During the 7th Development and Real Estate Investment Congress held at the Hilton Hotel in Buenos Aires City, I had the pleasure of moderating the roundtable titled “Hotel Industry in Argentina and Latin America”, with the participation of Luis Mirabelli, Vice President of Development for Latin America & the Caribbean at Wyndham Hotel Group; Ana Laura Acevedo, Vice President, Special Programs at RCI Latin America; and David Sutton, of the Sutton Group, which, among other companies, owns the Alvear Palace Hotel, the Alvear Art Hotel, and the Marriott Plaza Hotel, to name a few. During our discussion, we all agreed that the hotel industry has much to grow in Latin America in general and in Argentina in particular.
Also, we concurred that one of the strongest trends in the region relates to mixed-use projects.
“Mixed-use projects have yielded us excellent results. Of course, they have been promoted by the Alvear brand. However, an undertaking of this kind is not for just anyone, since to make it more profitable it should be associated with a luxury brand. This feature adds huge value to the project,” Sutton commented. And he predicted that Argentina and Brazil will offer many opportunities for these types of businesses to succeed, as the economic outlook for both countries begins to improve.
Mirabelli agreed with Sutton: “The umbrella of a brand is key because, before talking about a mixed-use project, we have to speak of hospitality, and here service is critical”. The executive encouraged real-estate businessmen to analyze the possibilities offered by the hotel industry: “If I talk of an apartment, my business ends the day I hand out the key to the customer. However, if I speak of a hotel, my job starts the day the door opens,” he explained. Mirabelli also gave the example of the W chain, located in Santiago de Chile, where the hotel is combined with residences. “This mixed-use product adds value to the square meter thanks to the hotel. And here the leap in the value per square meter may be from 20 to 50%”. It should be noted that Wyndham is the world’s largest hotel group, with 7600 hotels distributed in 14 brands and in several segments. At present, the brand is starting with the mixed-use model in Brazil.
According to my observations, while in more mature markets like the United States and Europe, mixed-use projects happen in the luxury segment, there are growth opportunities also in the intermediate segment, especially in markets like the Latin American. As an example, Wyndham is successfully developing mixed-use projects in secondary cities in Mexico, where hotels emerge hand in hand with shopping malls. As Mirabelli explained, “In this case, the cost of a room is on the order of USD70, vis-à-vis the over 200-dollar rate in a luxury hotel. Thus, it is a very interesting option for companies that have to accommodate corporate travelers”. Although these combinations are not yet found in Argentina, there are already a few examples in Peru, Colombia, and Panama. In any case, Mirabelli provided good tips; “A mixed-use project should operate in a complementary way, that is, each component should be profitable. The idea is not that one should subsidize the other.”
No doubt, the hotel industry is still young in the region; therefore, there is much to ponder and analyze about the business. Furthermore, the development approaches may be quite different, for instance, through condo-hotels.
In this sense, Acevedo hit the nail on its head when he stated that “the condo-hotel’s flag is key to ensure the sales flow and guarantee the hotel’s operation and profitability. The same thing happens with the project’s location, which is critical to promote business growth.”
Hotel Chains & Independent Hotels
Although hotels may be operated either by chains or independently, my feeling is that the gap between both will grow wider as time goes by.
Chains will have a greater advantage in connection with their services, which will make the difference in the properties’ end results. Distribution channels, loyalty-building strategies, yield management, among others, are all variables that will be underscored in their services, and especially in their results, which will increasingly evidence the chains advantage over independent hotels.
The Argentine Case
Argentina is going through hard times that severely affect the business. Dollar exchange controls, different types of exchange rates and the gap between them, high inflation, growing fiscal deficit, uncontrolled money printing, are all factors that have placed the economy and the travel industry in particular in a very tricky situation.
Argentina has tremendous potential thanks to its diversity, natural and cultural resources, and its history. However, the current situation is clearly playing against it. Corporate travelers have almost disappeared and leisure travelers basically consist of those who are willing to pay cash so as to take advantage of the gap between the official and black-market exchange rates for the US dollar.
Notwithstanding this, I believe that Argentina can grow a lot. We are going through a crisis and we all know that “crises are opportunities. Hence, we should gear up for success.
If we consider the January-June period of this year, the three South American countries with the greatest growth in inbound tourism were Chile, Colombia, and Uruguay. Argentina’s growth for that period was 1.2%. Brazil’s case is atypical because last year there was a record of World Cup visitors and now it is exhibiting negative figures compared to the previous year.
If we analyze the 2010-2014 period, the three South American countries with the greatest growth in inbound tourism were Ecuador 48.7%, Peru 39.8%, and Paraguay 39.5%. On the other hand, the great losers were Argentina and Uruguay, with increments of 11 and 14% respectively.
In sum, today it is time to think of hotel development, because executing a project of this kind may take between 2 and 4 years. If we work in a systematic way, I am sure that Argentina will regain its position as a regional leader in the travel industry.
A horizon of 12 million international inbound tourists in the next nine years and a growth in domestic travels following the recovery of sound economic policies is a possibility that invites us to get ready for what lies ahead.