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BY MICHELLE GRANT
Euromonitor International

The tourism industry, a key industry for the Mexican economy, accounts for 8 percent of the country’s gross domestic product and is the third largest generator of foreign currency.  However, the economic crisis, escalating drug violence and the H1N1 flu outbreak have battered the industry, casting a shadow over its short-term prospects. 

Before the announcement on April 23rd 2009 by the Mexican Health Secretary about the H1N1 outbreak, the Mexican tourism industry was on the offensive to overcome its portrayal in the media as a dangerous place due to the government’s war on the drug trade.  Many European countries added travel alerts in August 2008 for Mexico with the U.S. government following in October 2008.  Also, the collapse of Lehman Brothers in September and the subsequent financial crisis caused travelers to cut back on their travel.  It additionally contributed to the 40 percent devaluation of the Mexican peso in November.  Although the drug violence hasn’t been linked to a strong decline in tourism, the economic crisis had a negative impact on international spending in the country, which declined by 6 percent in the first four months of 2009 compared to 2008 according to official statistics. 

H1N1 PANIC

These challenges were superseded by the H1N1 outbreak in late April.  Both international and domestic travelers panicked, uncertain of how lethal the virus would be, and stopped traveling especially in light of travel warnings against non-essential travel to Mexico.  The month of May was hardest hit with a 32 percent decline in total international visitors and 54 percent drop in international spending.   Hotel occupancies plummeted—for a week in May, the hotel occupancy for Mexico City was 10 percent.  The top 15 destinations collectively touched bottom with a 20 percent occupancy rate in May according to official statistics.  The bus association, Nacional del Autotransporte de Pasaje y Turismo (CANAPAT), reported a 65 percent decline in bookings during the outbreak and Mexican airlines carried 36 percent fewer domestic passengers and 50 percent fewer international passengers in May 2009 compared to May 2008. 

Panic subsided when it was understood that the virus was not as fatal as originally thought.  As a result, countries downgraded their travel advisories to Mexico in May.  Additionally, hotels in the Mayan Riviera, such as AMResorts, offered a flu-free guarantee to encourage visitors to return.  Guests who proved they contracted the H1N1 virus while on their trip would receive three free return visits over the next three years. Additionally, the government of Mexico City began offering free health insurance to tourists who stay in hotels within the city from July through December 2009.  As of late September, only 12 tourists had used the insurance.  These measures, along with aggressive price discounts, helped lure international and domestic tourists back.  June and July saw smaller drops in international tourists, 25 percent and 11 percent respectively.  By the end of July, the occupancy rate for the top 15 tourism destinations had nearly recovered to their 2008 levels.  Hotel rooms occupied by domestic tourists were down only by 1 percent in June and increased by 7 percent in August.  Many destinations, such as the Mayan Riviera and Los Cabos, saw growth in domestic tourists thanks to pent-up demand taking advantage of price discounts. 

Although the industry has recovered from the dramatic impact of the H1N1 virus, overall indicators are still lower compared to their levels in 2008 due to the economic recession. 

RECESSION IMPACT

Mexico’s economy is expected to shrink by 7.3 percent in 2009 and the unemployment rate rose to 6.1 percent in July 2009 — the highest level since records began in 2000.  The recession at home is likely to continue to discourage domestic travel demand.  According to Euromonitor International, U.S. visitors account for 80 percent of total international visitors to Mexico.  The lingering recession could continue to depress arrivals from the country and drag down international tourism to Mexico.  This situation, compounded by the H1N1 virus, indicates that 2009 will likely be the worst year for the Mexican tourism industry in the past decade.  

Euromonitor International predicts that international spending will decline by 16 percent in dollar terms in 2009, but it could be a much higher decline if a strong flu season in the United States curbs travel demand in the winter. Domestic tourism spending is down by 22 percent in dollar terms in 2009.  Furthermore, the hotel association, Asociación Mexicana de Hoteles y Moteles (AMHM), predicts that the hotel industry will end the year with sales down by 28 percent.  Euromonitor International also expects that the airline industry will see a 20 percent decline in value sales for 2009, but due to the exits of multiple airlines, including Aviacsa, the remaining players have been able to raise fares thanks to lower competition.  This will likely help their bottom lines after two years of cutthroat competition and excess capacity. 

After such a disastrous year, the future of the tourism industry remains uncertain.  Countries, such as China and Singapore, recovered quickly and showed strong growth the year after the SARS outbreak. However, the global recession is likely to dampen a recovery for Mexico in 2010 and it is unlikely that the industry will rebound to its 2008 level in 2010 even if it does grow.  Sustainable growth will depend on a global economic recovery that restores consumer and business confidence.  Despite the gloomy outlook, the Mexican government remains committed to this key industry and expects to invest Pesos2.8 billion in the industry in 2010 to diversify its product offering and improve its service standards. This investment will likely pay off in the long term as the country remains a competitive destination for tourism. 

Michelle Grant. is Travel and Tourism Research Manager at Euromonitor International. This article was written for Latin Business Chronicle.

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