in miseries.

On such a full sea are we now afloat,

And we must take the current when it serves,

Or lose our ventures.

William Shakespeare – Julius Caesar