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Analysis

Reactivating the Tourism Industry With Infrastructure Investment

By Lorenzo Núñez | Thu, 06/03/2021 - 09:39

The tourism industry is perhaps one of the most negatively impacted by the pandemic, after international and national flights ground to a halt, while social gatherings were prohibited by most governments as safety precaution. But not all is lost. There is a light at the end of the tunnel as the sector shows signs of recovery. Slowly and steadily, investment in tourism infrastructure puts the industry back in the game. And with the pandemic apparently coming to an end, despite the slow vaccination progress in Mexico, tourism seems to be in a good place to move forward.

COVID-19’s Impact

Back in Jan. 13, 2020, the first ever reported case of COVID-19 outside of China appeared in Thailand. About a week later, Mexico’s Ministry of Health released a statement saying that COVID-19 does not represent a danger to Mexico. Meanwhile, the new coronavirus had already reached the US. A month later, on Feb. 28, Mexico confirms its first two cases of COVID-19. Both patients had previously been in Italy, which highlighted the early danger of tourism amid a pandemic. As the country moved into lockdown, by March 18, Cancun’s hotel sector started to see mass firings.

To date, Mexico has over 2.4 million cases of COVID-19, while the tourism industry has faced one of the worst crises in its history. CNET estimates that the collapse of hotel and restaurant activities in the first half of 2020 left the industry's GDP more than 70 percent below its end-2019 level. All of this has led to the tourism sector losing more than half of its income and 47 percent of its relevance in Mexico's economy, contributing only 4.9 percent of the GDP. Before COVID-19, the tourism industry was responsible for nearly 9 percent of the country’s GDP, according to the council’s latest industry report.

Potential tourists were also hit where it hurts most. A report by the OECD shows that more than one in 10 respondents (11.8 percent) worldwide lost their job or their own business since the start of the crisis. In addition, across the 25 countries surveyed, more than one third of all respondents say that their household has experienced at least one job-related disruption in the form of a job loss, a job lay-off, the use of a wage retention scheme, a reduction in working hours and/or a pay cut. In Mexico alone, just over a quarter of the people (26.4 percent) surveyed lost their jobs, one of the highest percentages in the world. Additionally, 90 percent of Mexican interviewees state that they have experienced financial problems due to the pandemic, again one of the highest rates out of the 25 nations.

When comparing March 2021 to the same month of 2020, just before the pandemic infected the entire industry, the number of international tourists fell by 17.4 percent. In the pre-COVID-19 era, Mexico received over 2.8 million tourists annually, while during this slow recovery period, Mexico received only 2.3 million. This is in part due to the drop in tourist arrivals by air, which dropped by 6.5 percent during the same period, according to INEGI, which has also affected the aviation sector. Aeroméxico, for instance, reported a net loss of MX$4.1 billion (US$210 million) in 1Q21, 67.1 percent lower than in the same period last year. The airline reported a negative EBITDA of MX$398 million (US$20 million). Revenues remain far from pre-pandemic levels and dropped 51.3 percent in 1Q21 to MX$6.8 billion (US$344 million), according to a recent MBN article.

Tourism Investment, Potential Recovery

The tourism industry must not be written off, yet, as investment looms over the horizon. Perhaps one of the biggest headlines concerning the industry is the massive US$2.5 billion investment recently announced by the World Travel and Tourism Council (WTTC), of which 65 percent will be allocated to Quintana Roo and the rest to Baja California Sur, Jalisco and Yucatan. During the 20th edition of the WTTC held in Cancun, Quintana Roo, several statements addressed the pandemic and its effects in the infrastructure and tourism industries. “COVID-19’s serious impact cannot be overestimated. WTTC research shows this crisis has been 18 times worse than the 2008 financial crash,” said Gloria Guevara, WTTC President and CEO. Quintana Roo Governor Carlos González stated that the state lost over 83,000 jobs as a consequence of COVID-19. However, there are major efforts being made to reactivate the industry. “Cancun and the Mexican Caribbean have implemented new safety measures for travelers that WTTC has recognized and approved with the Safe Travels stamp,” said the governor. “Our sector needs to be a leader in advocating for open borders. We can open borders; we just need to be smart, with widely spread health and testing systems," said Christopher Nassetta, Chairman of the Board of WTTC, at the event.

Yucatan is also receiving investment from other sources. Mauricio Vila Dosal, Governor of the state, announced an investment of over US$73 million in tourism projects. This investment will come from 17 different companies and will generate over 4,800 jobs. The governor emphasized that thanks to investors’ trust, surely, the state will likely recover in a year and a half, as reported by MBN. The biggest investment out of these 17 companies will come from Cenote Mukul, that will invest US$25 million in a sustainability project consisting of villas (wellness camping sites at a cenote) that will create 1,780 direct and indirect jobs. Another highlighted project is from Fincas Los Alamos, that will create the first residential development of 65 homes in the east of the state, integrating amenities and security with high-quality handcrafted finishes, which will represent a US$13 million investment.

Google and the United Nations World Tourism Organization (UNWTO) are also joining in assisting the tourism industry. The organizations plan to develop various training courses for several destination market organizations (DMO) focused on promoting attractive travel destinations. "The strong partnership between UNWTO and Google will help to put innovation and digitalization at the heart of tourism's recovery. Working together, UNWTO and Google will enable destinations, businesses and tourism workers to harness the power of data and market intelligence, both of which are increasingly important as global tourism looks to reboot and recover," said Zurab Pololikashvili, UNWTO Secretary, reported UNWTO.

Tulum and Playa del Carmen are also experiencing a real estate boom. “Our allies in Cancun and Riviera Maya have told us that during the pandemic, the luxury real estate market remained a priority for investors,” said Alejandro García del Río, Marketing Manager of Inmuebles24, according to an article by Inmobiliare. This is in line with what Mauricio Rovirosa, Operations Manager at Shark Tower Cancún, stated during a recent interview with MBN. “While the pandemic has heavily affected the tourism industry, it has unexpectedly attracted AAA housing investment. This has allowed us to create more projects that undoubtedly add a lot of value to the industry.”

While Tulum’s real estate boasts a more traditional look and feel, Cancun has more of a modern-day aesthetic. However, both have attracted significant investment from developers. Moreover, even with the pandemic, people are still interested in buying real estate in these locations, especially American tourists, according to Rovirosa. American tourist arrivals have also been promoted by actions from the Ministry of Tourism, said Minister Miguel Torruco. "The Ministry of Tourism has worked to counteract the adverse effects of the health crisis, prompting the reactivation of our industries, businesses and services," reported MBN.

Despite the hurdles, the tourism industry has proven to be highly resilient. While it was one of the first industries to suffer during the pandemic, its recovery, while slow, seems to be underway as every investment has the potential of creating thousands of jobs. The sustained demand in real estate hints that it would take a lot more than a global pandemic to take Mexican tourism down.

The data used in this article was sourced from:  
MBN, Forbes, El Economista, INEGI, CNET
Photo by:   Pexels
Lorenzo Núñez Lorenzo Núñez Junior Journalist & Industry Analyst