4 silver linings in South America
02 OCTOBER 2015 5:59 AM
Many of the economies in South America are sagging. That creates opportunities for those smart enough to take note (and advantage).
Phew! I’m writing this just having landed back stateside after a 48-hour whirlwind swing in Lima, Peru, site of the South American Hotel Investment Conference.
It’s a fascinating place, Lima—or so it looked from my 30th-floor window at the Westin Lima Hotel & Convention Center. The only time I actually stepped outside was when I left my taxi to enter the hotel lobby after midnight on Monday and then back again when I checked out of the hotel after midnight on Wednesday. (Such is the life of a trade reporter during a busy slate of conference coverage.)
Speaking of that coverage, here’s my main takeaway: The South American hotel industry has taken a few punches over the past year, but it’s holding up just fine.
That’s the ultimate mark of maturity, said Arturo Garcia Rosa, hotel consultant and SAHIC founder. The guy’s an expert in the region, having consulted there for more than 20 years, so he brings a fair share of perspective (which he shared during a break from the conference).
Years ago, Garcia said, if commodity prices sagged or if currencies began to devaluate, hoteliers would run for the hills. Not so today.
“This moment of the slowdown is the best proof that our hotel business is more mature. I don’t see shocks,” he said. “I could see there are a lot of opportunities.”
Opportunities, you say? Name some.
1. The process of natural selection will improve the industry’s hotel stock.
“I’m absolutely sure the future of the business is branded,” Garcia said. That leaves plenty of room for growth, given that approximately 65% of South America’s hotel stock is independent.
During tough times, it’s more likely that independent hoteliers will tap into brand networks to increase their distribution to drive bookings. In doing so, those same hoteliers will be forced to improve their offerings (including enhancing safety requirements) to meet brand standards, Garcia said.
Alternatively, hoteliers who fail to adapt might be squeezed out of the market, which thus opens space for higher quality product to fill the void.
2. Currency devaluation isn’t all bad.
South American currencies are taking a pounding against the U.S. dollar. That could be a good thing for the region’s hoteliers, Garcia said.
First, it increases the likelihood that more U.S. citizens fly down for a visit. And why wouldn’t they? The dollar buys a lot more than it used to, including leisure accommodations.
A strong dollar also decreases the likelihood that South Americans will travel north to the United States, providing a nice boost to inter- and intra-regional travel.
3. Cheaper prices drive investment.
One of the biggest hurdles to development in high-demand markets such as Brazil was the outlandish cost of land, Garcia explained. As prices begin to soften in all segments of the economy, so will costs per square foot.
The same is true for labor, raw goods, other materials—you get the idea. It all spells more affordable investment opportunities for new projects, which could entice investors who previously were sitting on the sidelines to jump in the game.
4. Oh yeah. And then there’s Cuba.
Garcia would have been remised not to mention Cuba in a discussion of opportunities. With an easing of diplomatic relations between the country and its North American neighbor, the time could soon be coming for U.S. hotel chains to make their moves.
Want to learn more? Attend the Cuba Hotel & Tourism Investment Educational Summit being held 13-14 June in Havana. Garcia announced the inaugural outing on stage with Cuba’s vice minister of tourism, Luis Miguel Diaz Sanchez, during SAHIC’s closing. (To the excitement of the audience, mojitos were promptly served.)
Now on to the usual stuff …
What’s making me happy this week?
The Executive Club Lounge at the Westin Lima Hotel & Convention Center. When the walls of your hotel room start to close in on you, it’s nice being able to escape to a more open environment in which to do your work. Throw in near-panoramic views of Lima from the 29th floor and some small bites to fuel the tank, and you’re left with one happy reporter.
Stat of the week
63,000: That’s the number of hotel rooms in Cuba, according to the country’s vice minister of tourism, the aforementioned Luis Miguel Diaz Sanchez, during SAHIC. For sake of comparison, the city of Phoenix alone has 61,758 rooms.
Cuba’s tourism ministry knows it has some catching up to do. It wants to add no less than 4,000 hotel rooms a year now through 2021, the vice minister said.
Quote of the week
“We are not desperate, but we are quite open to receive you.”
—Cuba’s vice minister of tourism, Luis Miguel Diaz Sanchez, addressing a room of hotel investors, developers and chain representatives attending SAHIC.
Reader comment of the week
“Nice to see someone understands reality and is not drinking the Kool Aid.”
—Reader “Joel ross” in response to a column titled “Prepare for the next downturn while you can.”
There’s no shortage of optimism here at HNN, folks.
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