The state of Mexican tourism

Mexican tourism
Safe as houses?

As ‘tourism powerhouse’ Mexico teeters on the brink of change, what do travel insurers need to know about the future of travel, and its associated risks, in the country? Milan Korcok provides some perspective

For a country that raked in US$22 billion from tourism last year, that is ranked the sixth-most-visited country in the world, that is the most favoured vacation spot for Americans and the second most visited by Canadians, and that welcomed more than 41 million international tourists in 2018, one would think Mexico would like to hold the ship steady. But since the election last July of President Andres Manuel Lopez Obrador, who is determined to re-direct Mexico’s tourism away from its heavy concentration of sea and sand resorts to more indigenous-based historical and cultural attractions spread throughout the country, Mexico’s tourism suppliers are checking out the lifeboats and battening the hatches for what they see as a ‘perfect storm’ just over the horizon.

Amlo, as he is known to his adoring subjects (who give him an 80-per-cent poll approval rating), is a former mayor of Mexico City and an avowed populist who flies commercial (economy) and as the Associated Press has reported ‘is just as likely to be seen buying himself a $1 styrofoam cup of coffee at a convenience store or eating beans at a roadside restaurant [as] rubbing elbows with foreign dignitaries’. That’s a big change from the imperial style of most of his predecessors.

In what has been described as the biggest Mexican election turnout ever, Obrador won a landslide victory over three opponents on a platform promising to end corruption, reduce the narco violence that to previous administrations has appeared unmanageable, and reduce Mexico’s endemic poverty – in part by shifting the benefits of tourism into underserved and undervalued areas beyond the beachside venues of the western Caribbean and Pacific coasts (the areas most international visitors value for their one or two-week sun, sand and tequila vacations). 

For the US and Canadian travel industries, particularly travel insurers and their allies, Mexican tourism has been a dynamic generator of business

According to projections by the Conference Board of Canada, almost 80 per cent of Canadian arrivals to Mexico in 2018 were to the three largest beach resort destinations: Cancun and Playa del Mar in the western Caribbean, Los Cabos in Baja California, and Puerto Vallarta on the Pacific coast.

But Obrador’s diversification strategy would change that paradigm, and, as he says ‘greatly stimulate tourism and … jobs in the southeast, which is the most neglected region of the country’. The way to get there, says Amlo, has much to do with his highly controversial, and costly, Mayan Train project – a 930-mile railway that runs through tropical jungle and waterways, through some of the most impressive colonial era and archeological treasures of the Mayan period, connecting Mexico’s main tourism entry point of Cancun with Campeche, Chiapas, Tabasco, Merida, Chichen Itza, and the spectacular Mayan ruins at Palenque.

The problem with Amlo’s dream, say tourism suppliers, is that the cost of the railway is already projected at $6 billion to $8 billion and is being partially paid for from the $300-million budget of Mexico’s Tourism Promotion Council (CPTM), which has been dissolved and most of its 21 international offices closed. These closures include five offices in the US, three in Canada, and one in London – though small offices will be retained in New York, Miami, Tokyo and Berlin – either on their own, or attached to Mexico’s embassies in those countries. The dissolution of the CPTM and the loss of its promotional clout in foreign markets has sent shock waves through Mexico’s tourism industry, which despite rising arrivals numbers, sees challenging times ahead.


Mexico: insurance business generator

For the US and Canadian travel industries, particularly travel insurers and their allies, Mexican tourism has been a dynamic generator of business. Cesar Mendoza, former director of Mexico’s tourism office in Toronto, emphasises that Mexico has been a ‘tourism powerhouse’ in recent years – hugely popular with Canadians. And even despite the avalanche of news about Mexico’s problems with narco violence, Canadians continue to make more than two million visits to the country each year.

Brad Dance, President of Canada’s Travel Health Insurance Association, concedes that Mexico’s problem with safety and violence has been an issue of concern for a number of years: “Yet Canadians continue to travel there … and unless something drastic occurs, I don’t see that changing. Even if it does, Canadians would alter their plans and visit other places such as the Dominican Republic, Costa Rica and any number of Caribbean locations.”

That would still be a big diversion, as Mexico accounts for almost four out of every 10 leisure trips Canadians make to the entire Caribbean (which includes such mainstays as the Dominican Republic, Cuba, Jamaica, Bahamas, St Lucia, and Barbados), as well as to Central America. Not only that, but the one or two-week all-inclusive charter packages to Mexico are normally at the cheaper end of the price spectrum than are trips to Jamaica, Barbados or St Lucia. So merely switching locations may not be as easy as all that for the price-conscious.

Tourism increases slowing

What is so ironic about the sense of alarm felt by tourism suppliers is that Mexico’s official tourist arrival numbers keep increasing year upon year. But those increases are slowing. They’re not keeping up with projections. They are not where they should be given the expansion of resort facilities, increasing numbers of rooms, and investments made. And though international tourism revenue between January and November 2018 grew by 5.1 per cent, totaling some $20 billion (384 billion pesos) that was the smallest increase since 2011. 

Speaking at a tourism industry council in Mexico City recently, Pablo Azcarraga, president of the National Tourism Business Council, warned that the government’s decision to disband the CPTM and divert those funds to the Mayan Train project, along with the ever-present shadow of violent crime, will cause Mexico to lose billions of pesos in revenue and jobs ‘and the tourism sector will disappear’. The US State Department, Travel Canada, and the UK’s Foreign and Commonwealth Office have all warned their citizens to avoid travel to substantial areas of Mexico. The State Department has, in fact, issued either ‘Do not travel’ or ‘Reconsider Travel’ to at least 15 of Mexico’s 31 states. Azcarraga also acknowledged that the train would enrich Mexico’s overall tourism product, but it too would need to be promoted.

The Mexican tourism model must change in order to be able to compete in a changing tourism market and to support more inclusive, sustainable growth

Azcarraga further emphasised that hotels have suffered a 15-per-cent decline in profits in the first quarter of 2019 because they have had to lower their rates to maintain occupancy levels. And he added that in Cancun, the January occupancy rate of 70.7 per cent was the lowest since 2012, while Mexico City recorded a rate of only 54.2 per cent, the lowest since 2013.

Alex Zozaya, CEO of Apple Leisure Group, a major travel wholesaler in the Mexican market, is also critical of the government’s redirection of tourism promotion funding and decries the closing of its international tourism offices just as business is falling. He says that 2019 is worse than 2018, and not just in (hotel) occupancy, but in dropping rates. “When rates fall … so does the quality of the customer,” said Zoyaga, emphasising that the biggest decline is among groups booking high-end resorts. And in addition to oversupply, there is not only the ever-present issue of safety and violence, but now high-end beachside resorts are being beseiged by waves of smelly seaweed that continues to wash up on Yucatan’s once pristine beaches. Add to that a lot less advertising and promotion and ‘that is the perfect storm’.

Welcome: big spenders

But it would be inaccurate to characterise President Obrador’s vision of a new, diversified tourism as focused only on the train and the Yucatan. He has outlined a six-year strategy (he has promised not to run for an additional six-year presidential term), aiming advertising campaigns at wealthy countries such as the United Arab Emirates, Saudi Arabia, Japan, France, Italy, the UK, and Korea; enticing wealthier travellers prepared to spend more money; encouraging local businesses to start up in the areas being made accessible to these new tourists; ensuring visitors they will be safe and secure (always the elephant in the room at any discussion of Mexican tourism); creating more and better jobs in the tourism industry; and improving living conditions for tourism workers – including those working in the more affluent locations like Cancun. 

It’s a strategy quite consistent with the position recently articulated by OECD Secretary General Jose Angel Gurria on the organisation’s review of Tourism Policy in Mexico. Gurria emphasised that though Mexican tourism numbers have grown, ‘growth of the country’s tourism sector has not been what it should be in the view of OECD’. He noted that such growth has fallen short of the overall growth in the world economy, and tourism in Mexico is ‘facing structural changes as the sector’s success has been based on the development of large resorts in major coastal destinations … a model [that] is becoming vulnerable to changing demand patterns and environmental concerns’.

Gurria asserted: “The Mexican tourism model must change in order to be able to compete in a changing tourism market and to support more inclusive, sustainable growth. This would require that government agencies develop better links with a more diverse, segmented group of small enterprises, and micro businesses, as well as policies to support smaller-scale projects.”

That sounds like it could have come from Amlo’s playbook. Given the riches of Mexico’s geography and heritage, there seems to be no shortage of attractions for tourists from any country – the frozen North or its tropical or sub-tropical neighbours. But staying ahead of the game is a tough business. It requires change and agility. It’s not enough to sit on one’s laurels, especially when the seaweed is clutching at your ankles.