Extract on Central & South America

HotelBenchmark(TM) Global Performance Review

. October 14, 2008

MARCH 6, 2007. Will the real Latin America please step forward - in one corner, political instability, boom and bust economics and severe social problems, in the other, vibrant multi-ethnic cultures, cosmopolitan cities and unrivalled natural beauty.

In 2006 the region was finally stepping out of the shadows of 2001-02. With both the Central American (+8.7%) and South American (+8.1%) regions exceeding the global average for tourist arrivals by some distance, the hospitality industry is happy. Investors' confidence levels are also rising. South American nations are enjoying an influx of capital from Western Europe, while Central America is benefiting from its proximity to the USA, often in the form of large high-end projects such as golf resorts and residences. International hotel chains are also setting up home, with cities such as Buenos Aires, Caracas and Santiago seeing the supply of the four and five-star rooms swell.

While no Latin American city makes the top 20 of the revPAR GRI, many cities are climbing back from their post-Millennium lows - as illustrated in the graph below. Only two cities - Santiago and Lima - have overtaken 2000 levels while other cities continue to move up the index. Rio de Janiero leads the region in 61st place, followed by Buenos Aires and Mexico City, at 62nd and 70th place respectively.

Argentina

Good exchange rates and a growth in tourists balanced out Argentina's relatively minor social problems. Latest results from the World Tourism Organisation (UNWTO) confirm that international tourist arrivals were up 7.6% last year, continuing the upward trend since the political instability of 2002 and devaluation of the Peso.

Most visitors come from the USA, Brazil or Chile, but a weak Peso is bringing in more people from the rest of Latin America and marketing aimed at China is widening Argentina's appeal.

With romantic images of Spanish colonial architecture, caf'e culture, and street tango, the vibrant city of Buenos Aires is again capturing the imagination of tourists. In a response to increased demand, the hotel industry is dancing to the same tune. New developments in the four and five-star sector - including those from Hyatt, NH and Sol Melia - are boosting the city's supply. MICE tourism is seeing strong growth as the government actively promotes this sector. Both average room rates and revPAR are up - 16.2% and 15.6% respectively - although occupancy has fallen slightly.

Brazil

With so much promise, but so many problems, Brazil has yet to fulfil its massive potential as a holiday destination - but there were signs of change in 2006. Stimulated by state investment in infrastructure and incentives targeted at developers, the government tourism body, Embratur, is encouraging hotel investment along Brazil's north-eastern beach resorts.

Embratur has also opened dedicated tourism offices in the US and major European cities in an attempt to drive up international arrivals to Brazil, which has traditionally relied on domestic tourism. While around 65m Brazilians holidayed at home in 2006, just 6m international visitors joined them.

The importance of more tourists from overseas is clear - while domestic tourists embrace the low-cost culture initiated by GOL Airlines and Accor's Formula 1 brand, international visitors are prepared to spend much more. The 6m international tourists spent around US$5 billion in Brazil - the same amount as the 65m domestic tourists. One long-term problem for Brazil has been its lack of air links with Europe, which is reflected in the low number of arrivals last year - 2.5m. However, new direct Lufthansa flights between Munich and Sao Paulo are having an impact. The airline, in combination with Swissair, now offers 19 direct flights to Brazil every week.

The carnival capital of the world, Rio de Janeiro, is undoubtedly one of the world's most beautiful cities. But Rio's tourism is hampered by its reputation abroad, and the events of 2006 will not have helped. In terms of supply, Rio's hotel industry remains fairly static. With the Ipanema and Copacabana districts already over-developed, there is little land left for construction. This maybe why average room rates have increased to just over US$155 in 2006, a rise of 12.7% from 2005, in turn driving revPAR. Occupancy levels are static at a little over 60%.

The perennial bridesmaid in the battle with Rio for the hearts and minds of international visitors, Sao Paulo, performed well in 2006. Average room rates rose for the third consecutive year, to a five-year peak of US$124. Despite a drop in occupancy, this has boosted revPAR to just over US$74, a rise of 12%. Sao Paulo, as the main financial centre of Brazil and with excellent conference and exhibition facilities, is a magnet for MICE tourism. Although current hotel expansion and construction is dominated by the budget sector, recent openings, including the 123-room Marriott and 310-room Sonesta, have increased supply in the city's luxury market.

Chile

Chile, the long sliver of land running down South America's Pacific coast, has continued to punch well above its diminutive stature in 2006. Since the devaluation of the Argentinean Peso in 2002 - which severely dented Chile's arrival figures - the government, along with the Corporacion Promocion Turistica (CPT) has been improving facilities to attract high-spending visitors. Aided by Chile's national carrier LAN - the largest airline in Latin America - long haul arrivals from Europe, North America and, more recently, China rocketed to over 2.2m in 2006, according to the UNWTO.

Economic stability, security, and a modern tourism infrastructure have all helped, as have Chile's wide range of products - from ecotourism resorts in Patagonia, to skiing in new luxury centres close to Santiago. As the daily spend of long-haul visitor is nearly three times higher than short-haul, it is understandable that the CPT intend to expand this end of the market. The CPT expected international visitors to have generated around US$1.75 billion last year.

As the central gateway city, Santiago is the hub of all Chilean tourism, and an increasingly important business centre. The boom of hotel construction in 2004 and 2005 - when five international brands were opened - created something of a price war. This calmed down in 2006, with average room rates rising to US$104, up 15.1%. Occupancy was up to 68.7% - reflecting Chile's popularity.

Mexico

Hurricane Wilma wiped out the Gulf coast - the area that brings in 65% of the country's revenue - and so the ongoing impact is harsh. 2006 was a year of restructuring, and visitor numbers fell by 2.8%.

The Economist Intelligence Unit (EIU) estimates that some US$2.7billion has been pledged towards repairing the damage. The bulk of this money has come from private investors, but the Mexican government is putting in $250m. The political climate is stable, as presidential elections have come and gone without the economic shocks that have greeted previous voting, and hotel companies are delighted. Stable relationships with its US neighbour are also valued, as around 85% of visitors to Mexico cross the border from the US. New air routes between the two countries are encouraging more people to pay a visit, with low-cost airline Click Mexicana now flying direct between Cancun and Miami. Mexicana meanwhile has opened a Mexico City-Dallas route.

The high-altitude capital of Mexico City enjoyed steady growth throughout 2006. Due to the dominance of business travel, occupancy reached 61.5%. The 0.7% increase in revPAR to US$92 was generated by a rise in average room rates, which now stand at US$149. Recent openings of a Crowne Plaza, NH Hotel and Holiday Inn have brought more rooms onto the market.

Peru

There's no mystery behind the 2006 success of Peru - this intriguing land of the Incas. The Peruvian government has invested in a programme of sustained promotional activities, focusing on its nature tourism products. The country's stand at the Hong Kong Travel Expo last year for instance, and an international advertising campaign, have brought in 10.7% more international arrivals. This growth is vital for the country, where tourism is estimated to account for 7.7% of total GDP.

Peru's gateway city, Lima, has performed well. The city has corrected its lack of first-class hotels recently, and the city's revPAR improved accordingly. An occupancy-driven revPAR rise of 21.1% led to revPAR of US$49.

Summary on Central and South America

The region was set back by the hurricane and ongoing social unrest in some cities can still deter tourists from visiting. But there are some very positive signs. Relative economic stability, strong support from the government, and increased air routes will work together to increase its appeal. The bonus is the fact that many Latin American countries have been added to China's list of authorised destinations, opening the region to a potentially huge flood of arrivals.

The results of the 2006 HotelBenchmark(TM) Global Ranking Index will be released at the International Hotel Investment Conference in Berlin on Monday. A complimentary copy of the publication will be available to all survey contributors on-line in the Members' Area from next week. For more information contact [email protected].

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