Hard times for Mexico tourism as hotel rates drop

With the health of Mexico’s hospitality sector continuing to
deteriorate in the latter part of 2019, the long-term outlook for the country’s
tourism appears grim.

Year to date through November, hotel data company STR
reported that revenue per available room (RevPAR) across Mexico was down 6.6%,
to $69.11. Concurrently, average daily rate (ADR) slipped 3.8%, to $112.17,
while occupancy fell 2.9%, to 61.6%.

Supply also outpaced demand, with the former up by nearly
3.2% year to date through November and the latter virtually flat at 0.1%

“There is certainly a threat of oversupply in Mexico,” said
Jennifer Dohrmann-Alpert, vice president for advisory services at global design
firm HKS, which has an office in Mexico City. “We’ve seen tons of developments
entering the pipeline, especially in places like Riviera Nayarit and Cabo, and
many of these projects are opening between 2020 and 2025. If there’s an
economic slowdown, I think we could see definite impact from oversupply in the
next three to five years.”

A supply-and-demand imbalance, however, is far from Mexico’s
only challenge, added Dohrmann-Alpert. Exacerbating matters is a recent uptick
in cartel-related violence, which has sparked safety concerns, as well as the
Mexican government’s decision in early 2019 to shutter the Mexico Tourism
Board, diverting millions in tourism promotion dollars toward a proposed train
to connect key destinations along the Mayan corridor.

According to Dohrmann-Alpert, the latter move has likely had
an outsize impact on Mexico’s Yucatan region, home to tourism-dependent hot
spots like Cancun, the Riviera Maya and Cozumel, which have long been dominated
by the all-inclusive model.

“Mexico has banked much of its tourism expansion in the
broader Yucatan on all-inclusive properties,” said Dohrmann-Alpert. “But
millennials, in particular, may not be as keen on all-inclusive resorts, and so
that segment may be starting to trend downward a little bit as the travel
market [shifts to preferring] more of an experiential travel product.”

Indeed, STR data indicates that the Yucatan Peninsula has
borne the brunt of Mexico’s recent troubles. RevPAR in the market declined
12.9%, to $111.94, year to date through November, while ADR plummeted 10.6%, to
$163.28. Occupancy in the Yucatan Peninsula year to date was down 2.5%.

Also weighing heavily on the region was last summer’s
unusually severe sargassum seaweed outbreak, which at times rendered beaches
across the Riviera Maya and Cancun coastlines virtually uninhabitable.

In late October, Francisco Zinser, executive vice president
of Mexican hospitality group Grupo Hotelero Santa Fe, blamed sargassum for some
of the company’s third-quarter woes, while also calling 2019 “a tough year for
the Mexican tourism sector in general.” 

Grupo Hotelero Santa Fe saw RevPAR slip 10.9% for the nine
months through September, as the company’s ADR fell 7.8% over the same period.
Occupancy across the group’s portfolio, which includes 25 properties in Mexico,
decreased 2.2 percentage points, to 60.9%.

With the hospitality segment clearly losing steam,
Dohrmann-Alpert believes hotel developers may be hesitant to bet big on Mexico
moving forward.

She cited as one example Apple Leisure Group’s recent
decision to put up to $600 million in Mexico hotel investments on hold. Apple
Leisure executive chairman Alex Zozaya said at a press conference in December
that the company’s AMResorts arm would defer construction of four or five
properties, blaming the tourism board’s closure for a downturn in visitor
numbers and pointing to growing pressure on hotel profitability and room supply
growth outpacing demand.

“Some institutional investors are off-loading projects,”
said Dohrmann-Alpert. “[And] savvy developers like AMResorts have started to
scale back on their ambitious expansion plans for the region as they assess the
future demand for luxury all-inclusive resorts.”

In the Mexican Caribbean, resorts may also be facing
increased competition from a wave of what Dohrmann-Alpert calls “newer and more
amenitized [cruise] ships.”

“There has been a significant push toward cruise tourism in
the last five years,” she added. “With 5 million-plus visitors coming to the
Mexican Caribbean this year via cruise ship, this could have a negative
long-term impact on RevPAR as hotels have to drive prices down to attract
visitors back.”

Tom Brussow, president of the nonprofit organization
YesToMexico and owner of Wisconsin-based travel agency Sunsational Beach
Vacations, is seeing solid demand for Mexico travel among his clientele despite
cooling RevPAR trends.

“In 2019, there were a lot of challenges, whether it was the
sargassum or all the sensationalized headlines, but overall, I think that the
industry came together really very well,” said Brussow. 

“The resorts, tour operators, [regional] tourism boards and
agents are all doing a great job of educating consumers,” he said. “In doing
that, I’m starting to see that my clients’ concerns about travel to Mexico have
decreased compared to what we were dealing with a year ago.”

Most notably, Brussow said he’s seen his Mexico destination
wedding business spike significantly, which he believes is a “good barometer”
for overall tourism strength. 

“Weddings always involve a lot of people with very different
perceptions and concerns as it relates to travel,” explained Brussow. “A couple
has to make decisions based on ensuring that everybody within their party is
comfortable with the decision that they make. So when we see the weddings come
back to Mexico, that’s definitely a good sign.”

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