What Are the Opportunities and Challenges in Tourism Development?
Mexico is home to some of the purest virgin beaches and one of the oldest cultural heritages in the world. It is no wonder then that Mexico attracted 35 million international tourists in 2016, a 9 percent increase from the previous year. With its close proximity to the US and Canada, warm climate and low costs, Mexico is becoming more and more popular as a tourist destination. As a result, hotel developers and operators must constantly innovate to ensure they retain and increase their market share in an increasingly competitive market. Mexico Infrastructure & Sustainability Review asked the main players in the tourism industry about the main challenges the industry faces and how it overcomes them.
Leisure is part of IADG, a conglomerate that seeks to expand a hotel franchise into Central America and a part of Mexico. Being part of this group and partnering with Grupo Portales gives us the ability to develop our franchise. We have committed to develop 10 hotels in Central America and part of the Yucatan Peninsula within the next five years. Expanding into a market where it is much less expensive to build is an exciting opportunity. A resort usually costs about US$100 million while the ones planned in this project require between US$6-8 million each. The idea is to find local partners that are willing to provide land and equity. Most of the supplies will come from Mexico and we plan to use financial institutions like the World Bank as one of our capital sources. All these projects will be challenging but this market certainly presents many areas of opportunity.
Developers are working toward setting new benchmarks and improving the quality of the sector. Areas such as Los Cabos, Riviera Maya and the north of Cancun have been showing consistent signs of growth. But the tourism industry is particularly concerned about the Consumer Protection Law that is currently under review by the authorities. The law includes an increase in cancellation periods to 30 calendar days from five, which puts us at a disadvantage against direct competitors like the US or Canada. The recent change demotivates investment. Developers need to consider connectivity around their projects to avoid recreating a situation similar to other destinations in México that greatly lack access to roads or flights. Tourism companies refuse to invest in areas without flights and routes cannot be created to places without enough hotels.
Mexico’s proximity to the US, its culture, food and weather constitute ideal conditions for the country to be a key player in tourism. These characteristics make Mexico a preferred and realistic destination. Most clients of luxury hotels are foreigners, largely from North America. Although the market is full of opportunities, the locations we choose for our hotels must be special in order to ensure a unique experience for our clients, so that they remember it in the future. The luxury segment’s entry barrier is the fact that there are only a few unique locations where such hotels can be built. Finding a good deal for our shareholders that fits our requirements is a challenge. There is talk about trade agreements with the US and currency rates but the most important issue for tourism is insecurity within Mexico.
In macroeconomic terms, Mexico is a noteworthy global player. The existence of clusters, special economic zones and a huge territory that prevents the saturation makes the country attractive for foreign investors. Companies like Honda, Toyota and Mazda that have established operations in the Bajio region require commercial services, including hotels – and many hotel chains have jumped on this opportunity. In Salamanca there are seven hotels located right next to Mazda’s assembly facility. In Celaya, nine hotels have been opened in the last two years. We want to establish in the city of Campeche, where we are building a new hotel. Barceló Hotel Group is currently exploring options for growth in Coatzacoalcos, Guadalajara, Leon and Monterrey. We also aspire to have 30 percent of the company’s commercial activities carried out electronically.
With the help of the government and private sector, tourism will continue blooming. In 2015 and 2016, the Riviera Maya and Cancun experienced historic occupation records and we expect this trend to continue in the coming years. Our experience in the Caribbean has given us the confidence to expand our operations to Los Cabos, Baja California Sur, and Huatulco, Oaxaca, and we are working to venture to Nayarit Riviera and Nuevo Vallarta. Tourists that go to Los Cabos tend to have more resources than those going to Cancun or the Riviera Maya. They feel that Los Cabos is somewhat detached from the rest of the insecurity problems the rest of the country suffers. Also, Cancun’s airport has become a flying hub. It is just four hours away from the US and Canada and the city has economies of scale and infrastructure that do not exist in other Caribbean touristic destinations.
We find that the Bajio region is growing rapidly in Mexico and attracting the development of many projects. Queretaro has a strong market and we are working in the area with a project that is expected to become one of the most emblematic in the country. It is still under approval but it will involve everything from hotels and offices to a commercial center. From the central belt to Queretaro, there are many areas that are expected to face a great deal of migration. Our technology can create added value to developments being built from scratch as well as those that already exist. When it comes to sectors, we do not prioritize a specific one. We always strive to identify areas where we can improve the quality of life. Crystal Lagoons covers everything from luxurious developments to middle and low-income housing. We are also involved in primary and secondary housing projects and hotels.
In 2016, Mexico received more than 35 million international visitors but it also received more than 80 million domestic tourists. These tourists complement each other since they travel at different times of the year to different destinations. Tourism will continue to grow in the years to come, generating more than US$19.5 billion in foreign revenues and an investment has had more than US$86 billion in the last five years. It is the industry that invests the most in Mexico. and we are constantly opening new hotels. Each of the hotels we construct requires at least US$50 million of investment. There is a curious disconnect between tourism and other industries in that a US$20 million investment in a project from any other industry is newsworthy, whereas in tourism that amount does not represent even one development. The tourism boom Mexico has experienced in the last five years has been healthy for the country’s economic development.