Hoteliers are avoiding Venezuela as the country grapples with a new currency and cryptocurrency in an attempt to battle inflation.
GLOBAL REPORT—Oil-rich Venezuela is largely outside the development plans of major hotel brands, which is unlikely to change soon as the country continues to endure political and economic upheaval.
Under President Nicolás Maduro, Venezuela has been accused of being authoritarian with critics doubting the legitimacy of 2018 presidential elections.
In July, the International Monetary Fund warned hyperinflation in the country might hit 1 million percent. A month later, President Maduro’s government announced the devaluation of Venezuela’s bolívar currency by more than 95% and replaced it with the bolívar soberano, pegging the new currency to a newly invented, oil-backed cryptocurrency called the petro.
Marriott International and Hilton both have hotels in Venezuela but have no plans of adding to their current numbers, according to executives of both companies.
“The four open franchise properties in Venezuela flying a Marriott flag are owned by a local entity. We have not de-flagged any properties in the market over the years,” said Laurent de Kousemaeker, chief development officer of the Caribbean and Latin America for Marriott International. “Business at the properties is driven mostly by international demand.”
Hilton currently has one franchised Embassy Suites by Hilton property in Venezuela, according to Juan Corvinos, VP of development in Latin America and Caribbean.
“Hilton has never had any owned assets in Venezuela, but rather operated, managed and franchised properties that closed or de-branded for a number of reasons,” Corvinos said.
Hoteliers are not dismissing Venezuela but are keeping tabs on the situation.
“Hilton is committed to expanding its presence in Latin America and would look at pursuing opportunities in Venezuela following long-term stabilization,” Corvinos said.
Dip, dip, dip
Venezuelan inflation is evident in the country’s hotel performance metrics.
According to STR—parent company of Hotel News Now—in July 2018, Venezuela’s countrywide hotel occupancy decreased 11.4% year over year to 36%, while average daily rate increased 684.9% to $668.74 and revenue per available room rose 595.6% to $240.58. A year earlier in July 2017, Venezuela’s hotel occupancy increased 3.5% to 40.6%, while ADR rose 12.7% to $85.20 and RevPAR increased 16.6% to $34.59.
In Venezuela’s capital of Caracas, hotel occupancy decreased 7% year-over-year to 37.7% in July 2018, while ADR increased 678.7% to $664.26 and RevPAR rose 623.9% to $250.71. For the same month in 2017, Caracas hotel occupancy increased 10.3% to 40.6%, ADR declined 1.2% to $85.31 and RevPAR rose 9% to $34.63.
The drastic spikes in performance figures can be largely tied to the countries well publicized issues with hyperinflation, and Patricia Boo, area director of Central and South America at STR, said there hasn’t been much reason for optimism related to how the country has handled currency.
“The currency measurement was a meaningless move to fight inflation, and the fact that (Maduro) implemented a cryptocurrency as the oil-measure currency and to pay salaries doesn’t bring any confidence,” Boo said. “There is not much that can be done, in my opinion. Hotels had to adapt to the cryptocurrency petro before, and now they have a new currency, but also these measures were taken at the same time that (value-added taxes) increased and minimum salaries (were raised) by up six times … forcing hotels to close because they don’t have liquidity for payroll.”
The country remains an unattractive market for major hotel companies, Boo said.
“There is no stability, and (the government) has controlled the amount of money that can get out of Venezuela, so even if (hotels) made money, international companies can’t get the money out,” she said.
Boo also noted that due to the country’s increasingly isolated nature, Venezuela’s demand is mostly domestic.
“The segmentation I hear from hotels is 80% to 85% domestic and 15% to 20% international,” she said. “Any international demand is limited to airline crews and companies that have agreements with the government, mostly in the oil industry, such as China, Iran, Iraq and Belarus.”
Not surprisingly, at least for the time being, hoteliers are looking to other South American and Latin American countries for growth opportunities, including new markets. One glimmer of hope for Venezuela is that hotel companies are investing in Colombia and Peru, which both experienced decades of turbulence before recovering and increasing business and leisure demand.
Abel Castro, SVP of development and investor relations, South America for AccorHotels, said the French hotel chain hasn’t had any operations in Venezuela despite having a large portfolio in the continent.
“Our main countries for development in the South America are Chile, Peru, Colombia, Argentina and Brazil,” he said. “In other countries, our development is more propitious. In Brazil, we have 300 hotels in operation and 120 in the pipeline.”
Corvinos said Hilton has a portfolio of almost 140 properties in the Caribbean and Latin America and a pipeline of nearly 90 hotels.
“We have recently entered new markets in the region like Belize, with the Mahogany Bay Curio Collection by Hilton, and we continue exploring new markets throughout the region,” Corvinos said. “Our most active countries in terms of growth at this time are Mexico with nearly 30 projects, Peru with nine developments and Colombia with eight.”
De Kousemaeker said Marriott is fast-tracking hotel development in Mexico, Colombia and Peru.
“Of the 100 properties that Marriott International expects to open in the Caribbean and Latin America in the next five years, Mexico represents the largest share, followed by Colombia and Peru,” he said. “The region overall is one of Marriott International’s fastest-growing.”