Business in paradise: One of Mexico's best profit-churners bets heavily on the future. (Tourism Report).

Despite fears following last September's terrorist attack on the United States, tourism has maintained its lofty place in the ranking of Mexico's industries as the third-largest generator of revenues after oil and manufacturing.

Last year alone, tourism brought in US$8.4 billion of hard currency, creeping towards Tourism Secretary Leticia Navarro's target figure of more than US$9 billion by the end of President Vicente Fox's administration in 2006, and up from US$8.2 billion in 2000.

"Tourism revenues were growing at a rate of 7% in August," said Francisco Madrid, undersecretary for planning at the Tourism Secretariat (Sectur), "but by the end of the year the overall growth had slowed to only 1%."

The reluctance to travel, particularly by air, after Sept. 11 still weighs on forecasts for 2002, the government official said, predicting a difficult first semester, which would improve from the summer on. Unfortunately, this affects Mexico's holiday high season that traditionally runs from Christmas to Easter.

Nevertheless, the general malaise still clinging to tourism is not confined to Mexico and it looks as though this country will maintain its eighth place in terms of international visitors received. Last year, Mexico was host to 19.8 million international tourists, only slightly down from 20 million in 2000.

Considerable care has been taken to prevent large-scale job losses in the industry. Madrid said that Mexico has managed to maintain employment in the sector at about 1.9 million. This was, in part, thanks to promotion that spurred new investment.

"There were new hotel rooms, about 9,000 last year," he said, "so this meant new jobs compensated for those lost in some of the beach areas, for example Cancun."

All surveys concur that tourists from abroad are still looking first and foremost for sun and beach, with 60% listing this as their top priority. Meanwhile, the portion of business visitors to Mexico hovers around 13%, said Madrid.

Tourists from western Europe account for 4% of the 19.8 million, Madrid noted, despite promotional campaigns and hopeful comments by Navarro last year that Germany alone had the potential to generate some 2.7 million Mexico-bound tourists annually.

When asked what differentiates the European market, the official said, "On the whole, European tourists want more culture. They also say they want sun and beach, but then list nature and authenticity."

What particularly works for European visitors, Madrid said, is a combo tour of beach and culture.

Last year's optimism over pending deals with international airlines has obviously diminished since Sept. 11.

"Flights have been reduced from the U.S. of course. For example, where there were three flights a day, frequency has gone down to two," Madrid observed. "But some lines are upping destinations and frequency of flights (...) The achievement here is that European airlines have maintained the frequency of their flights."

GETTING THE WORD OUT

The political boost to tourism that kicked off in 2000 with the ratification of new tax laws (US$ 15 a head for international tourists) that helped generate about US$50 million last year for the Tourism Promotion Board, (CPTM), which was formed in October 2000.

Dependent on the Tourism Secretariat (Sectur) but financially separate thanks to these fiscal funds, the board will see a dramatic increase in its budget this year thanks to modifications passed in Congress.

"It is important to underline that these modifications guarantee a very important income for tourism promotion," said Madrid, explaining that this year they will generate between US$80 million to US$85 million.

Luis Eduardo Ros, the CPTM's deputy director of Promotion, is optimistic about recovery.

"Last year Mexico saw a 4% decrease in international tourism over 2000. But the U.S. received 20% less! We hope to recover the loss, and see a bit of growth," he said.

Both officials emphasize that national tourism is just as important for Mexico. The promotional strategy to target domestic tourism that began with the "Todo Mexico es Tuyo" publicity campaign in late 2000 is bearing fruit, and continuing this focus is crucial to compensate for the slack in international tourism. Madrid notes that in terms of hotel occupancy, national tourism grew in 2001 by 1.7%.

For its main international market--North America at 85%--the CPTM has a new campaign called "Mas Cerca que Nunca" that kicked off late last fall. In addition to suggesting solidarity after September's tragedy, this campaign is intended to communicate that "if there is an airline problem, tourists from the U.S. can go to and from Mexico by car or train, or even walking!" Ros said.

Ros said the CPTM is currently pushing different areas for different interests: Golfers go to Los Cabos; the Pacific beaches such as Acapulco, Ixtapa, Puerto Vallarta and Mazatlan tend to attract tourists from the West Coast of the United States, while those from the East Coast tend to go to Cancun, as do Europeans and tourists from Latin America.

In Europe, the CPTM has offices to promote Mexico in four countries: Germany, Spain, Italy and France, says Ros.

However there is still much work to be done in fostering links between the tour operator wholesalers in European countries, and the company that receives visitors here. Mexico has lost a number of publicity opportunities in Britain, for example, where tour operators are nervous about touching destinations off the beaten track.

There is also a suggestion that tourism is an industry that has not been so easy to clean up under the new government, its image tarred with self-serving corruption and past shady deals. Just one glaring example of the battles that remain to create a sustained world-class image can be seen in the first Gold Guide produced by Sectur under Navarro. This glossy hardback production is the country's official tourism guide, left in the rooms of upper end hotels, yet the poor translation into English is an eyesore.

Regional Sectur offices tend to be slow to improve their act. It is often the case that municipal tourism offices are more helpful and attuned to the needs of international tourists, whereas staff in the Sectur state offices seems to consider that dealing with requests for information is beneath them.

Lastly, Sectur's information line, Infotur, is a much-needed and welcome service, but well-meaning operators frequently appear stunned at requests for regional information, as though it were completely outside their brief. For example, a repeated request to Infotur last fall for information on Valle de Bravo, yielded nothing more than the number of the road that would take visitors there from Mexico City.

FORTRESS FONATUR 

Walking into the offices of Mexico's National Tourism Foundation (Fonatur) on Insurgentes Sur, mind-blowing views of the volcanoes and city skyscrapers convey the sense that this is where the power lies.

Fonatur depends on Sectur but has the crucial task of developing investments. "They are given access to the land, and then work on developing the infrastructure," Sectur's Madrid explained.

Responsible for the developments of Cancun and Ixtapa, Fonatur is also busy promoting its long-term strategies, especially in the Sea of Cortez--considered one of the world's greatest areas of potential for nautical tourism.

This political administration is seeing the first stage of Fonatur's grandly titled mega-project, the "Escalera Nautica del Mar de Cortes," not due for completion until 2025, and officially considered the highest priority for the country's tourist development.

Alejandro Rodriguez, director of the Escalera Nautica in Fonatur, explains that the project is "a system that will allow a group of marinas to interact. The project has two areas: developing the franchises and the assets themselves."

These comprise 24 ports, "nearly half of which are ready," Rodriguez said. "This year, 2002, Fonatur will be focusing on the franchises--making ready a reservations center, facilities for boats, security, permits for fishing and for visiting islands, and the sale of services."

The website, www.escaleranautica.com/business.html, which also includes other Fonatur investment projects, explains that the mega-project expects to generate more than $11 billion pesos, 50,000 permanent jobs and attract in 2010 more than 5 million tourists. It is projected that the tourism income of the four states involved will increase by more than 800%.

After receiving heavy criticisms for lack of environmental planning in the development of Cancun, Fonatur is being closely watched by experts in environmental law, such as Mexico's Center for Environmental Rights (Cemda), who are seeking to protect this biologically diverse area--world-famous for annual whale migration.

The mega-project is a valuable example of how environmental considerations are playing a much larger role in Mexico's tourism industry today. Finally, the environment is relevant not merely as a niche market for so-called eco-tourism. Since last year, an ongoing wave of environmental legislation pushed by Semarnat, Mexico's Environment Secretariat, is tightening up restrictions and protection, as well as clarifying the do's and don'ts.

Last June the government launched a beach enforcement program, stepping up environmental vigilance along the nation's 12,000 kilometers of coastline. Javier Esparza, director of Mexico's Federal Maritime Territorial Zone (Zofemat) in Semarnat, commented that improving the administration of this crucial zone will help tourism because it means, "the foreigner can be sure his investment is correct."

BUDDING TRENDS

Figures for investment in Mexico's tourism industry last year hovered around $1.6 billion pesos, 70% of which was national investment. This included hotels and other buildings, golf courses, marinas and convention centers, said Sectur's Madrid, adding that so far for 2002 the country has its eyes on about $1.5 billion pesos. Sectur's budget for 2002 is about US$75 million, down from US$78 million last year.

Fonatur meanwhile has just re-launched Huatulco, Oaxaca and Ixtapa, Guerrero--two of its developments that have not been meeting expectations. However, Mexican destinations that continue to flourish include the Riviera Maya in Quintana Roo, which has seen some swanky new additions, such as the design hotel Deseo, as well as new major hotel chains. This year it will grow by 3,000 or 4,000 more new hotel rooms, Madrid confirmed.

Other hot spots that continue to grow in 2002 are Los Cabos, which is adding a further 1,000 rooms to the current 5,000 currently available, and Nuevo Vallarta in Nayarit, also adding around 1,000 rooms.

Spanish hotel chains are still growing at the fastest rate, Madrid confirmed, especially in the Riviera Maya, and along the Caribbean. The main chains are Melia (the eighth-largest hotel chain in the world), Iberostar, Riu and Occidental (which bought Allegro over the last couple of years).

The Secretariat's line on the new airport for Mexico City is cautious.

"We hope short-term problems will be resolved," said Madrid.

But, "There are good signs regarding privatizing airports," he added. "Work on the Cancun airport was completed in October with a new terminal, and work is going ahead in Merida. There will be two new ones this sexenio: Tuxtla and Queretaro."

A new highway linking Morelia to Ixtapa-Zihuatanejo has been loudly welcomed by hoteliers in both areas and is expected to bring much more tourism to Michoacan, still noticeably underdeveloped.

Port expansions have also gone ahead. Now Cozumel receives the most cruise ships in Mexico (1.8 million cruise passengers in 2001), and Mexico is the No. 1 country in the world for receiving visits from cruise-passengers (3.8 million in 2001).

Regarding trends in types of holiday, Ros of the CPTM emphasized that Mexico's trump card for the future of the industry is its diversity. He confirmed that ecotourism is expected to grow further in 2002, which also happens to be the United Nation's Year for Ecotourism, and he said the trend in boutique hotels is still alive, "especially for the European market."

A televised report by CNN broadcast in January held that the spa sector has been the least hurt of all tourism industry sectors since Sept. 11. Ros said other sectors bearing up well in recent months include sports tourism, such as fishing and golf.

However, other sources suggest spas now mean serious business in Mexico. Orlando Hidalgo, co-owner of the spa at Hosteria Las Quintas in Cuernavaca and former president of the Mexico Spa Association (MexSpa), estimates that the industry here is growing at the phenomenal rate of 50% per year.

"Hotels here are realizing they have to have a spa to be competitive," he said in January. The Hotel Marquis Reforma is planning to add a new world-class spa, a 1,500 meter-squared space expected to open in September this year. And then there are the Palace Resorts in Cancun-Moon Palace, Sun Palace-and the mind-boggling new Spa Palace on the Riviera Maya, which opened last October with 1,000 rooms and over 100 treatment rooms.

A sign of the industry's local growth is that a standard of spa definitions and categories is in the making with the Comite Tecnico Nacional de Normalizacion Turistica, who are working on quality norms for Mexican spas.

Hector de Galard, general manager of a new "Thelassotherapy Center" at Paraiso de la Bonita resort, half an hour from Cancun, confirmed the trend. A veteran of the luxury boutique hotel industry, de Galard noted in February that one of the typical changes over the last six months is that reservations are coming at the last minute.

"But it is always the high-end market that suffers less. A good point here is that Mexico is the favorite country for U.S. holiday-makers, and there are no safety concerns here, it is a short trip and there are direct flights to all major cities."

John Youden, founder of the successful company Hoteles Boutique de Mexico, has seen the effect of recent promotional emphasis on national tourism: "Last year, previous to Sept. 11, we were about one-third national. Now it's half of our reservations. And they are booking them online."

On infrastructure however, "Good air connections are a problem, especially for places like Morelia. Small commuter air service is needed."

There is no doubt that Mexico remains a highly desirable tourist destination and will be seeing exciting new developments and hotels of all sizes and classes this year and the next. However, while previous concerns regarding crime seem to be diminishing, popular perceptions about corruption and inefficiencies still need to be addressed with a consistently attentive service attitude, more bilingual and well-organized tourism service providers, improved infrastructure and a firm resolve not to avoid the planning mistakes of the past.

Barbara Kastelein writes about Mexico travel and tourism for Fodor's Travel Publications, Conde Nast Traveller (UK) and the Sunday Express news paper in London.