Tourism pumped in excess of $500 million into the economy last year and the industry remains Bermuda's largest employer.

So it's no wonder that Government is watching slipping air arrivals and hotel occupancy figures with alarm.

But is the tourism picture as bad as it seems? Optimism reigned at the beginning of the year when January arrivals were the highest since 1990. But by April, a slow February and slower March left year-to-date arrivals down by 4.5 percent.

While April and May figures are yet to come, weekly statistics do not paint a bright picture. And already, projections for the summer months have been scaled back. Now projected figures for June and July are down by as much six percent from last year.

But Tourism is fighting hard to reverse the trend and push air arrivals back up to those of the 1980s boon years which came to an abrupt halt with the recession. Nevertheless, Americans are showing little inclination to return to Bermuda in the numbers they once did.

US visitors are still by far Bermuda's biggest customers. Last year they spent more than twice that of Canadian and "other'' visitors including Europeans put together. But in spite of the economic recovery in the States, the recession has spawned a new breed of bargain-hunters more keenly aware than ever before of getting value for their dollars.

In today's economic climate the success of a season appears to depend on the abundance of airline and hotel discounts on offer. Last week, the Wall Street Journal blamed high prices for a fall-off in projected summer travel on which Americans spend roughly $45 billion per annum.

In the United States, airlines and hotels are refusing to cut prices in the belief the economy is strong enough to justify them. Meanwhile trend-watchers are scaling down their forecasts for summer travel, predicting just "anaemic'' increases over last year.

Anxiety over the decreasing arrivals this spring prompted Bermuda's Tourism Department to discover how other destinations have fared this year. The conclusion was that Bermuda is not the only destination to see declines.

Air arrivals to Barbados from the United States were down almost eight percent in January and February -- the destination's busiest months. In Hawaii arrivals fell by over five percent in February and by almost two percent in March. And travel to Europe according to the New York Times is also down because of the weak dollar.

Yet a number of US travel agents claim Europe is their top summer destination this year. Many say summer bookings to Bermuda are also looking healthy.

"It's a real mixed bag out there,'' said Tourism Director Mr. Gary Phillips.

"There are a lot of conflicting messages.'' He admitted that forecasts for the next three months were softer than he would have liked. However there was nothing to indicate Bermuda was lagging behind other destinations, he said.

But if 1995 follows last year's pattern, Bermuda could be again disadvantaged by massive airline discounting to the Caribbean. This summer, American Airlines has already slashed ticket prices to the Caribbean by 35 percent for travel between June to October.

However, Bermuda's Department of Tourism is poised to profit from last-minute airline bargains with beefed-up advertising campaigns. A certain flexibility is worked into budget allocations to allow for the dips and peaks of the season. This means funds can be diverted into campaigns such as the recent "Pinch me I must be dreaming'' campaign devised to cash in on a discounted $248 return New York to Bermuda.

Government is also meeting regularly with the Bermuda Hotel Association to thrash out ways of stimulating arrivals using reduced hotel rates. The dilemma remains whether hotels can afford to drop their rates or hold on until the travel climate improves.

"We are challenging hotels to take a fresh look at everything they're doing and encourage them to do everything they can to get last minute bookings,'' said Mr. Phillips. "We ask them if New destinations enticing holiday-makers away from our shores From Page 1 they are putting themselves in a position to capitalise on the awareness levels that are out there.'' And while the healthy 11 percent increase in January arrivals indicates Tourism's policy of targetting special interest groups over the slow season is paying off, the bulk of Bermuda's visitors are still those hooked by the promise of summertime "sun and fun''.

But with new holiday destinations virtually unheard of 10 years ago elbowing their way into the tourism market and with the United States and Canada spending millions to keep their citizens at home, the question remains how to entice North Americans out of their homes while keeping them away from Europe and the Caribbean.

No one quite has the answers. "We are having a great deal of difficulty getting our hands around the current climate,'' Mr. Phillips admitted.

Tourism Board Chairman and Southampton West MP Mr. David Dodwell agreed the tourism resort industry was going through "an unusual period'' because of a number of external factors that have impacted on the industry.

Tough competition more serious and far-reaching than ever before was in part to blame, he said. An established tourist destination for almost 50 years, Bermuda is now competing with hundreds of new destinations in South America, South East Asia, North East Australia, "new'' Caribbean islands and even Eastern Block countries.

"The world is our competitor now,'' Mr. Dodwell said. "Anything new is attracting people.'' He added that people have become more price-orientated over the last decade.

Shopping for a bargain is now considered fashionable by everyone.

Meanwhile the Caribbean, Bermuda's toughest competitor is hungrier than ever after a series of poor winters and is keen to catch up on summer business, he says. Individual US states are also competing with each other to attract visitors.

"They are waking up to the benefits of tourism,'' Mr. Dodwell said.

"Tourism employs a broad section of people. It brings new money into communities.'' The upsurge in cruise ship travel has also created waves in the industry.

Newer and bigger ships offering alluringly cheap package deals compete directly with hotels but contribute to the economyjust a tenth of that of air arrivals.

While Mr. Dodwell claimed he was not against cruise ships per se, he warned a sixth ship would push Bermuda's capacity to comfortably absorb visitors over the limit. He added that in the Caribbean, cruise ship companies now dictated their wishes to governments, so strong were their lobbying powers.

Airlines also had a tremendous impact on the success of a tourist destination, he said. While some airlines have slashed their fares to certain destinations, over the past 20 years Bermuda has never benefitted from consistent discounting.

"Airlines have the ability to change the success of a destination,'' Mr.

Dodwell said. "It is the most important component of a vacation.'' Deep discounting to Caribbean countries in the fall meant Americans were delaying their vacations. As a result, Bermuda was already feeling the impact on summer bookings.

"They are short term promotions that tease the market place,'' he claimed.

But in spite of tough market forces Mr. Dodwell warned Government should fight the temptation to panic and pour pre-allotted marketing money into summer promotions. He also advised against discounting.

"My personal view is to stay above the clutter of discounting and find new and innovative ways of bringing people here without cutting our rates. Bermuda shouldn't get into the image of discounting just because everyone has,'' he said.

Government, he added, was fulfilling its role in creating a "climate of awareness'' despite budget constraints. Nevertheless, Bermuda spends more per capita on tourism marketing than many other countries.

"The private sector is extremely lucky that Government does spend this money,'' Mr. Dodwell said. He added it was up to hotels to fill beds and encourage people to return.

Last year's Commission on Competitiveness report he said highlighted the need to improve Bermuda's tourism product and Bermudians' attitudes to the industry.

While Government and private sector representatives are meeting next month to discuss how to create an ongoing tourism appreciation movement aimed at the whole population, hotels are also being urged to take a fresh look at their facilities and ask visitors what they really want.

Families in particular were a group hotels could do more to attract and cater for with special childrens' facilities and activities, Mr. Dodwell said. A good product and happy customers would create a type of "self-marketing. But the challenge, he said, extended to the whole community. "This is a national challenge to the whole of Bermuda to reinvent tourism,'' he said. "Everyone must be involved in the process of re-energising the industry.'' ADJUSTING TO COMPETITIVE CLIMATE -- Tourism Director Mr. Gary Phillips.

THE WORLD IS OUR COMPETITOR -- So says Tourism Board Chairman Mr. David Dodwell.