profits, a top hotelier warned yesterday.

And there could soon be an over supply of the "floating hotels'' in Bermuda.

But Bermuda Hotel Association president Mr. David Dodwell said slashing rates was not the answer -- despite Bermuda's reputation for being pricey.

Instead, hoteliers should aim to beef up their service to customers.

"Service, of course, remains the key to our ability as hoteliers to raise the perception of value for money of our guests,'' he said.

Mr. Dodwell was speaking to Hamilton Rotarians at their weekly lunch.

He said the hotel industry was struggling to emerge from three years of recession.

Profits had eroded and hoteliers were fighting the image of being too expensive.

The challenge today was to avoid decline, he said.

He added Bermuda was not only battling stiff competition from other tourist hot spots.

It was also up against the cruise ships -- formidable "floating hotels''.

"Resort destinations have seen a substantial growth in the cruise market and very shortly we could see an over supply of ships on the market in general,'' Mr. Dodwell told the gathering at the Princess Hotel.

Mr. Dodwell said cruise ships were stoking up competition by offering passengers discounts.

And he warned: "If we thought that discounting from the cruise ships was strong to date I believe that we have not even begun to feel their marketing efforts and the accompanying competitive pressures on the resort hotel industry.'' Mr. Dodwell said hotel operating costs in Bermuda were extremely high compared to elsewhere.

"Labour is expensive. All of our supplies must be imported from abroad with high shipping, duty and delivery costs.

"As a result we cannot lower hotel rates, and yet we have been criticised that prices are too high here in Bermuda.

"Recognising that we cannot reduce our rates without seriously affecting future viability, we can regain our former levels of occupancy by giving more for less.

"We have to acknowledge that it is our responsibility to provide our guests with what they want rather than what we think they want.'' Mr. Dodwell continued by underlying the need to improve service.

"Our employees must be better trained and more knowledgeable, more enthusiastic and more capable of handling an increasingly demanding guest -- who is always able to, at least in his mind, obtain a better level of service somewhere else.'' Mr. Dodwell said hoteliers had to spend more time looking after the interests of employees.

Too often the Bermuda Industrial Union had taken on this role.

"I believe that in the past we have abrogated, or given over, this responsibility to the union when, in fact, we should have taken the lead when it comes to building loyalty and excellence among our staff.'' Mr. Dodwell said Bermuda was well served by its Tourism Department.

"I have nothing but praise for the efforts and capabilities of the Ministry of Tourism and the people involved there.

"We are lucky as hoteliers -- and most of the Island cannot say this -- to have the destination marketed for us.'' Mr. David Dodwell.