Mexico travel suppliers suffer ‘perfect storm’ as numbers fall
MEXICO: When coupled with Mexico’s drug-related violence and an already declining American visitor base, the new government’s decision to shutter its 21 international tourism promotion offices has created “the perfect storm,” according to Apple Leisure Group CEO Alex Zozaya.
But he and others with big stakes in Mexico tourism agree that whether the storm passes quickly or lingers for years, even decades, will depend on how the industry and the government respond.
“I think this is really a statement of how much they want to change things,” Zozaya said of the new populist administration’s decision to dissolve the Mexico Tourism Board and shift its $300 million annual promotion budget to construction of a train linking tourism hot spots like Cancun and Tulum to other points across the Yucatan Peninsula.
“But the thing is,” he continued, “when you look at the long term, the government will only be in office for less than six more years. For people in the [tourism business], the long term could actually be a lot longer than that. … We need to keep pushing and keep looking for the long, long, long term.”
In the meantime, he said, “It is a fact that tourism to Mexico from the U.S. is falling. 2019 is certainly worse than 2018, not just [hotel] occupancy but rate.”
And when rates fall, he said, so does the quality of customers, “and everything gets affected. … That’s what is happening right now.”
Zozaya said the biggest decline is in groups booking high-end resorts. At the same time, he said, supply is on the rise, and destinations continue to grapple with questions about safety — the No. 1 priority, he said — and damage to tourism from the smelly seaweed that continues to wash up on the Yucatan’s once pristine beaches.
“We also have a lot less advertising and promotion,” he said. “That is the perfect storm.”
Further exacerbating the problem, Zozaya said, is rhetoric from President Donald Trump about the need for a wall to keep drug dealers out of America.
“Every time he mentions the wall, that hurts tourism,” he said.
Zozaya, whose company is not only one of the largest U.S. sellers of packaged travel to Mexico but is also the parent of AMResorts, said occupancy is down 3% to 4%, while rates are down about 15%.
“When you combine the two of them, the effect is a 20% loss of revenue and 50, 60 to 70% of profits,” he said. “At the same time, we have some taxes that are now increasing, and we are seeing an increase in utilities.”
Zozaya said there are signs that President Andres Manuel Lopez Obrador’s administration realizes it made a mistake in shifting all of the revenue it collects on inbound airline tickets from promotion to infrastructure. The industry remains in talks with the government about creating a public-private partnership to fill the role of the 21 Mexico tourism offices that have either been shuttered or are scheduled to close by June, he said.
Without a new promotional entity for the country as a whole, he asserted, “tourism is going to suffer a lot.”
A key sticking point is who will fund tourism promotion going forward.
Pleasant Holidays CEO Jack Richards said his Mexico business is flat, although, unlike Apple, the company’s high-end trips are doing much better than its midrange offerings. Still, he said, they might be the exception, as he is hearing from partners and others that business is down anywhere from 20% to 40% in Mexico.
Meanwhile, the Caribbean and Europe are up by double digits, said Richards, who added that he is very worried about the long-term impact of Mexico shuttering its promotional arm.
“We are concerned anytime there is a major change in the way they promote a major destination like this,” Richards said. “I think it will have a significant impact on tourism.”
Richards said that he has not been involved in discussions with the new federal government in Mexico about tourism promotion but that he and his partners are working closely with the country’s state and regional tourism entities.
Zachary Rabinor, CEO of the luxury tour operator Journey Mexico, said business for his company is also flat. And while he agrees that a drastic cut to promotional spending is bad for any country that relies so heavily on tourism, he remains optimistic that the cutoff of federal promotional dollars is temporary.
“A lot of this is political posturing, and a lot of it is pandering to the base constituency,” Rabinor said. “I’m also an optimist. Once the smoke clears,… I wouldn’t be surprised if you see some compromise being made and some of that money being redirected.”