Mexico, Caribbean hotels could wait longer for recovery
Mexico, Caribbean hotels could wait longer for recovery
01 SEPTEMBER 2020 7:32 AM

A look at how hotels in the Mexico and Caribbean region have fared during the past few months shows some absolute performance lows and could indicate a prolonged recovery.

HENDERSONVILLE, Tennessee—Hotels in Mexico and the Caribbean have been some of the hardest-hit during the COVID-19 crisis as fewer travelers opt to fly to beat the pandemic blues.

During last week’s “COVID-19 webinar: Mexico & Caribbean hotel industry update,” Emile Gourieux, STR’s business development executive for Mexico and the Caribbean, presented some takeaways of how hotels in the region have fared during the pandemic. STR is the parent company of Hotel News Now.

For the week ending 22 August, Mexico’s revenue per available room declined 66.4% year over year and absolute occupancy was only 23.8%. While those numbers aren’t great, Gourieux said it’s an improvement compared to where Mexico’s hotel industry was earlier in the COVID-19 pandemic.

“As of this past Saturday, RevPAR in Mexico is only a third of what it was the same time last year,” he said. “Yes, that's bad, without a doubt, but it's actually better than it was in mid-April, when RevPAR was down about 95%. And it's the same with occupancy. I never thought that I would hear myself say, ‘Hey, I'm happy about 23% to 24% occupancy.’ But it's again much better than that single-digit occupancy we had at the beginning of April.”

A look at the daily occupancy picture shows how drastic the declines in Mexico were.

Source: STR, © 2020 CoStar Realty Information, Inc.

“It still amazes me to see just how quickly occupancy fell off the cliff in mid-March,” Gourieux said. “But now, four months later, we're finally back above 20%. For the country as a whole, it's been agonizingly slow to start on this road to recovery.”

Similar to the U.S., Mexico’s beach destinations are outperforming urban markets, Gourieux said.

Source: STR, © 2020 CoStar Realty Information, Inc.

“We've seen the same thing in the U.S., where people want to travel, but they're choosing destinations where they can spread out, and that’s typically not city centers,” he said.

The hotels in Mexico’s lower classes are capturing higher demand and reporting higher absolute occupancy than the higher classes, but luxury and upper-upscale hotels are actually growing ADR year over year.

Source: STR, © 2020 CoStar Realty Information, Inc.

“What's really important to note is that luxury and upper-upscale hotels in Mexico are the only classes to be getting higher rates now than they were the same time last year; every other class has seen ADR fall quite a bit,” Gourieux said.

The Caribbean region posted 20.5% absolute occupancy and a 72.4% RevPAR decline during the week ending 22 August, Gourieux said. Looking at how occupancy is trending over the past several months, recovery in the Caribbean could be further out than in Mexico.

Source: STR, © 2020 CoStar Realty Information, Inc.

“Looking at the daily data, Caribbean hotels were in single-digit occupancy for nearly three months before some islands started reopening,” he said. “Some destinations reopened and then had to close again, which you can see reflected in that spike and then that new decrease in occupancy in the first half of July. And it will probably be some time before we see significant occupancy increases in the region, because there are still several islands that are not reopened and some that are waiting until October or maybe even later to reopen to tourists.”

Like Mexico, the Caribbean’s lower-class hotels are posting slightly higher absolute occupancies while luxury is growing rate.

Source: STR, © 2020 CoStar Realty Information, Inc.

“Even there we're really talking about one out of every five rooms being occupied on a given night,” Gourieux said. “But despite extremely low occupancies, luxury hotels continue to pull in impressive rates. Luxury is the only class in the Caribbean to grow rates year over year, and everyone else is down significantly.”

Region outlook
How will Mexico and the Caribbean recover from COVID-19? It’s worth looking at previous downturns to try to guess, Gourieux said.

During the height of the Great Recession, Mexico’s hotel occupancy fell from just over 61% at the end of 2008 to about 50% by the end of 2009, he said. Occupancy also took about four years to recover to pre-recession levels. ADR, on the other hand, dropped from around $123 in the fourth quarter of 2008 to $97 in Q1 2010, staying stagnant until it shot up in 2013 and fully recovered a year later.

Source: STR, © 2020 CoStar Realty Information, Inc.

At the same time, Caribbean hotel occupancy was at approximately 67% pre-recession and took about three years to reach a 59% trough in the beginning of 2011. Occupancy regained pre-recession levels by 2014, similar to Mexico.

“In the Caribbean, it was pretty close to what everybody refers to as a V-shaped recovery after the 2008-2009 crisis,” Gourieux said. “Maybe a U-shaped recovery, since occupancy took its time falling to the bottom.”

ADR, meanwhile, fell much more quickly in the Caribbean, falling from more than $200 at the beginning of 2008 to below $160 by 2010. ADR in the region didn’t exceed $200 until 2016.

Source: STR, © 2020 CoStar Realty Information, Inc.

“It took six long years before rates would return to that $200 level,” he said.

While STR does not issue annual forecasts for specific global regions, Gourieux said Caribbean and Mexico hoteliers should keep an eye on the U.S. forecast and performance. Consumer sentiment is quite useful, too, because Caribbean and Mexico markets that rely on inbound air travel need international travelers to feel comfortable boarding planes again.

Gourieux said declines won’t be permanent.

“Have consumers permanently changed their travel habits? I don't think so,” he said. “But until we have a vaccine and people feel safe traveling by air again, demand in Mexico and the Caribbean will not get back to those pre-COVID levels. Eventually we will recover from this crisis, but it will take time, perhaps longer than a lot of us would like to admit.”

He added that the Caribbean and Mexico are both resilient markets with some of the most desirable vacation locations in the world, and that will eventually bring demand back.

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