Tourist figures were creeping close to last year's levels until the September 11 terrorist attacks wiped out the third quarter arrivals, it was revealed yesterday.

Visitor arrivals for July, August and September stood at 179,006, down 12.1 percent for the same period last year. And numbers for the year to date are off 13.6 percent at 386,611.

Air arrivals for August were down just two percent on the previous year and would have been ahead of last year if a group booking from State Farm insurance had been cut by one week, said Tourism Minister David Allen.

The September 11 attacks led to a rash of cancellations, and air arrivals for the month were down 44 percent on last year.

It also wiped out what Mr. Allen said was shaping up to be one of the best Octobers in years.

Larger hotels were hardest hit by the cancellations, with a 57 percent reduction in occupancy in September.

Mr. Allen predicted yesterday that the slump has now bottomed out, but he warned there was still a danger airlines might pull out of Bermuda before the end of the year.

He said fear of flying and further terrorist attacks may result in air arrivals falling below 300,000 for the first time in 20 years, and total visitor numbers may slump "dramatically" for the year if the expected ten percent drop in cruise ship passengers materialises.

"I am pleased, encouraged and cautiously optimistic that the downward pressure seems to have levelled out. We have had slow but positive growth from the bottom and we've bottomed out," said Mr. Allen.

"We would have had a surplus for August but State Farm did three weeks rather than four weeks. Being down two percent for August is not ideal, but compared to other destinations - Cayman is down 91 percent - Bermuda was beginning to turn the corner and October was shaping up as one of the best Octobers in years."

Hotel occupancy for the quarter was down from 66.9 percent last year to 43.1 percent this year. Major hotels took a big hit, with levels falling from 66.1 percent to 39.6 percent. Small hotels dropped from 71.8 percent to 55.9 percent, and cottage colonies slumped from 69.5 percent to 53.5 percent.

Norman Mastalir, the president-elect of Bermuda Hotel Association, said a lot of group business was lost, but he was hoping to pick up these bookings next year.

And the Island was attracting group business from Dubai as nervous businesses have decided not to travel to the Middle East.

He said: "In October large hotels with group bookings were expecting 80 percent occupancy, up 12 percent on last year.

"But the best had just over 40 percent and the worst just over 20 percent. In November, the larger hotels were looking at 65 percent occupancy, but that has been reduced to 30 percent.

"There was some very encouraging activity starting in the group market. Those meetings still need to happen, and fingers crossed some of it will be replaced in the third and fourth quarter of next year.

"We've got some business for Dubai that was heading out of the UK and Europe and we've picked up several large pieces of business for early next year.

"For the New Year and February we are getting new group bookings. We are going to have a difficult winter and it will be February or March at the earliest before we can look for significant improvement. It will probably be May or the second quarter next year before we can see numbers that might exceed this year."

Mr. Mastalir said the "Compliments of Bermuda" campaign, which has just been launched in the US, is already generating bookings.

The promotion gives visitors cut-price flights, room at up to 40 percent below the winter rates, and a $100 voucher to spend in shops and restaurants.