A many-splendored thing: tourism sector aggressively sells its natural gifts and wide-ranging appeal to keep beach cocktails flowing and temazcals smoking in tough climate. (On the Cover).

From sipping a margarita on a sun-soaked beach to a jungle trip to maya ruins, many a holiday fantasy has come alive in Mexico. Likewise, the tourism industry has been helping some of the nation's economic dreams come true.

In terms of visitor numbers and total revenues, the country is ranked eighth and 13th, respectively, in world tourism rankings. In 2002, the sector accounted for some 10% of gross domestic product and created revenues of US$22 billion. For many, holidays may be as simple as passport, plane ticket and packed bags. For the industry itself, however, life is a bit more complicated. Providing R&R involves an elaborate network of transport firms, travel agents, tour operators, hotels, marketers and multifaceted government agencies.

Depending on one's perspective, a glance at tourism sector growth will have some catching a dose of Moctezuma's revenge and others grinning into their tequila sunrises. On the downside, there has been no jetting away from a worldwide economic slump, and since 2000, revenue growth has fallen by two-thirds. The World Tourism & Travel Council (WTTC) sees little in the way of a comeback.

"Growth will be slower in the earlier part of the forecast period as a result of the overall security and safety situation in the U.S., as well as the economic slowdown in both countries," said Mario Garcia of Euromonitor International, a research firm.

Optimists, of course, take a perkier view of the situation. Compared with many other nations, Mexico has shown remarkable resilience during these tough times. Revenues grew by a respectable 4% last year with world tourism growth floundering at 0.7%. "Mexico is clearly more popular than ever," noted Roger E. Block, executive vice president at Carlson Wagonlit Travel, a large U.S. travel agency.

So what has kept the punters coming to Mexico during some of the harshest seasons in the history of the industry? First and most importantly, Mexico is a jolly fine place to go on holiday. It possesses one of the longest coastlines of any country and sits between the 19th and 30th meridians, which give it a rather agreeable climate. Also, it offers more than the classic formula of sun, sea and sand, as the nation is blessed with incredible diversity, both geographically and culturally. When asked to describe the place, Spanish conquistador Hermin Cortes--in a crude attempt to show the country's many facets--simply crumpled a piece of paper and dropped it on the table. It may sound cliched, but Mexico really does have something for everyone.

SAFE BENEATH THE PALMS

In this new age of heightened security and terrorist threats, Mexico is largely considered a secure destination. Although recently there has been an upturn in Zapatista harassment of tourists in Chiapas and Mexico City continues to suffer from widespread crime, most tourists have little to fear in the way of Bin Ladens, Bali bombs or Baghdad attacks. And it is these high-profile threats that are affecting people's holiday decisions.

Many Mexicans who could afford to travel abroad are staying at home while Americans, the principal source of foreign tourism, see Mexico as a far more secure option than Europe or Asia. "Our first choice was London," said Mary Whitehouse, an American tourist in Manzanillo. "But at the last minute we decided to hit Mexico, mainly because we feel safer here."

Finally, travelers get more mileage for their money. With a reasonably low cost of labor, the region has always offered competitive prices. Things look even rosier for the foreign visitor, as we watch the demise of the "superpeso," making the exchange rate more attractive.

So who goes on holiday in Mexico? Well, shockingly enough, it is mainly Mexicans who vacation in La Republica. According to the Asociacion Mexicana de Hoteles y Moteles (AMHM), domestic travelers accounted for 80% of hotel occupancy in 2002.

"We fly, for example, 700,000 people a year to Cancun from Mexico City," said Adolfo Crepso, vice president of public affairs at Mexicana. "The domestic tourist market is hugely important to our business."

NATIVES STAY LOCAL

This healthy domestic market defies a trio of negative factors: low access to credit (Mexico has one of the lowest GDP-to-credit ratios in Latin America); a lack of paid vacation days under Mexican labor law (holiday entitlement for first-year workers is six days per year); and low income (GDP per capita for 2001 was US$9,000, according to World Bank). Mexico's famously rich upper class accounts for most of the market. InfoAmericas, a market intelligence consultancy, estimates that Mexicans who fit the "AB" wealth bracket now spend roughly 12% of their disposable income on travel and leisure, accounting for about 50% of the total domestic market.

Of 20 million foreign tourists in Mexico last year, 84.6% were from the United States, although a significant proportion of this may fall under the visiting-friends-and-family segment.

"There has been a marked increased in border tourism," said Kenn Morris, director of CrossBorderBusiness.com a consultancy specializing in U.S.-Mexican border affairs. "U.S. tourists visiting border cities spent at least US$2.2 billion in 2001--more than $528 million in Tijuana alone."

AGGRESSIVE MARKETING

Whether they are local, from the U.S. or from Timbuktu, getting bums on Mexican beaches has become a marketing-driven business. Through its tourism promotion agency, Promotur, the federal government has used the revenues of a special 2% tax on hotel accommodation specifically toward this purpose.

"There is no question that the government needs to take a leading role in tourism marketing. The real hick has been to pool resources with local government and the private sector," said Peter Yesawich of Yesawich, Pepperdine, Brown & Russell Public Relations, a U.S. firm that specializes in advertising, marketing and public relations. The firm orchestrated a major campaign stateside on behalf of Promotur. "As well as cost, safety and accessibility, one of the traditional challenges has been broadening the message. We also wanted to draw the market's attention to the great diversity of Mexico."

To achieve this, the firm not only worked through traditional advertising media, but also through the networks of wholesale travel agents such as Liberty Travel and Flyaway, where they forged an 18% increase in sales.

The biggest beneficiary of this success is the transportation industry. Visitors spent US$11 billion, or 28.5% of their budgets, on getting from point A to point beach. Of that, bus journeys account for 65% of travel consumption and air travel makes up 27.4%. Thanks to its expensive toll roads, Mexico has a reasonably well-developed network of highways and bus lines to meet demand.

DOMESTIC AIRLINE PRICE GOUGING 

However, considering its large geographic size, many believe that the airlines fail to offer a competitive alternative.

"The high cost of air travel in Mexico is a headache for the travel industry," admits Jorge Vazques, director of tourist destinations at American Express.

"The CFC (Mexico's anti-trust regulator) claims that Cintra, the owner of Mexicana and AeroMexico, the two main national airlines and a clutch of regional airlines, uses its 76.3% dominance of the market to inflate prices on domestic routes. Travel businesses complain that high fares on domestic routes are a big disincentive to national tourism," added Garcia of Euromonitor.

Of course, the airlines defend this accusation. "As proven in international market analysis, our prices are extremely competitive," responded Mexicana official Crespo. "The industry is hyper-sensitive to the economy, and we are budgeting for very modest growth this year." With high oil prices and unpredictable occupancy rates, the airlines are bracing themselves for a slow recovery.

The common perception of inflated domestic airline prices has had a nasty effect on another key player, the travel agents. Mexicana, for example, just dropped its agent commissions from 5% to 1%. According to Fernando Flores, director of the travel and tourism practice at InfoAmericas.com, a consultancy firm, this will see the demise of 12% of Mexico's 3,490 travel agents by the end of this year.

"We estimate that 75% of their income is generated through flight commissions," he said. So how will the survivors survive? "Customers will naturally turn to the bigger agencies which can stay afloat by using their economies of scale. They will also find ways of charging for services such as travel consultancy and bookings."

Technology is helping. Most agencies are now plugged into one or more of the global distribution systems (GDS) such as Sabre or Worldspan. These provide access to the industry's vast and dynamic reservation systems and allow them to give their customers on-the-spot quotes, reservations and ticketing. Many have also embraced the Internet. Firms such as Despegar.com and Viaje.com set up pure-play online travel agencies, believing that their convenience and low transaction costs would attract business. However, lack of PC and credit card penetration has lead to a very poor uptake.

Likewise, tour operators are surviving through their "full service" model. They number 539, representing 13% of the industry in terms of number of companies, and they are winning market share in three ways. Firstly, by offering packets that cover accommodation, travel and activities, they can win bigger commissions (typically 8% to 15%, according to InfoAmericas). Secondly, many travelers are prepared to pay a premium for a single trusted party to handle all their travel arrangements. Finally, most operators are able to differentiate themselves by focusing on niche markets usually defined by location, purpose of travel or age group.

From crusty beach huts to super deluxe boutique suites to mammoth superdeluxe complexes, the Mexican hotel sector is both diverse and fragmented. There are currently 10,300 hotels in Mexico with a total of 452,000 rooms. Despite the industry slowdown, 10,000 rooms were added last year and 60,000 new jobs created. However, like all else, the sector has felt a few wobbles lately, and industry insiders have expressed increasing alarm at what they say are declining occupancy rates.

CANCUN RANKS NUMERO UNO

Having voyaged through the worlds of transport, agencies, hotels and operators, it is time to examine the holidays themselves. As discovered by hoteliers, the three most important success factors for a resort are location, location and location. The hottest spot in Mexico--and the world according to one travel agency--is Cancun. A survey of Carlson Wagonlit's 1,400 agents named the gateway to the Maya Riviera as the No. 1 international destination, overtaking the time-honored top dogs of London and Paris.

While visits to major beach resorts rose by some 6.4% last year, according to Sectur, trips to less known playas fell by 17.2%. "Many destinations like Huatulco have tried to replicate the Cancun style of mass tourism," Flores of InfoAmericas said. "The model is no longer ideal." Worse still, visitors to the nation's interior destinations dwindled by 21.2%. Much of this may be attributed to a reduction in visits to friends and family rather than touristic pursuits.

Clearly, the most popular activity for visitors to Mexico is to kick back on the beach. However, many tourists are looking to get more than just a suntan. By far, the most popular tourist attractions are the archeological sites, which are distantly followed by the big water theme parks.

Many of those who call on these attractions are day-trippers bussed in by their hotel operators, but more and more are taking specialist "activity breaks." For example, many providers are offering stays combined with language, cookery and culture activities. But, the biggest demand is for eco or adventure tourism. In a nutshell this combines two elements--a desire to enjoy and interact with the natural environment.

Most of these missions involve adventure sports such as kayaking, mountain biking, climbing and trekking. Naturalistic pursuits such as bird watching and safaris are also included in this sector. There are now 425 organizations in the market and the number is growing fast.

"Our main challenge right now is demand--it is too high," said Kenneth Johnson Dias, of la Asociacion Mexicana de Turismo de Aventura y Ecoturismo. "As providers try to increase service supply, quality falls. That means badly trained guides, oversubscribed trips and poor customer satisfaction."

BIG SPENDERS WELCOME

Another flourishing niche is luxury travel. Spending on personal travel in Mexico by American Express cardholders, who are considered the most opulent of card holders, grew by 6% last year, outperforming the rest of the market.

"Some of our best business comes from high-end clientele," said Ruth Skipsy of Journey Latin America, a British travel agency. "They want tailor-made holidays, luxury haciendas in the Yucatan or exclusive properties on the Caribbean and Pacific Coasts."

Youth travel is also booming. Hippies, backpackers and students are piling into Mexico. "We now have 34 offices and our earnings have grown 480% since 2000 to US$12 million," says Kitzia Aguilar of Asatej, a travel agent who caters to the youth market. Young, independent travelers have very distinct habits. They spend about the same as the average visitor but stay over a longer duration (30 days on average), and, due to their adventurous nature, the money is distributed to the more remote parts of Mexico.

For the world's middle classes, the annual two-week pilgrimage has become a fundamental right and, for many, Mexico is a choice destination. Thanks to eight years of economic stability, more and more Mexicans are affording themselves this once undreamt-of luxury. While these trends continue, so will more holiday dreams come true.

Rawdon Messenger is a Mexico City-based freelance writer and columnist for the Evening Standard of London.