Rooms to grow: against all odds, Mexico's hotel industry is poised for healthy growth.

Neither last year's economic gloom, nor the paranoia triggered by September's terrorist attacks, has managed to spoil Mexico's global tourist appeal, let alone dampen local hotel industry spirits.

Call it defiant, or merely optimistic, but the nation's leading international and home-bred hoteliers are shelling out on major expansion plans that will position them to reap the benefits of the surge they say is soon to come.

And there's no apparent end in sight to the construction boom that has left the world's seventh-largest hotel industry spellbound (with some 10,400 hotels, or 430,000 rooms by latest estimates) says President of the Mexican Association of Hotels and Motels (AMHM) Miguel Torruco.

"Even after the terrorist attacks, we maintained construction, and last year saw 10,000 new rooms, according to plan," Torruco told BUSINESS MEXICO, adding that a further 10,000 international-quality rooms are expected to fatten up the nation's hotel infrastructure by 2003.

And that's a far cry from last year's jittery reports on low hotel occupancy in the media, which painted a bleak long-term picture of Mexico's tourist and hotel industry. But less talked about was the fact that the industry actually shed very few jobs in 2001, and despite the minor downturn in foreign visitors, actually saw an increase in the generation of foreign currency.

"In December we closed with 3.5% lower occupation than in 2000 and this was clearly due to problems in the United States with terrorism," said Torruco.

"At the same time there has been an upturn in foreign currency. We obtained US$8.4 billion in hard currency--up more than US$ 100 million over 2000."

What this means, Torruco said, is that big-spending tourists in the United States (who account for 86% of total foreign visitors) and Canada are choosing Mexico.

And what the local hotel industry has to offer is also growing--beyond its traditional hubs at beach and urban areas.

"We are seeing growth and increased investment in business tourism, such as conferences, and then specialized tourism such as the haciendas and boutique hotels, as well as the all-inclusives," says Eduardo Barrosso, undersecretary of Tourism Operations in Mexico's Tourism Secretariat (Sectur).

INDUSTRY AT A GLANCE

The leading international chains in Mexico are Starwood, Hilton, Six Continents, Sol-Melia, NH and Marriott, each owning several chains. Meanwhile, the leading local hotel chains include Grupo Posadas, Calinda and Mision. Even so, a five-year trend toward higher proportions of foreign investment in Mexico's hotels is continuing.

"Ten years ago, 92% of investment in the hotel industry was national, but in 2001 it was 80% national and 20% foreign," Sectur's Barrosso said.

And that's good news, considering the stakes. According to the AMHM, private tourism investment represented about US$35 billion in 2001, of which 36% corresponded to the hotel industry. As one of the mainstays of the local economy, it is estimated that each hotel room generates one direct job and four indirect.

A new drive to step up tourism is also helping the industry. Torruco praised Tourism Secretary Leticia Navarro and her efforts last December in convincing Congress to legislate that half of each US$15 border entry tax go directly to the Council for Tourism Promotion (CPTM), almost double its prior budget.

Analyzed by region, the states that are home to the greatest number of five-star hotels (which contribute the lion's share of hotel revenues) are Quintana Roo, Mexico City, Guerrero, Jalisco and Baja California Sur. The Riviera Maya in Quintana Roo is continuing to enjoy a boom this year, expecting up to 4,000 new rooms. Meanwhile, thanks in part to the National Tourism Foundation's (Fonatur) "Nautical Steps" project that links marinas, hotels and other tourism infrastructure around the Sea of Cortez, construction is expected to rocket in the surrounding states.

That is not to say however, that new challenges have not surfaced. Fiscal changes passed by Congress on Dec. 31 imposing taxes on various "luxury" services have hotel operators up in arms. Critics argue the tax will prevent Mexico's hotels from being internationally competitive, and provoke an industry crisis. The AMHM is currently fighting the tax through legal appeals. Furthermore, environmental concerns are feeding into legislation, which in turn is limiting the number of rooms that can be constructed per hectare in certain areas.

THE PLAYERS

Mexico's largest hotel group, Grupo Posadas, announced in April that it would build 25 hotels between 2002 and 2003, expanding further in Mexico and South America. Ten new hotels are slated for this year in Mexico, including Fiesta Inns (two in the capital), and a Fiesta Americana Suites in Mexico City's Zona Rosa. Next year will see two more Fiesta Americanas, in Queretaro and Mexico City, and seven more Fiesta Inns.

Recently, Six Continents Hotels announced that it considers Mexico, where it has 69 hotels, including nine Inter-Continentals, one of the most important markets for business and pleasure travelers in Latin America. It opened its Holiday Inn Mexico City Trade Center on April 10, and expects the group's total rooms in Mexico to reach 12,000 by year-end.

Last year, Spanish global hotel colossus Sol-Melia, which says it is the largest hotel company in Latin America--as claims Grupo Posadas-- declared that 65% of European tourists who come to Mexico stay in Melia hotels. Melia's presence is believed to help attract European tourists, who are highly sought-after visitors as they are thought to stay longer and spend more.

Javier Polanco, commercial director for Sol-Melia in Mexico, says they are the biggest resort chain in the world, and are growing at a rate of 20% per year. Not surprisingly, the Spanish company has also developed a top beach resort all-inclusive brand, Paradisus, and opened a new Paradisus Riviera Cancun in December, with an investment of US$72 million.

Another growing Spanish chain is NH Mexico, with six hotels already up-and-running in places such as Mexico City, Puerto Vallarta, Veracruz, Coatzacoalcos and Lazaro Cardenas. Furthermore, the Spanish Consortium is planning to open between three and four hotels in Mexico per year with an annual investment of US$210 million.

Meanwhile, Marriott International is represented in Mexico so far by just seven properties, but these include the company's top brand JW Marriott in Mexico City, and two luxury resort "CasaMagnas" in Cancun and Puerto Vallarta.

One of the company's latest products is the JW Marriott Cancun Resort and Spa, a top-of-the line brand characterized by more personal service, said Marketing Director Anthony Armas, who boasted of the hotel's higher staff-guest ratio and luxury accommodation amenities.

Marriott remains interested in expanding further in Mexico, now that tourism is on the rise again.

"We saw the trend coming back once the New Year started," said Armas. "The first two weeks of 2002 were still soft but now business is strong again," he said adding, "We are expecting the first semester of 2003 to be good."

And then there's the Hilton Los Cabos Beach & Golf Resort, which just recently opened. The fourth Hilton property in Mexico after Mexico City, Guadalajara and Cancun, the expensive resort destination is pitching for a 90% U.S. clientele--40% from California, and only about 2% each from Canada and Mexico, said Marketing Director James Alfaro.

Alfaro proudly describes the Los Cabos resort as "the most expensive in Latin America," and predicts 70% return visits, indicating the depth and assurance of market analysis in the weighty, high-end hotel groups.

The company will be opening several more Double Tree and Hampton Inns in the region next year.

"We will eventually be one of the largest groups in Mexico," Alfaro declared. Asked whether Sol-Melia wasn't the fastest growing company, he replied, "Not for long."

SMALL COMPETITION

Smaller luxury brands have affiliated with larger groups, taking advantage of their infrastructure and experience, while maintaining their own more personalized attractions, and offering greater market diversity to the giants.

In 2001, Mexico's prestigious Camino Real hotels, then under the leadership of parent company Grupo Empresarial Angeles (GEA), signed a deal to join its name with Hilton and share in the Hilton Honors program. In the same year, Starwood incorporated some of Mexico's Grupo Plan's properties into its "Luxury Collection," including El Careyes Beach Resort and El Tamarindo Golf Resort in Jalisco.

Other independents, such as the luxury hotel operator Quinta Real Grand Class Hotels & Resorts, work with groups of local shareholders to offer one-off properties, with boutique levels of service and attention to detail.

With eight hotels in Mexico, Quinta Real has 70% city properties and 30% beach, and plans to maintain this balance.

The company just opened in San Miguel de Allende on Jan. 31, with 33 suites, and Quinta Real Puerto Vallarta will open in August, with 66 suites and a marina.

So, what makes a hotel "top of the line?" Quinta Real says the difference lies in architecture, luxury and detail.

The new design hotel Deseo, which opened last October in the Riviera Maya, made the front cover of April's Conde Nast Traveller magazine.

The hotel is the second property of the young associates who created Habita in Mexico City. And they expect to open a new hotel next year in the Colonia Condesa, Mexico City, with the famous Tehran born designer India Mahdavi in charge of decoration and Jonathan N. Morr (of Bond St. and Miami Townhouse fame) overseeing restaurant operations.

And big names certainly help: with a history spanning four decades and a portfolio that now extends around the world, Four Seasons Hotels and Resorts is the world's leading operator of luxury hotels, currently managing 53 properties in 24 countries.

"We have a very well-defined niche in the industry," says Luis Argote, general manager of the Four Seasons Reforma, the only AAA Five Diamond Hotel and Restaurant in Mexico City, "and we are obsessive about our standards, always fine tuning services."

Consistency, he says is also a main strength, with guests knowing what to expect. Guest comments are stored in a database. Trends are analyzed and discussed formally in a corporate meeting held every three months.

Argote says that now a typical traveler wants more of a residential feel, "a room experience similar to their own home, for example with a CD player and an excellent sound system. We want to provide people with an efficient stay, and find that expectations are increasing."

The hotel relies very heavily on standards in its staff, and Argote says the secret here lies in the hiring process, looking for "attitude even more than aptitude," adding that "even the dish washer undergoes four or five interviews, which is very time consuming for us."

As a recovery of the nation's tourism industry looms on the horizon, Mexico's hotel operators are losing no time in increasing efficiencies and preparing to grab up market share.

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