CARTAGENA DE INDIAS, Colombia—Hotel operation in South America has become an uneven story, panelists said during the second day of the South American Hotel & Tourism Investment Conference.
On one hand, you have companies such as Accor, which has seen a 22% hike in like-for-like revenue per available room year to date, according to Roland de Bonadona, CEO of South and Central America.
“2010 has been a really very, very beautiful year,” he said during the panel “A View from the Top—Hotel Leaders Hard Talk.”
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Ted Middleton, senior VP of hotel development and finance for the Americas, Hilton Worldwide
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But on the other hand, there are laments. Financing and rising land costs make for difficult operating conditions in parts of the continent. Ted Middleton, senior VP of hotel development and finance for the Americas for Hilton Worldwide, indicated his “disappointment” that the company has not done more in Brazil.
“We need to find a way of growing there,” he said. Overall, Hilton has 13 hotels comprising 3,400 rooms in South America, including two in Brazil. There are seven hotels under construction representing 1,300 rooms.
Middleton pointed to rising land costs in Brazil, primarily a result of the country landing host duties for the next FIFA World Cup and Summer Olympics. “You really need a major capital investment in Brazil to grow,” he said.
The opportunities
South America is one of the least-represented regions for Hyatt Hotels Corporation, said Pat McCudden, senior VP of real estate and development for Latin America. The company has four hotels in South America. “Clearly, the (South American) markets have gotten better,” he said.
“Going forward, it’s a region we intend to grow our assets,” he said.
De Bonadona indicated his happiness over Accor’s development in Colombia. The company has 163 hotels and 26,000 rooms in the country. Half of Accor’s hotels are economy branded.
He added that the company intends to establish its Ibis brand in Peru at the beginning of 2011. Overall, Accor has 73 hotels in its pipeline representing 10,000 rooms on the continent.
The negatives
In addition to land costs, political instability also is a liability, panelists said. Middleton referred to Venezuela as a “nightmare.”
Alvaro Diago, COO of Latin America and the Caribbean for InterContinental Hotels Group, said political turmoil goes in cycles. For instance, 15 years ago Colombia was an unstable environment, but the country now seems to be more secure. It’s important for hotels to look at the long view for countries such as Venezuela, he said, according to a translation of his comments from Spanish to English.
“At one point, Venezuela represented 40 percent of income to the company (in South America),” he said. “We’re still gambling on
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The Hilton Cartagena, site of SAHIC 2010.
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Venezuela.”
Hilton doesn’t sound willing to gamble.
“Our experience is that Venezuelan investors don’t have a high level of confidence of where the country is going,” Middleton said. “The sentiment is things will change, but it’s an uncertain environment and investors like certainty, so they are directing their money elsewhere.”
Labor costs also are a sticking point, particularly in Argentina, McCudden said. “Unions and government mandate wage increases based on an unofficial inflation rate. When you have 20-percent wage increases, it’s hard to accelerate average rates to the same level.”
Financing
Financing also is a hit or miss proposition, the panelists said. In some instances, financing comes from untraditional sources, such as wealthy families.
“Financing is a big challenge in the region,” said Ricardo Montaudon, president of Latin America for RCI, a Wyndham Worldwide timeshare exchange subsidiary. “Just in the two days I have been here, everyone is looking for investors.”
Brazil seems to recognize a lack of debt capital and is working hard to promote growth, panelists said.
De Bonadona expressed confidence that financing will be easier to come by soon. “Next year, or the year after, financing will loosen,” he said.
Having a brand behind you is an important requirement in obtaining financing, Montaudon said. The market recognition is important.
“As hard as it is to get financing, if you don’t have a brand, it’s even worse,” he said.
