Mexican Tourism in Tumult : Hospitality: The country wants to double the number of international visitors. Privatization was already causing problems--then the Gulf War broke out.

Most winter weekends, visitors beg Antonio Genoese Zerbi to rent them lounge chairs for the night because they cannot find rooms in the packed hotels of this beach resort.

But not this year.

Since Christmas--the beginning of the tourist season in Mexico’s tropical south--more than half of the rooms have been empty at Condominio Capri, the 14-story bay-side vacation condominium project Genoese Zerbi manages. Business is not much better at local hotels: On average last month, they were barely two-thirds full.

The tourists who do come are less free with their money. “No one’s spending anything, except what they pay for lodging,” complained Diego Moisen, who sells tickets for $40 boat rides and $7 admissions to an aquatic park from a booth on the coast highway, the town’s main drag.

Calandrias --Acapulco’s balloon-festooned version of a hansom cab--roll empty past his stand. “Right now, there is nothing,” said driver Emilio Gonzalez. “It has never been like this before.”

And the problem is not just in Acapulco. Mexico’s $5-billion-a-year international tourism industry--the country’s second-most important source of foreign exchange, after oil--is in trouble.

The Persian Gulf War and U.S. recession struck at the height of Mexico’s tourist season, just as the country was launching a major campaign to attract international visitors.

“This hit us at the moment we were ready to move ahead,” said Sigfrido Paz Paredes, chief of staff at the Tourism Ministry. Instead of growth, Mexican tourism officials said, they had 15% fewer visitors last month compared to February, 1990.

Last week, before the suspension of hostilities in the Persian Gulf, tourism officials were expecting further declines. Now they have another worry.

With the war over, tourism will be expected to recover. If it does not, blame will fall on longer-term problems in Mexican tourism tied to restructuring of the economy, including privatization of the nation’s airlines and a change in the way the government funds travel advertising. The problems could derail an ambitious plan--now in its second year--to double the number of international visitors and add 50,000 new hotel rooms by 1995.

“Most of those projects will never be built,” predicted Edwin H. McMullen, until recently head of Marriott Ownership Resorts, the hotel chain’s time-share division.

Marriott, which recently opened hotels in Puerto Vallarta and the Caribbean resort of Cancun, has postponed building four more hotels in Mexican resorts and business centers, he said.

However, Hilton Hotels Corp.--which on Friday opened its first Mexican hotel, the 358-room Conrad Cancun--is moving ahead with construction of hotels in Puerto Vallarta and Los Cabos, on the tip of Baja California. Iga Gaj, director of corporate public relations for the hotelier’s international luxury subsidiary, said in a telephone interview from Beverly Hills that the hotels are being built in partnership with Banamex, a major Mexican bank.

Other projects will also proceed as planned, predicted Mexican tourism leaders. They argued that this season represents a temporary setback that will have no significant long-term impact.

Gaston Azcarraga, president of the Tourism Industry Council and chairman of Promotora Mexicana de Hoteles, the Holiday Inn licensee in Mexico, said the goals set two years ago are still realistic.

“To double the number of tourists coming to Mexico, all we would have to have is 12% growth a year for six years, and I think that’s perfectly attainable,” he said.

Paz Paredes said efforts to meet those goals will continue, with a special emphasis on attracting the U.S. middle class, families with incomes of $16,000 to $50,000 a year, who travel by highway. Currently, one-third of Mexico’s tourism earnings come from travelers who cross the border by land.

The rest of the tourist dollars are spent by air travelers with family incomes of $65,000 to $100,000, who visit mainly beach resorts, cities and archeological sites.

For the past several years, Mexicans traveling by land to the United States have spent more on the U.S. side of the border than their U.S. counterparts have spent in Mexico.

To bring in more highway travelers--and encourage them to spend more--the Mexican government plans to develop national parks and theme parks within driving distance of the border. The government will seek private investment to build the theme parks in Tijuana and Ciudad Juarez, across the border from El Paso.

Mexican state governments also are getting involved. Paz Paredes is hoping that a tourism promotion agreement signed last month between the state of Sonora and neighboring Arizona will be the first of a series of agreements linking state tourism programs all along the 2,000-mile border.

California is a special case, he said. Mexico hopes to improve the image of Baja California, attracting more upscale tourists to the beach resorts between Tijuana and Ensenada. A critical part of the strategy is a project for a border crossing that will bypass Tijuana and put visitors directly on the highway to Ensenada.

However, new border crossings and theme parks are two to three years off.

In the meantime, hotel operators, restaurateurs, taxi drivers and others who depend on the tourist trade say they are suffering.

As early as last fall, everyone knew to expect a difficult year. Foreigners--80% of Acapulco’s clientele from Christmas to Easter--usually make reservations three to four months in advance. Because of the recession in the United States--home to 87% of Mexico’s foreign visitors--there were few bookings.

Then came the Persian Gulf War and the cancellations.

“The outbreak of the war was something we did not need on top of everything else,” Genoese Zerbi said. “It’s more difficult to get to the airport because of security, and people are afraid to fly.”

Paz Paredes said Mexico planned to allay such fears by launching a campaign that emphasizes safety. “We’re going to talk a lot about Mexico being close to home,” he explained. “We’re hoping that this way we will be able to grow this year, despite the problems.”

Still, many observers say, the U.S. recession and the Gulf War exacerbated, rather than caused, the trouble in tourism. The fundamental problems are linked to the restructuring of the Mexican economy.

Tourism, like the rest of Mexican business, is undergoing a sometimes painful transformation as the government steps back, leaving private enterprise to run the show.

For example, the two government-owned airlines were sold to private companies two years ago, and the country has embarked on an open-skies policy, deregulating routes.

That allowed international carriers to increase flights to Mexico. Continental Airlines was among the most aggressive, adding routes until it served 10 Mexican cities.

The airline initiated flights to Los Cabos in 1988 but pulled out of there and Ixtapa-Zihuatanejo the following year.

“They were unable to sustain the flights long enough to make them viable,” said Tony Genth, president of COSTAMEX, a Miami-based hotel and time-share company. That experience, combined with overall problems in the airline industry, has made other international carriers skittish about opening routes to Mexico, he said.

Mexico’s own airlines are also taking a cautious approach to starting new routes. As a result, hotels added rooms to Cancun more rapidly than airlines added seats, creating a glut in accommodations.

“They have a lot of rooms there now,” Conrad’s Gaj said. That has been a worry for Hilton as it opened a new hotel at the resort, she acknowledged.

There are signs that the problem will be resolved, but not soon.

In December, Mexicana Airlines began direct flights from New York to Cancun. Eventually, the airline plans to use the airport there as a mini-hub for southeastern Mexico, bringing more passengers into that region.

The speed with which new routes are added will depend on the profitability of those routes compared to others, a Mexicana spokesman said. That is a far cry from the days of government ownership, when routes were added--often with subsidized fares--to promote resort development.

The government also has changed its approach to advertising.

Fonatur, the federal tourism promotion fund, used to promote tourism at no charge to the private sector.

Now, half the federal government’s advertising budget goes to nine regional funds. In those funds, the federal government matches money put up by states and private businesses.

As a result, Cancun and Cozumel--situated in the tourism minister’s home state of Quintana Roo--have a $10.5-million advertising budget, nearly twice as much as second-place Puerto Vallarta. Businesses and the state government in the Caribbean resorts contribute more money, so the federal government matches more.

More progressive businessmen, such as Azcarraga, say that in the long run, the trilateral funds will ensure more consistent, coordinated planning in resort promotion.

However, at first, some resort businesses balked at putting up money for advertising.

“A lot of people took the easier route,” said Genth, “and sold out to wholesalers,” companies that buy up reservations at a deep discount and sell travelers packages that include air fare, lodging and ground transportation.

“That was very short-sighted,” he added, “because they got the business, but couldn’t make any money.”

Mazatlan’s hotel operators plunged nearly en masse into wholesaling two years ago when the matching funds policy was put into place, he recalled. Since then, the resorts there have come to accept the need to advertise and this year have the third-largest fund at $3 million.

Tourism operators have also been forced to adapt to a new exchange rate policy.

The steep devaluations of the 1980s allowed tourism services to keep rising in pesos, while staying cheap in dollars.

Last year, as part of its economic stabilization efforts, the government slowed the daily slide of the peso. The price of services kept rising--38% by year-end--and this time international tourists noticed the increase.

“Los Cabos became as expensive as Hawaii,” said Genth.

The situation is similar in southern Mexico, said Genoese Zerbi. “Prices in Acapulco kept going higher and higher without any real reason. People are taking advantage of the few tourists we have.”

Feeling cheated, visitors stopped coming, said Roberto Melendez, manager of the Acapulco Plaza, which bills itself as a luxury Holiday Inn. “This year, we are paying the consequences of past abuses,” he said.

However, Melendez has tried to minimize the price his hotel has paid.

“We saw six months ago that there would not be much of a season, and we dropped our rates 30%,” he explained. The low rates plus aggressive promotions in Quebec and Ontario filled the hotel with middle-class Canadians.

As a result, the Plaza was 96% full in January and 86% full in the first two weeks of February. If they receive good service, those visitors will be back, even if the rates go up again, he predicted.

“You have to plan to get ahead,” he said. “There are good years. This happens to be a bad year.”

Azcarraga, head of the chain that owns the Plaza, is equally sanguine about the downturn, certain that it will not blight the country’s future as an international resort destination.

“Mexico has tremendous potential, as far as tourism, that we have not fully developed,” he said, citing the country’s weather, 6,000 miles of coastline, ample labor force and proximity to the United States. “Mexico will eventually be one of the top countries in tourism in the world. We’re only about 11th right now. We should be in the top two or three.”