REPORT FROM ARGENTINA—International arrivals to Argentina reached nearly 5.5 million in 2013, according to the Argentina Tourism Board, which positions the country as the second most-visited South American destination in terms of inbound tourism, only surpassed by Brazil.
Spend by overseas visitors in 2013 generated revenues close to $4.3 billion in the country, according to the Argentina Tourism Board. Both figures show a slight decrease trend when compared with years 2012 and 2011. On a country level, the top visitor source markets in 2013 remained Chile and Brazil, which accounted for almost 40% of the total arrivals, followed by Uruguay and Paraguay.
Visitors from the United States decreased in contribution from 355,839 in 2012 to 321,163 in 2013 (-9.7%). The same was true for visitors from Europe, which fell to 668,512, showing a 6% decrease when compared with 2012, according to the Argentina Tourism Board.
Despite the decrease trend, visitors from the U.S. and Europe still lead the “out of region” arrivals and the higher spend per capita.
Performance
The exhibit below shows overall 2013 occupancy averaged 59%, according to STR Global, sister company of Hotel News Now. Horwath HTL’s research concluded, however, that in the upper and luxury segments, it dropped to 45% due to a significant decline in corporate activity and business travelers.
Click chart to enlarge.
Revenue per available room dropped 4.5% to $76.90, falling to its lowest level since 2009, according to STR Global.
On a positive note, leisure and domestic tourism showed a moderate increase, boosted by an array of national holidays and long weekends, which helped stabilize occupancy, particularly during off-season months and mainly within the mid-market and lower tiers.
On the consumer side, last-minute online booking, traveling closer to home and for shorter periods of time, and demanding value for money have been the rule during 2013.
This trend is likely to continue during 2014, as traveling overseas has become significantly more expensive for Argentineans, due to a 35% withholding tax levied on all purchases made overseas with credit cards.
2014 outlook
We believe that during 2014 hoteliers (and all players in the hospitality business) still will face pressure because the economic situation is not likely to change overnight.
Inflation, which was forecasted by most independent consultants at 30% for 2014, is already above those levels if the indexes for the first quarter are considered. Salaries for the hotel industry are expected to increase at a similar pace, which will stretch margins even more.
During the first quarter of 2014, the Argentine peso was devaluated close to 25%. While this drastic devaluation triggered an inflation run, there is some hope that it might, in turn, encourage some tourists (particularly from neighboring countries) to visit the country attracted by a relatively convenient exchange rate.
We therefore anticipate occupancy to maintain on similar levels or even see a moderate growth in 2014.
Business opportunities
The main question, in light of the outlined situation is: Are there opportunities within the hospitality business in Argentina?
Yes, there are. And, against all odds, these opportunities do not arise from distressed assets, which can be explained by the simple fact that in Argentina hotels are and traditionally have been funded mostly with equity.
Where, then, do those opportunities lie?
There is a significant undersupply of branded hotels in secondary markets in Argentina, where most of the hotels available comprise family owned-and-managed, run-down assets.
Many of these cities are located in the epicenter of commodity-driven areas.
We foresee excellent opportunities for limited-service, branded hotels to be developed in markets such as Mar del Plata, Rosario, Chaco, Córdoba, Santa Fe, Neuquén (where the world´s second largest shale gas reserve lies) and, in general, all capital cities of Argentine provinces.
The market has begun heading in this direction. Most of the projects in the pipeline (as well as recent openings) are located outside Buenos Aires.
An overview of the most relevant openings in 2013 include:
- Sheraton Tucumán (124 rooms);
- Hilton Garden Inn Tucumán (103 rooms);
- Howard Johnson Luján (69 rooms);
- Holiday Inn Buenos Aires Ezeiza Airport Hotel (114 rooms); and
- Alvear Art Hotel Buenos Aires (137 rooms).
Perhaps the most relevant transaction completed in 2013 was the purchase of the former Marriott Plaza Hotel in Buenos Aires by the Alvear Hotels Group. The 320-room landmark hotel was sold for a reported amount of $44 million, which included a $5-million penalty to remove Marriott International’s brand and management.
Condo-hotels
Following Brazil’s and Colombia’s examples, there are several projects in a “pre-sale” stage that will be structured as condo-hotels.
Interestingly enough, some major hotel brands are slowly but surely starting to accept managing or franchising hotels organized as condo-hotels if certain requirements related to performance risk; capital expenditure; furniture, fixtures & equipment; and working capital needs (among others) are met and secured by the developer. Despite being a relatively new vehicle in Argentina, condo-hotel rooms do catch the attention of individual investors who try to hedge against inflation.
Developers claim (and it might be the case) that even in startup years, hotel rooms can yield better returns than other traditional rental options. Global hotel brands’ willingness to post their flags will only enhance this perception and make the investment even more appealing and transparent to them.
As we mentioned, most of these projects are at an early stage. It will be interesting to follow up on them to see how many finally see the light.
End-of-cycle opportunities
We expect to see the transaction market more active in 2014 and 2015 (when the 12-year period led by the Kirchner political family is due to conclude) driven by investors who, assuming asset prices will be on the rise after the change of government, will begin to look for some opportunities.
Carolina Spinelli joined Horwath HTL in 2008 as Business Director for South America. Her field of expertise comprises Hotel Management Company Selection and Contract Negotiation; Market Entry Strategy; Market and Financial Feasibility Studies; Product Conceptualization; Capitalization and Financial Structuring; Transaction Management and general counseling related to start-up of real estate and hotel developments.
Sergio Giorgetti is currently a Fieldwork Director at the Argentina’s office of Horwath HTL. Sergio has led the fieldwork done in several projects in Argentina, Brazil, Chile, Ecuador, Mexico and Colombia.
The opinions expressed in this column do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Columnists 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.