Executives speaking at the 2019 Mexico Hotel & Tourism Investment Conference noted reasons for long-term optimism, but issues around politics and security continue to weigh on the hotel industry.
Editor’s note: Quotes in this story were derived from a Mexico Hotel & Tourism Investment Conference panel that was conducted in Spanish and was translated by event staffers in real time at the event.
MEXICO CITY—Opportunities abound as the Mexican hotel industry continues to mature, according to top executives speaking at the 2019 Mexico Hotel & Tourism Investment Conference. But the industry also faces significant hurdles, including a shifting political culture and persisting negative perceptions.
Diego Gutierrez, senior principal at Walton Street Capital, said “the indicators in Mexico are positive.” The growth cycle in the country seems to still have life, and the fact that much of travel is denominated in dollars as pesos might help hoteliers navigate a volatile stretch for the country, he said.
“In terms of hard currency, we have an actual hedge because revenue comes in dollars and expenditures are in pesos,” he said. “This is more related to beach and full-service hotels. I would be more cautious about limited-service hotels (because they draw more domestic travel).”
Oscar Calvillo, CEO of Fibra Inn, said businesses in Mexico have been disrupted by the election and policies of both Mexico’s President Andrés Manuel López Obrador and U.S. President Donald Trump.
“I think (hotel) projects have halted ever since Trump was elected,” he said. “Although, companies have continued with projects that are ongoing.”
He said investors are still particularly concerned about the state of a trade agreement between the U.S., Mexico and Canada, and that might be holding up a wave of investment in the country.
“I have information from large companies saying they want to move from China to Mexico, and they’re just waiting (for a trade deal),” he said. “This is important. It’s important for certainty with respect to our business hotels.”
Alex Zozaya, CEO of Apple Leisure Group, said the country needs to continue to grow its base of domestic travel to not be at the whims of countries like the U.S. “The national market will play an important role,” he said.
Panelists noted that Mexico remains restricted to a handful of key markets, headlined by resort destinations such as Cancun and Riviera Maya. Zozaya said security issues in Cancun have led to fewer American travelers to Cancun, which hurts both occupancy and rate.
“It has reduced tourists to Cancun on the higher end,” he said. “So incentive groups that have a lot of participation and weddings and so on have been affected.”
Throughout the conference, panelists commented on the difficulty of establishing new international destinations in the country, which will be reliant both on demand and airlift.
Zozaya said his company is able to establish its own airlift to destinations, which helps in that regard.
“We found we need enough passengers to feed the hotels we manage,” he said, noting because of this advantage his company “shines when there’s a crisis.”
Calvillo said his company is currently focused largely on business destinations such as Mexico City and is looking to expand into leisure markets. He said it’s important for Mexican investment vehicles to remain laser-focused on why they exist and not to fall in love with trophy assets.
“We never fall in love with properties or anything,” he said. “It’s a financial product.”
Security and perception
Zozaya said issues of security are among his top concerns in the country, after noting American perceptions drove down business in Cancun.
“I’m worried about security, and the root of the problem is complex because it goes hand in hand with corruption,” he said.
He said security and safety issues have somewhat tarnished the broad brand of Mexico for international travelers, and individual destinations have to build up their own brands to counteract this.
A lack of dialogue from the federal government in Mexico only underlines the problem, he added.
“There’s uncertainty and no communication,” he said.
Gutierrez said he’s observed a similar phenomenon.
“In Cabo, there was a huge wave of violence, and all the incentive tourism in Cabo could not go there due to the consequences,” he said, noting markets like that need to figure out how to better manage crises going forward.
Calvillo said he’s not optimistic about the current government tackling safety and corruption issues.
“I’m not sure they have the best people (in place), and that’s worrisome,” he said.