While 2005?s hotel occupancy rates and air arrivals did not turn out as well as previously hoped, hoteliers are optimistic that with the arrival of low cost airlines, 2006 will have more potential than any year since 2001.

Looking back over the last year, president of the Bermuda Hotel Association Michael Winfield said challenges facing the industry following 9/11 seemed to have settled down, which is why the hotel industry started investing millions in its physical infrastructure.

Hoteliers also believed the addition of a flight from Miami, the third gateway with USA 3000 from Philadelphia, as well as the frequency of flights all seemed to suggest that 2005 would be a better year.

And while the first half of the year showed promise, 12 months later the average hotel occupancy rate was a dismal 55.2 percent ? compared to the average 62.4 percent in 2004.

?In the middle of August the major hurricanes hit the Caribbean and particular North America and the whole momentum of the season just evaporated, so the results for the second half of this year have been very disappointing,? he said.

Another concern to the industry ? for the first time in history cruise visitors outnumbered air visitors, or at least came very close.

The Hotel Association?s issue with cruise ship visitors is by definition that they do not bear the costs of operating a hotel in Bermuda and therefore have a distinct advantage over Bermuda?s infrastructure.

Mr. Winfield, the co-chairman of the Bermuda Alliance for Tourism, said: ?But having said that, we recognise that they are an element of success within Bermuda and as long as we are not overtaxing the infrastructure of Bermuda, and thus reducing the experience of resident guests, we are not as an industry, automatically against cruise ship visitors.?

Following the Bermuda Hotel Owners Government Meeting last week, Mr. Winfield said hoteliers felt that as resident visitors numbers begin to increase, the taps on cruise ship visitors could be turned down, thus reducing those numbers.

?I think it?s fair to say that those of us in the industry are viewing 2006 as having real potential and perhaps better potential than any year since 2001,? he said.

The Cambridge Beaches president said hoteliers believed Tourism Minister, Ewart Brown would be successful at convincing Jet Blue to fly to Bermuda and if that happens, it would be a major coup for the Island, representing a paradigm shift in the way the Island was perceived.

?Clearly the cost of airfares to Bermuda has continued to be one of the greatest challenges facing Bermuda tourism,? he said, adding that the advent of Jet Blue, an increase in frequency with USA 3000 and the arrival of Spirit Airways will give the Island a momentum in low cost, high quality air services which will be significant.

?In addition, increasing the frequency of flights out of London from five to seven a week beginning late March, will provide an additional 40 percent of lift and this, matched with an elective resolution to bolster Bermuda?s image in the UK market, has enormous potential for increasing visitors to Bermuda.?

He added that the advent of a brand new charter flight from Munich to Bermuda beginning in June, 2006 and extending through October, combined with a targeted trade and consumer marketing programme in Germany and Italy has dramatic potential.

This weekly charter flight from with 166 business class seats is another significant coup in Bermuda?s arsenal ? thanks to advances made by tourism in 2005 which included replacing representation in the UK with its own office, headed by Thomas MacDonald.

?I think this was a definitive step forward in recognising that the UK has enormous potential for Bermuda and I think we?ve begun to put in place what is necessary to begin to reap the benefit of that market,? Mr. Winfield said.

He said 2005 would go down as a ?preparation year? more than anything, as the year Dr. Brown began to get some ?traction?.

This included making changes in reducing the size and cost of tourism offices abroad, especially in North America.

Mr. Winfield said the team spirit evident at last weeks? Bermuda Hotel Owners Government meeting showed the collective determination by both sides to address identified challenges and to come up with solutions before the next meeting at the end of February.

As far as development in 2005 was concerned Mr. Winfield said millions of dollars have been reinvested in the industry.

?I?m not sure at this moment, whether that signifies optimism, or a determination to make our product competitive on the world wide stage,? he said.

Operating costs pose a major challenge to the industry in 2006.

This includes everything from construction, accounting, electricity, repairs to provision of goods and services and labour, which is as high as anywhere else in the world.

?The affluence created primarily by international business has meant that the services industry has been able to enjoy an escalation of costs that are disproportionately high in Bermuda,? he said.

Mr. Winfield said if Bermuda?s hotel industry is to remain competitive, it must charge rates that are internationally competitive, which is why it has higher than normal costs.

?We have effective rate control though competition at the top and this has effectively squeezed profit to where the hotel industry collectively has not made any real profit for at least five years, if not more.?

Mr. Winfield added that this ultimately meant that less funds were available for reinvestment.

The second challenge in 2006 is the Island?s image, which hoteliers feel has lost focus in the market it needs to attract.

He said 25 years ago Bermuda was recognised and the demand for hotel rooms exceeded the supply.

But today new destinations and new hotels have woken up to the potential return that tourism offers and a whole new generation, if not two, have emerged which simply do not know what makes Bermuda special.

Bermudians, he said, have been their own worst critics for too long and are quick to leap on what is wrong and rarely proclaim what is right.

He said the reality was that by international comparison, Bermuda was unique with very special attributes and these attributes needed to be sold to people who can afford to come here.

He felt the industry can recover and Bermuda can become a leader in tourism, but the answers were not in short-term quick fixes, but in long-term sustained and collective work.