Mexico’s hotel leaders bullish about future prospects
Mexico’s hotel leaders bullish about future prospects
05 APRIL 2017 7:49 AM

From brand and management company CEOs to capital providers, speakers at the recent Mexico Hotel & Tourism Investment Conference like the direction of the country’s hotel industry and believe more opportunities await them.

Editor’s note: The content in this article was gathered from panel discussions conducted during the recent Mexico Hotel & Tourism Investment Conference. The panels were conducted entirely in Spanish; the content in this article was collected through translators provided during the event.

MEXICO CITY—The hotel sector in Mexico is stronger than ever, according to industry leaders. The biggest question surrounding long-term growth evolves around infrastructure improvements.

Speakers during the recent Mexico Hotel & Tourism Investment Conference said they are bullish about those improvements happening, which will lead to more growth for hotels.

“The quality of (hotel) products has (surpassed) the quality of the infrastructure, which in the midterm could become an issue,” said Magdi Tanamli, managing director for Grupo Tandevco, during the “Capital markets overview” session.

José Carlos Azcárraga, director general for hotel ownership and management company Grupo Posadas, said during the closing “Industry priorities-Action plan” session that he is optimistic about where the industry stands but added it cannot rest on its laurels or expect improvements to be made on their own.

“Nowadays when you see what’s going on this tourism sector, there’s nothing to be worried about,” Azcárraga said. “Just blaming the government as if they are guilty of everything is not smart. … Everyone has to do their own part.”

Adrián Cano, real estate managing director for Evercore Partners Mexico, agreed.

“This is a sector with solid fundamentals in the long run,” Cano said. “It’s not just a trend.”

Francisco Zinser, CEO for Grupo Hotelero Santa Fe, said during the “Industry priorities” session that there is plenty of room for more hotels in the country.

Panelists admitted there are obstacles for hotel development and the sector’s continued growth.

“The tourist industry in the future looks good but we cannot hide the sun with one finger,” Azcárraga said. “We are still very underdeveloped in comparison to what we can have in the tourist part. We are late, and we are going slowly in comparison to other countries that have superior tourism investment.”

He said Mexico needs to develop ports and highways.

“This is not an expenditure; this is an investment,” Azcárraga said. “You put money in something, and it returns something.”

Azcárraga said Mexico’s bureaucracy makes it difficult to conduct business in the country.

“We are in competition with other countries for tourism,” Azcárraga said. “If they move faster, they are going to win. To think that Mexico is reaching its limit in international markets, it’s completely false.”

Moderator José Luis Vega Palafox of VP Capital makes a point about Mexico’s hotel industry during the “Capital markets overview: Investment trends in Mexico and beyond” session at MexHIC 2017. Looking on is Raúl Gallegos of Credit Suisse. (Photo: Jeff Higley)

In addition to infrastructure improvements, the list of challenges for Mexico includes security, according to two panelists on the “Capital markets: Investment trends in Mexico and beyond” session.

Santiago Juarez Lagos, director of corporate banking, real estate and hotel industry for Banco Sabadell, said the country needs to look inward for solutions.

“The biggest challenges are not external, but internal,” Juarez said.

José Luis Vega Palafox, director/partner for VP Capital, said security is an issue that is paramount for the health of the industry.

“It’s important that tourists feel safe so they can keep going to these places,” he said.

Some of the optimism for the Mexican hotel market is fueled by the exchange rate and the inflow of American dollars, speakers said.

Zinser cited his company as an example. He said 31.5% of Grupo Hotelero Santa Fe’s income comes from U.S. travelers and 66% of expenditures are in dollars.

Juarez said the country has some strong hotel chains, such as Grupo Posadas, but there’s still a long way to go in terms of having the right mix of international operators on the scene. That’s one of the goals of Evercore’s financing platform.

“We need to push different destinations in the country,” Juarez said.

That concept was echoed throughout the day-long conference.

“People are not just going to see a bed or beach,” Tanamli said. “They want to have some other experiences that most of the Mexican resorts do not offer.”

Tanamli said that while the U.S. provides the main customer base for the beach resorts, companies can’t forget about domestic travelers.

Mexico attracted 35 million international visitors in 2016—9% more than the previous year, according to the World Tourism Organization. Panelists said the country can use that as a building block for more hotels.

Braulio Arsuaga, director general for Grupo Presidente, said during the “Industry priorities” session that a plan is in place to reach 50 million tourists, but a number of improvements need to be made across the country to achieve that goal.

“The hotels are more or less OK,” Arsuaga said. “We need better airports, better roads, better infrastructure. We need to be much more competitive.”

Conference organizer Richard Katzman, managing director for HVS-Mexico City and moderator for several sessions, said during the “Industry priorities” session that the country is still missing a strategy that outlines the actions needed to achieve better infrastructure and systems that can handle more tourists.

Meeting new expectations from guests
Regardless of the business landscape, hoteliers need to adapt to the needs and wants of consumers to continue elevating the country’s hotel offerings, according to speakers.

Azcárraga said the hotel industry must adapt to the needs and wants of a changing demographic profile. Experiences that are customized and memorable are in high demand.

“Millennials want a specific product … authentic, local with a different experience,” he said. “The market is saying you can have 1,000 hotels because you will have 1,000 different customers who want 1,000 different experiences. You need to have diversification to assist all of those customers.”

That requires hotel companies to be nimble in all aspects of their business models. As with the rest of the global hotel industry, Mexico-based hotel companies tend to prefer to not own assets—but it’s not an easy accomplishment, Zinser said.

“To be asset-light, you need a brand that has a lot of presence and a network,” Zinser said, who added that he expects his company to double in size during the next four years.

Grupo Hotelero Santa Fe has 23 hotels comprising 6,500 rooms in its portfolio, 85% of which fall under the Krystal brand, Zinser said. Fifty percent of the company’s rooms are owned by third parties.

“We want to grow actively in third parties, whether under third-party brands or our own brand,” Zinser said.

Arsuaga described Grupo Presidente as owners, co-investors and operators with 3,000 rooms in its portfolio. It has partners in the United States and England and has nine properties under construction.

“We’re focusing on the urban sector but have grown to beaches,” Arsuaga said.

Grupo Posadas is in the process of aggressively adding to its 152-hotel portfolio with 42 properties in the pipeline, according to Azcárraga.

“Our interest has always been to focus on where we add more value,” he said, adding that the company owns 35% of the hotels in its portfolio. “We like to be owners because it’s a good business.”

There are plenty of opportunities for these companies and others to lead Mexico’s hotel industry to the next level, Zinser said.

“The industry has been repositioning really well,” he said, noting that less than 30% of the hotels in Mexico are branded. “The industry has a big opportunity. … The industry is being professionalized.”

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