I am preparing to travel across Latin America this summer, a journey that will take me from Argentina, exploring the buzzing city of Buenos Aires to the winter slopes of Mendoza to across the Andes Chain to Chile’s Santiago de Chile. I cannot ignore that both Argentina and Chile, whilst having incomparable beauties, both provide yet another breathtaking experience to explore the progress of hotel developments in this part of the world.
Unlike many of the countries that have seen impressive growth in recent years by means of hotel development (in particular in the BRIC states: Brazil, Russia, India and China) this part of Latin America still remains rather fragmented and is mainly composed of independent hotel operators. One of the key components deterring some of the major hotel players from putting a greater focus in this area is the region’s lack of economic and political stability compared to the BRIC states.
Many hotel operators now view both Argentina and Chile as “emerging” regions, in which they have great scope to increase their presence.
Small Luxury Hotels of the World CEO Paul Kerr told me, “the region is a growing market for our affiliate members, benefiting mainly from clients from the U.S., Canada, Australia and Germany.”
If we look at international flight connections with both Buenos Aires and Santiago, it becomes clear that whilst some major international airlines have direct connections to either the United States or Europe, local players are summarized by only a handful of transporters. LAN, the national Chilean carrier and part of the Oneworld Alliance, and TAM, Brazil’s largest airline and a member of Star Alliance, are the main players serving the two capitals beyond Latin America. Connecting to this part of the world for long-haul tourists is consequently an expensive experience, limiting the true potential for growth in the hotel sector.
When we look at the macroeconomic environment, it helps to clarify the challenges facing the hotel industry and helps to explain why investment in new hotels has until now been a fairly unattractive experience for international investors.
Strong commodity prices, and a fiscal and monetary policy that favors economic growth have contributed to Argentina’s economic boom in recent years. There are challenges ahead, however, with an expected reduction in commodity prices in the near future and more recent concerns with regards to the political situation, which has partially impaired the economic forecast for the country.
Additionally, Argentina’s regional trade partner Brazil is one of the main drivers of economic growth. This is particularly true since the economic crisis that paralyzed the country in 2002, when the Argentinean peso lost most of its value against the dollar. During this period, most of the country’s wealth moved to Brazil, which triggered hyperinflation in the already suffering state. Fast-forward to today, where low confidence from international investors into the local market and an inflation rate of between 20% and 30% is severely affecting the attractiveness for larger hotel investments.
The Chilean economic environment is being challenged. Positive growth in the 2011 fiscal year is fighting against a deteriorating economic climate abroad. China, one of the largest trade partners for Chilean copper, has seen a contraction in its economic growth, which is consequently having a knock on effect for the Chilean economy. According to Business Monitor International, GDP growth is expected to further contract to 4.8% in 2012 compared to 5.9% in the previous year.
How these macroeconomic factors will impact the hotel sector is certainly the question everyone is wondering.
The limited brand inventory supported hotel performance after the global financial meltdown that occurred during 2008. Growth in revenue per available room has increased in Buenos Aires and Santiago as well as in Uruguay’s capital Montevideo.
In Buenos Aires, the recovery mainly was driven during 2010 by increased occupancy, causing RevPAR growth to increase by 22.6%. During 2011 RevPAR grew 14.2%, led by a 14.8% gain in average daily rate to 627.50 Argentine pesos ($142.15).
“(Small Luxury Hotels of the World) members either in Buenos Aires such as The Casa Sur Art Hotel or Hotel Pulitzer have seen significant growth,” Kerr said.
In Santiago, on the other hand, occupancy growth has been the main driver of hotel performance after 2009, following the sharp decline in occupancy (-16.7%) that occurred during 2009. Occupancy recovered comfortably during 2010 and 2011 to reach 71.5%. Year-to-date, ADR increased by 9% to 78,317.93 Chilean pesos ($161.02) compared to the previous year.
In neighboring Uruguay, the smaller market of Montevideo experienced RevPAR growth during 2010 and 2011. The gains were led by an increase in ADR (+12.3%) to 1,758.54 Uruguayan pesos ($90.41) in 2011 and an increase in occupancy (+8.9%) in 2010. Supply of branded hotel in the capital has remained still since 2009, whilst demand grew by 8.9% during 2010 and 1.7% during 2011.
Supply, demand and hotel development
During the past two years through January 2012, Buenos Aires’ supply growth increased by 2.1%. Meanwhile during the same period, demand growth increased by 7.2%, which supported occupancy levels in the city and positively contributed to the city’s RevPAR performance.
During the last two years to January 2012 in Santiago de Chile, demand growth increased by 10.3% while supply growth increased by 4.5%. Santiago’s growth with regards to RevPAR growth since 2010 is more modest than its counterparts in both Argentina and Uruguay.
Argentina and Chile will see levels of transformation in the coming years, particularly with regards to hotel offerings. And while some believe it might take some time until hotel supply will catch up to the other “emerging” markets, hotel chains have taken a particular interest in growing their portfolio in this part of the world.
Kerr, for one, told me the potential of the region is important. “We have added hotels in key destinations such as Entre Cielos in Mendoza, Hotel Bobo in Buenos Aires and Hotel Aubrey in Santiago,” he said.
First movers in the region will not only set hotel standards, but also they will help meet growing international visitor demand. I certainly cannot wait to explore this exciting region and see the progress the hotel sector has undertaken since my last visit to Latin America.
David can be contacted on firstname.lastname@example.org. Follow him on Twitter @dgrossniklaus.
The opinions expressed in this blog do not necessarily reflect the opinions of HotelNewsNow.com or its parent company, Smith Travel Research and its affiliated companies. Bloggers published on this site are given the freedom to express views that may be controversial, but our goal is to provoke thought and constructive discussion within our reader community. Please feel free to comment or contact an editor with any questions or concerns.