Yankee Stays Home : Mexico’s Expected Tourism Explosion Fails to Ignite

Eduardo Cruz, manager of the new Hyatt Regency Hotel in Merida on Mexico’s Yucatan Peninsula, figured last year’s peso devaluation would create at least one benefit: A flood of free-spending Americans throwing dollars around his hostelry.

But Cruz and others expecting a tourism windfall from the weakened peso have been sadly disappointed. Though the hard-pressed government had hoped tourism, the second-largest generator of foreign currency, would help pull the country to recovery, Mexico is seeing declines in visitor spending and hotel occupancy nationwide.

Total spending in dollars in 1995 by foreign and domestic tourists will actually fall slightly from the $16.8 billion recorded in 1994, said Ricardo Ampudia, a subsecretary in the Tourism Ministry.

Although the number of foreign tourists coming to Mexico is up 21% this year, they are spending only about 4% more than in 1994. That’s nowhere near enough to compensate for the dramatic drop in spending by Mexican tourists still reeling from the recession, layoffs and inflation that have ravaged the economy since last December’s devaluation.

Although several resort areas such as Cancun and Puerto Vallarta that attract mainly international clientele are holding their own, destinations in the interior of Mexico, in big cities and in beach areas that rely on domestic travelers such as Acapulco and Mazatlan, are hurting.

So are destinations such as Merida, where the hotel and restaurant operators are trying to join the major leagues by billing themselves to foreign tour packagers as the heart of Mayan culture. Unfortunately, foreign and Mexican tourists alike have stayed away in droves, an absence exacerbated by the glut of hotel rooms in and around Merida, Cruz said.

“I thought we would see an increase in visitors,” said Cruz, whose hotel revenue is down 10% from last year. “But Mexicans don’t have any available cash. All the foreigners are going to places like Cancun, which was investing in promotion before the crisis.”

But Mexican tourism is suffering from more than economics. Its image has been battered by assassinations, guerrilla warfare in Chiapas and political instability. And there has been something of a backlash among U.S. tourists who have been disappointed to find that many Mexican resorts have raised prices right along with the dollar’s value.

“The bargain some people thought they were going to get didn’t materialize,” said Thomas Nulty, president of Associated Travel International, a Santa Ana-based travel agency chain with 200 locations nationwide.

“On top of that, some travelers don’t like the idea of going to a place where there is some disarray, where there is some turmoil and trauma. They don’t want to get caught in something that could cause them some discomfort,” Nulty said.

The industry’s disappointing year was a major factor in President Ernesto Zedillo’s announcement Monday of a new business-government alliance designed to bolster tourism. Zedillo promised to spend more money on tourism promotion and infrastructure and on a joint-marketing effort with four other Central American nations to promote Mayan culture.

Earlier this year, the government set up a “tourism cabinet,” which included members of various federal ministries whose purpose is to break down barriers to a freer flow of tourism. In an interview, Ampudia said 243 such barriers have been broken down, including those that formerly made life difficult for foreign hunters and yachtsmen.

Others are suggesting more extreme measures to promote Mexican tourism. Spurred by Mexico’s declining status among Caribbean tourism destinations, the chamber of deputies is considering the legalization of casinos, outlawed since 1935, to spice up the country’s image among high rollers.

But those efforts are unlikely to produce positive short-term results, said Bruce Goodwin, a San Diego-based hotel industry consultant specializing in the Mexican market. He said overall Mexican hotel occupancy is down 5% this year from 1994. “What Zedillo is proposing is positive, but the spigot isn’t going to turn on right away,” Goodwin said.

The picture isn’t entirely bleak. Cancun and Puerto Vallarta are posting increases in occupancy, despite raising room rates commensurate with the dollar’s rise in value.

But most tourist sites, which depend on Mexican travelers for 75% of their business, are hurting.

According to one executive at a major U.S. hotel chain with several properties in Mexico, news media coverage of Mexico’s woes has particularly hurt the segment of foreign tourists who otherwise might rent a car and spend a few weeks traveling to far-flung places in the country’s interior.

“For tourists in Europe or the United States, Mexican political instability might not affect plans to go to Cancun but could lend a negative attitude to what the rest of Mexico is all about,” the executive said.

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What Boom?

Many expected the collapse of the peso to help tourism in Mexico by making dollars worth more. But major resort hotels boosted rates in lockstep with the dollar’s value while Mexicans themselves were thinking recession, not vacation. Percentage increase or decrease in hotel vacancy rates and room rates (in pesos) from Jan. 1 through September:

Cancun

Room rate in pesos: +86.6%

Occupancy rates: +6.3%

Acapulco

Room rate in pesos: +57.6%

Occupancy rates: +0.7%

Puerto Vallarta

Room rate in pesos: +72.3%

Occupancy rates: +6.9%

Mexico City

Room rate in pesos: +43.3%

Occupancy rates: -22.3%

Guadalajara

Room rate in pesos: -5.2%

Occupancy rates: -35.5%

Monterrey

Room rate in pesos: +15.8%

Occupancy rates: -24.2%

Source: Goodwin & Associates