Suite expectations.

Mexico's hotel industry is moving toward alliances, expansion and niche markets to keep up with the nation's millions of tourists

Mexico's hotel industry won't get to sneak off for a snooze in the hammock any time soon. The year has brought a clamor of activity and growth, with major chains posting record earnings.

And it's hardly surprising: Mexico has been steadily attracting more and more visitors each year, who by latest estimates are also spending more money than before. According to recent figures from the Council for Tourism Promotion, the nation's record 20 million visitors in 2000 spent almost US$8.3 billion, a 14.8% increase over 1999.

Greeting these visitors are bright, new constructions that slope up toward azure skies all over the country's thousands of miles of coastline--especially in the northwest around Baja California and Sinaloa, and in Quintana Roo on the Yucatan Peninsula, where Cancun glistens as the fattest jewel in the crown.

Some of these hotels are large, international chains, but trends in tailor-made holiday alternatives, both inland and on the beach, have allowed smaller players to get in on the take. But it's not all about leisure. Mexico's inland towns and cities are also attracting their share of business-oriented hotel customers.

A BIT OF EVERYTHING

As opportunities grow, so does the market appeal for foreign hotel conglomerates, who are moving in fast, sometimes alone, but often in alliance with local players. Around 17% of investment in the nation's hotel industry is foreign, according to Miguel Torruco Marques, president of the Mexican Hotels and Motels Association, which represents roughly two-thirds of quality hotels in Mexico.

The months leading up to Tianguis--the nation's late-April annual tourism fair in Acapulco--brought announcements of new associations with, or purchases by, multinational operating giants.

While the principal international chains here--Starwood, Hilton, Marriott--have been stepping up their activities, forming alliances and bringing new innovations or twists to their portfolio of brands, increased confidence in Internet transactions and advertising has allowed several smaller, luxury hotels to flourish.

Some of Mexico's major chains, such as Grupo Posadas, Calinda and Mision, are also following suit, aiming at more segmented, upgrade markets--as seen in Posadas' new brand The Explorean in the Yucatan area.

Despite fierce competition from the Caribbean and Costa Rica's success as a destination for the eco-niche tourist, "the industry is growing, and continues to grow," says Torruco with pleasure.

He points to the fact that Mexico is one of the few countries in Latin America to construct an average 10,000 new hotel rooms per year. This means, in addition to providing an extra 5% in tourism revenues each year, the hotel sector is becoming a more important generator of employment.

"Every room generates 1.5 direct jobs and five indirect," he says

Today, tourism is Mexico's third major industry, accounting for 10.3% of GDP. Moreover, Mexico's more than 10,000 hotels and 430,000 rooms rank the nation as the world's seventh-largest holder of hotel infrastructure in the world, which is worth about US$24 billion.

BUSINESS OR PLEASURE?

And it doesn't all boil down to margaritas and white-sand beaches. Although Tourism Secretary Leticia Navarro recently declared that beaches are Mexico's trump card for attracting European tourism, the lion's share of Mexico's foreign visitors are still from the United States, and many come precisely to do business.

According to Francisco Zinser, CEO of hotel operator Grupo Chartwell, this increasingly implies "a balance between beach-leisure and city-business."

Business lodging based in the cities is gaining more importance than ever before. For Rajiv Bhatia, corporate director of International Hotels at Cendant Corporation--the world's largest hotel franchiser and vacation-exchange organization--rising demand from business travelers to Mexico is almost synonymous with the nation's economic aperture.

"Because of Nafta, there has been more commercial activity. Cities especially have been affected positively," he says. "For example, Monterrey has seen an upward swing in commercial traffic from the United States."

Similarly, according to Alex Starling, the vice president of Hoteles Marriott de Mexico, "beaches are doing well, but they are not up as dramatically as city hotels."

Responding to the strong demand for business hotels, Marriott, which runs several beach and city hotels and resorts, strategically placed its Courtyard Marriott branch in Monterrey, close to the local maquiladoras frequented by business travelers.

"Looking at the region, tourism and business go hand in hand," Starling says, adding, "the U.S. market is extending into Latin countries, thanks to the trade treaties."

Likewise, Hilton, with most of its Mexico properties inland, reports that business guests represent more than 50% of its Mexico clients.

The chain, whose name is synonymous with hotels worldwide, came back to Mexico in 1996, signing a preferred franchise agreement with newcomer Grupo Chartwell.

Chartwell began operations that same year by buying a master franchise for Travelodge hotels, and now has 14 hotels, 60% of which are in cities, and the rest on the beach.

Earlier this year, Hilton announced an unprecedented affiliation agreement with Hoteles Camino Real, the prestigious, five-star Mexican chain.

The deal gives Hilton the greatest range of four- and five-star properties in Mexico and makes it the second-largest hotel chain in the country, with 21 hotels and 5,190 rooms.

And then there's Grupo Posadas, which boasts its successful Fiesta Americana line. With more than 60 hotels across Latin America and the United States, Grupo Posadas is the region's largest hotel chain, bringing in 260 million pesos in 2000. The 1998 acquisition of Brazil-based Caesar Park hotels is leading the giant to build on its Caesar Business line throughout South America.

SOMETHING FOR EVERYONE

But not all hotels these days can fit the business or leisure labels. The growing trend of wealthy holiday makers is leading to a demand for more "specialized" hotel experiences that range from the historical and archaeological to the ecological and adventurous.

Among the most peculiar is the recent spate of "boutique" hotels. Definitely the industry's buzzword these days, "boutiques" cater to "the sophisticated traveler looking for a unique vacation experience," in the words of Luis Bosoms, executive director for real-estate developer Grupo Plan.

Boutique hotels tend to overlap with the Colonial or Hacienda category, as illustrated by the nascent Grupo Mesones Sacristia, which owns historic properties in Puebla and since last summer has been operating the city's converted 16th-century Hacienda San Gabriel de las Palmas.

The group began just over five years ago with Meson Sacristia de la Compania, a novel hotel concept combining lodging, food, drink and an antiques gallery, in which guests can buy the furniture they see in their room or in the restaurant. Lourdes Espinosa, the group's PR and sales manager, says plans are afoot to open a "Meson" in Mexico City.

The group is represented on the Internet by marketing company Hoteles Boutique de Mexico (HBM). Created by Canadian John Youden and exclusive to this country, the company has a portfolio of 24 exquisite hotels.

"I realized there was a kind of hotel that I preferred to stay in. They tend not to be in large resort areas ... they have to offer a unique experience."

Youden started writing about them for a magazine and then met travel agents who were looking precisely for these kinds of hotels for their more discriminating clients. They had difficulty finding them, as they were not part of any of the major chains.

Then hotels began to ask if their accommodations qualified as boutiques, "so we just linked the system together, and it seemed to stand on its own," he says.

The name "boutique" said it all, explains Youden, which he interprets as "a small shop that specializes for a niche market, and offers personalized service."

The "boutique" trend encompasses small hotels, some with only five rooms, and usually not more than 50. On average, there are four employees for every guest.

"These are the hotels that try to participate with the local hotel associations, but get lost in the shuffle," Youden says. "They get called 'special category' and yet they are a very large trend."

But now with the Web as the fastest growing method of travel booking today and the prime vehicle for HBM's service, changes are afoot. The Internet eliminates the cost of long-distance calls, as well as the language barrier.

"It is going to alter the industry, away from the big franchises," Youden says. "I've seen it happening."

"Because of globalization, companies are looking to specialize," says Javier Polanco, commercial director for Sol Melia in Mexico, "if it is a vacation hotel, the attraction might be golf; if business, it might offer conference services. In the industry nowadays, companies are looking at all market niches."

Sol Melia, Spain's leading hotel chain, has big plans for expansion in Mexico. They have started a boutique luxury brand, but so far only for Europe. The company, the 10th-largest hotel chain in the world, is a growing presence in Latin America, claiming to be the biggest chain in the region with 41 properties, excluding the 17 it has in Cuba.

While there are no plans yet to bring the new Melia Boutique brand to Mexico, its creation is in line with the movement in the international hotel market to identify market segments and develop sub-brands.

"Boutique" hotels are closely related to another trend called "design" hotels, which are characterized by distinctive interior design and architecture balanced by functionality and service.

Mexico City now has its first design hotel, a minimalist showcase, called "Habita." An immediate hit with a young and fashionable U.S. business clientele, it currently boasts between 70% and 80% occupation, says the hotel's PR spokesperson Ingrid Muggenburg. Although it only opened in October last year, the four partners are already thinking of expanding, probably to a beach area.

Other popular travel themes among today's tourists are those related to a hotel's historic or archeological surroundings.

"There is a big market for Colonial hotels," says Camino Real spokesman Eduardo Terrazas, "and a huge market for Oaxaca in particular."

And he should know: Camino Real's pricey, converted ex-convent in Oaxaca City has become a magnet for European tourism. With this Camino Real branch and the one in Puebla, the company adds a third category to its significant business and beach hotel repertoire: Colonial.

With 33 properties under its wing in Latin America, Starwood Hotels & Resorts is also embracing the trend for Colonial- or hacienda-style five-star accommodations in Mexico.

In February, the corporation--which includes 11 Sheraton and Westin hotels currently operating in Mexico--signed an agreement with Grupo Plan to manage a group of hotels in the Yucatan Peninsula and the Pacific Coast. Under Starwood's Luxury Collection brand, the portfolio includes four historic haciendas in Merida and Campeche that have been converted into small hotels, marketed as "hideaways."

Two additional resorts, the Tamarindo Golf Resort and the Careyes Beach resort, are located in the up-and-coming leisure destination, Costa Alegre, between Puerto Vallarta and Manzanillo.

Osvaldo Librizzi, president of Starwood's Latin America Division, says the company has broadened its lodging options here from urban business hotels to beach resorts, "and now to a boutique-style charm and luxury in destinations regarded as ecological and archaeological wonderlands."

Of course, none of all this positive news for Mexico's hotel industry can fully offset many of the obstacles the hotel business still faces at home. Not unlike business in other sectors across the nation, Mexico's hotel companies bitterly complain about persistent financing woes, over-taxation and high crime rates.

"The first thing we need is preferential interest rates," says the Hotel Association's Torruco, "and then to get rid of the red tape that hampers expansion and remodeling."

The 2% federal tax on assets remains a burden for hoteliers, and they are still demanding equal tax treatment with their competition abroad.

"For example, in the U.S. there is no tax charged on conventions, and if we could reimburse the 15% Value Added Tax on purchases by foreigners--as they do in Texas, for example--then 20 million tourists in Mexico could become important consumers.

The once-controversial "head tax" of US$15 on visitors to Mexico, initiated in July 1999, no longer raises so many hackles as it has been seen to contribute toward tourism promotion.

"Before the foundation of the Mexican Tourist Board in 1999," says Torruco, "the government only had US$22 million to spend on tourist promotion, while our competitor countries had US$50 million."

Now, with 15 representatives from federal state and municipal bodies, and 14 private initiative representatives (including one seat for the Hotel Association), there is a new coordination and direction with the board to successfully promote new markets.

Nevertheless, Zinser of Grupo Chartwell is far from content with statistics for industry growth, saying demand for hotel rooms is growing at an annual rate of only 5% or 6%.

The Tourism Secretariat is doing its part to increase that figure. In March it announced a US$10 billion investment in tourist development. It is supporting three long-term projects, a US$2 billion marina development in the Sea of Cortez (between Baja California and the mainland) and two developments in Quintana Roo--the Riviera Maya corridor between Cancun and Tulum and the Costa Maya in the south of the state.

In light of the U.S. economy slowdown, the hotel industry is also concentrating on an increase in tourists from Europe and South America.

According to the Mexican Hotels and Motels Association, 75% of foreign visitors to Mexico in 2000 were from the United States.

"It used to be 86%, but now we are seeing more visitors from Canada, Central and South America and Europe," says Torruco.

Tourism Secretary Navarro recently underlined the importance of tourism from Germany. Germans are the principal tourism consumers of the world and interested, according to market studies, in Mexico's cultural options.

"Around 600,000 Germans visit us each year, and we are working to increase that figure to 2 million," Navarro told local press in March.

It seems the Melia chain has a corner market on any new influx of Europeans.

"Of the little European market that does come here, 65% stays in a Melia hotel," says Melia's Polanco.

In any case, no one will admit to fears of a U.S. recession.

"Mexico is the gateway into Latin America, and it is continuing to grow fast," says Polanco. "U.S. economy fears are not really showing. Our position is that all families will still need a holiday, and most of our hotels in Mexico are in the leisure segment."

Even the small design and boutique hotels are unperturbed.

"Business will have to continue, so we are not worried. Besides, we have repeat clients," notes Habitat's Muggenburg.

And then there's crime. Security problems, perceived or real, can tend to be a far greater concern for hotels than economics.

"A great disadvantage is that Mexico is perceived as insecure," says Lourdes Hinojosa, of Grupo Meson, "so we have the additional challenge of proving it is safe, as well as rich in culture and equipped with world-class hotel infrastructure."

Mexico City--with 220 hotels and 26,000 rooms--suffers the most from this perception.

"We have been losing tourism in the last 15 years, ever since the '85 earthquake," says Benjamin Aguilera, general director of Mexico City's Hotel Association.

For a long time, nothing was done to remedy the situation, Aguilera complains, but now the first steps are being taken to give a push to the "corredores turisticos" and there are plans in the works for renovating the capital's historic center with national and foreign investment.

"To bring tourism to the capital, we have implemented a 40% discount Fridays, Saturdays and Sundays-- 10,500 rooms on offer over the weekend," he says.

This offer went into effect in January, and will continue until the first month of 2002.

All agree that the current, frenetic development and segmentation in the industry appears to be a sign of initiative and good health.

And new blood keeps the sector dynamic.

As Carlos Maldonado, president of Monterrey hotel operator Grupo Milenio, says: "The changes in the last decade in this industry have been that the majority of the large chains have changed ownership, and not necessary to hoteliers. Plus, new hotel groups have emerged equipped with a fresh and much more aggressive mentality."

Barbara Kastelein is a Mexico City-based freelance writer.