Travel and tourist
arrivals in Latin
America growing
rapidly - hotel
growth responds

International tourist air arrivals reached 2.5 million in 2018, resulting in +6% growth year-over-year. This growth was partly driven by the return of Brazilian tourists (Buenos Aires’ largest feeder market), following the overall improvement in economic conditions in Brazil. Moreover, the continued devaluation of the Argentinian peso has led to improved purchasing power from international feeder markets like Europe and United States/Canada, which observed a 3.4% and 6.7% annual growth in visitation, respectively. YTD March 2019 shows a continued positive trend in visitation at 13% relative to the same period in 2018. As of April 2019, Aeroparque airport operates domestic flights only, and suburban airport, El Palomar, continues strengthening its overall airlift on both domestic and international flights.

Approximately 44% of all international tourists travel to Buenos Aires for leisure purposes given the city’s unique positioning as the “South American Paris” and quality, diverse tourism product offering. Business travel accounted for approximately 25% of overall international demand. Two consecutive years of positive demand growth has led to strong city-wide occupancy levels, which neared 70% in 2018. In 2018, average rates also rose considerably at an annual rate of 11.8% in US dollars, resulting in an overall +12.9% RevPAR growth. The exponential rate growth of +88.1% in local currency in 2018 is not only due to the rising lodging demand, but also the increasingly high inflation rates and sharp devaluation of the Argentinian peso in a predominately dollarized market.

Quality lodging supply in Buenos Aires accounts for slightly over 21,000 rooms, of which only a third are brand-affiliated. Buenos Aires continues to be the home to some of South America’s most prominent luxury hotels, including internationally-branded hotels such as the Four Seasons, the Park Hyatt, and the soon-to-open SLS Puerto Madero, as well as national icons like the Faena and the Alvear Palace. While the market is well-served in terms of luxury and upper-upscale properties, Buenos Aires has limited presence of quality, internationally-branded, upscale and midscale hotels, which represents an area of development opportunity in the short- to mid-term. Conversion opportunities and/or branding affiliations are also a potential for future development, especially given the large representation of independent hotels. 

Buenos Aires continues to register among the highest occupancy levels across other Latin American capital cities which, coupled with the relatively muted supply growth, should allow for further improvement in the years to come. Hotel profitability is anticipated to improve significantly in the short to mid term given that dollar-driven industry revenue growth continues to outpace growth in operating costs (local currency). Although YTD March 2019 data suggests sustained demand levels relative to prior year, economic and political uncertainty, particularly given upcoming presidential elections in October 2019, may slow down some business-, meetings-, and government-related lodging demand. 

Since 2010, air arrivals to Mexico City have demonstrated steady growth, and 2018 arrivals broke a new record with nearly 24 million passenger arrivals and a +9% growth in international arrivals. The recent cancellation of the new airport project, however, could represent a challenge in terms of sustaining future passenger growth, as the current airport is already operating over capacity and faces operational issues. Also, the dissolution of Mexico’s Tourism Board has generated additional uncertainty around the growth of the tourism industry nationwide, which may further inhibit this city’s growth potential in the years to come. Despite these uncertain times, Mexico City continues to grow from a lodging perspective, especially as it continues to diversify its overall tourism product and attract new demand.

Demand in 2018 remained strong, with occupancy nearing its prior peak of approximately 70%. Polanco and Reforma submarkets continue to outperform in overall lodging performance, observing occupancy levels at 73% and 71%, respectively, in 2018. Demand continues to improve partly due to the unprecedented growth in weekend leisure travelers, which has allowed for considerable improvements in city-wide occupancy. A stagnating ADR in US dollars, partially derived from the continued devaluation of the Mexican peso, however, hindered RevPAR growth in 2018 and continues to be a challenge across lodging certain submarkets in Mexico City (e.g. Santa Fe) in 2019.

With approximately 32,000 quality hotel rooms, the city’s room supply levels are comparable to that of secondary markets in the US, which is relatively small for one of the top-ten most populous cities globally. Approximately 34% of the 4,486 additional rooms anticipated in the near term is classified as luxury -  Sofitel (2019), Ritz-Carlton (2020), Park Hyatt (2021), and Waldorf Astoria (2023) – which will likely disrupt lodging market performance in the short-term in this segment. In the long run, however, Mexico City will soon boast a larger base of luxury hotels, elevating the quality and maturity of its overall lodging product to the level of other international gateway cities. 

With limited new supply expected to debut in 2019, market-wide occupancy and rate should remain stable for the remainder of the year, assuming no major swing in exchange rates. Upper-tiered hotels in Reforma and Polanco are anticipated to experience positive RevPAR growth in 2019. Despite the uncertainty generated around the impact of the new administration’s policies and stance on certain infrastructure projects, Mexico City remains a resilient and solid industry performer given its highly-diversified demand base. The influx of new supply starting in 2020 might disrupt the market’s overall performance in the short- to mid-term, but steady demand growth is expected to absorb this new supply progressively in the mid- term.

In 2018, over 11.7 million passengers arrived at the Santiago International Airport, 47% of which were international. Although 2018 total passenger and international arrivals grew by 8.7% and 3.2%, respectively, international passenger air arrivals decreased by 7.8% compared to 2017. This decline in foreign air arrivals can be attributed to the +30% decrease Argentine visitors, who traveled less in 2018 given the sharp devaluation of the Argentinian peso. Argentina was historically the primary source market for Chile, but since 2018 has been outranked by Brazil, which accounted for 507,000 tourists in 2018. Santiago’s International Airport is currently under expansion; upon completion, the airport will increase its overall capacity from 20 million to 30 million passengers. 

Santiago generally enjoys a balanced mix of leisure and business demand that allows the city to attain healthy occupancy rates throughout the year, even during holiday season. In 2018, however, year-over-year occupancy declined 3.2% given a slight increase in lodging supply and decline in overall demand from Argentina. The destination was able to mitigate the shortfall in Argentine demand by attracting more Brazilian tourists; with Brazil’s progressive economic recovery, Santiago is anticipated to increase demand from this important source market over the coming years and recover overall occupancy levels in the mid-term. After two consecutive years of sharp annual ADR declines in local currency (-8.0% and -5.6% in 2016 and 2017, respectively), rates in 2018 remained stable at nearly CLP $80,000, or approximately US$125. 

Santiago’s diversified quality lodging supply comprises over 15,800 rooms, 41% of which are brand affiliated across various chain scales. In recent years, the Chilean capital experienced a notable boom in hotel development with the arrival of new international brands, such as Hyatt Centric, DoubleTree by Hilton, La Quinta, and Courtyard by Marriott. In 2018, supply increased 3.1% year-over-year, outpacing demand overall and affecting general market-wide occupancy levels. This supply growth trend is anticipated to continue in the next two years, with the addition of several internationally-branded hotels in the select-service segment. 

^{Notes: CLP = Chilean Peso; GDP = Gross Domestic Product}

Chile’s economy was able to pick up momentum in 2018, with an estimated growth of 4.1% in GDP driven by an increase in domestic demand and the mining sector, the country’s main export. Although GDP growth projections are slightly more conservative for 2019, estimated at 3.0%, the overall outlook remains promising when compared to other regional capital cities with slower forecasted economic growth. The decline in Argentine visitor volume is expected to continue a downward trend for 2019, but the lodging industry is hopeful that the surge in Brazilian demand and positive economic environment will offset some of that loss in demand. In the short term, average rates should improve slightly in US dollar terms, provided that the Chilean peso remains stable, while occupancy levels in certain segments of the market may observe a sluggish overall recovery as the market absorbs the new supply and attracts new source markets outside Argentina.