In this corner, Apple Leisure Group (ALG), the largest source of travelers from the U.S. to Mexico.
And in this corner, Grupo Posadas, managing or owning 172 hotels in Mexico, more than any other hotel company.
To say they are battling would be to oversimplify a complex relationship that has elements of rivalry (AMResorts, another large collection of hotel brands, is a division of ALG), partnership (Mark Travel, who has had a warm relationship with Posadas over decades, merged with ALG earlier this year) and mutual self-interest (both are strong advocates and defenders of Mexico in its times of need).
Think "frenemies." Think "co-opetition."
Both are flexing muscles of late. Relationships between ALG and both Playa and Excellence hotel groups ended over issues related to which of ALG's wholesale brands would display them. And Posadas has been growing aggressively, with 48 properties in the pipeline; two new brands in the offing; expansion of its footprint into Cuba, the U.S. and the Dominican Republic; and a stated goal to increase its leisure inventory from 4,000 rooms to 10,000, with a total of 300 properties in the portfolio by 2020.
Travel Weekly has explored ALG's strategy with its leadership, and I recently had the opportunity to speak with Jose Carlos Azcarraga, CEO of Posadas. What follows touches on their aggressive growth plans at a time of flux in distribution channels and political uncertainty, Mexico's recurring reputational challenges and the potential fallout from superstorm hurricanes.
Arnie Weissmann: For many years, your inventory was represented by Mark Travel but conspicuously absent from Apple Leisure Group brand offerings. They merged, and now you're in both. Tell me about how wholesaler consolidation has changed your thinking about distribution
Jose Carlos Azcarraga: We've learned two lessons. One had to do with our understanding about using third parties. [Distribution] is something that is not fully in our hands, and it should be in our hands. Right now, about 55% to 60% of the people who stay at our resort hotels come through direct channels. With city hotels, it's much, much higher: 85% to 90%.
We're a company that likes to be able to control our own destiny, but nevertheless, we also believe in strong relationships. We've had a very, very good relationship with Mark Travel. We now also have a contract with Apple Leisure Group to sell our properties. We believe that if they can do a better job than we can with our direct channels, they will get our business. The moment that that's not true, then that's the moment that we reevaluate which is the best way to bring people into our hotels.
We know the domestic market, we know the people coming into Mexico, so we're able to cater to all of their interests and marketing and sales needs better than anyone else. Hopefully, we will be able to increase the number of direct sales and become self-sufficient and not have to worry about [wholesaler consolidation].
The second lesson has to do with why traditional wholesalers are consolidating. They're reacting to new things happening in the market -- not only the OTAs, but also new types of commerce, such as Airbnb.
So for us as a hotel company, we should also be looking at all those different new channels, understanding where things are moving, and have a diversified portfolio of [companies] who will bring customers into our hotels. If that means that tomorrow, Airbnb will be selling our properties, hey, we would be happy, and if they do it better than anyone else, they would have our business. It's a matter of having a system where you're able to compete for every single room, and whomever is better able to do it, that's what we'll do.
What we have learned is that things change and that, right now, the market change is much faster than before, and therefore, we are even more interested in understanding what's happening and able to change or to shift our direction to meet our needs.
AW: The last time we spoke was at the Mark Travel Corp. Summit in Cancun in October 2017. You had used the word "deaccelerated" to describe the state of bookings at your properties following the uproar over illegal liquor in resort areas, continued gang-related violence in parts of Mexico and the issuance of a stronger U.S. State Department travel advisory. How would you characterize bookings now, almost a year later?
JCA: Let's go even further back and look at the big picture. If you look at the last six years of international tourism into Mexico, it has been a great period. We've grown double digits every year, including in 2017.
Travel warnings do have an impact, definitely. The moment they announce them, even if they later decide -- which is what happened -- to take them off, the damage is done. Most of the people working in the meetings and incentives markets require long-term planning. In 2018, there were other factors that impacted bookings: the Mexican elections and, amazingly, the World Cup.
There was also a problem when [the U.S. State Department] changed the way they presented the travel warnings, with greens, yellows and reds. [Mexico was yellow, and] it sounded as if there was a big change because of something that had happened specifically in Mexico. But the U.S. embassy in Mexico explained to us that 80% of the touristic places in the world are yellow. Rome is. Paris is. They're the same.
So, great, but that's not what the market understood.
The good thing is that the damage was pretty much controlled. And since then, bookings have been up, and we're back on track. What we're seeing right now for meetings and incentives for next winter and the next couple of years is that it's growing the way that it had been growing over the past six years. We're very happy with it.
From the market standpoint, things have been very good for Posadas -- for all of Mexico, actually, but especially for Posadas. We're growing at a faster rate than ever and have been creating new brands that appeal to different segments and generate new business. We're extremely, extremely happy right now, and the future seems very promising.
AW: You have a new president-elect in Mexico, and a new secretary of tourism will assume office with the new administration. Have you met with them?
JCA: We're talking to the new guys and educating them about what has been working and what has not. Right now, we're very focused on trying to share what we felt was done very successfully last year and encouraging them to continue doing that. And of the things that were not as successful, talking to them about how to change them.
What we have heard from the president-elect and the people working for him is that they're definitely interested in listening to us. What are they going to do? We'll know Dec. 1 [Mexico's inauguration day].
As you know, the party that won is from the left, but we're seeing it's kind of the same but presented with different words. The president-elect has said that if someone wants to leave Mexico, it should be because they want to, not because they have to. I think that's very intelligent, and tourism is extremely supportive of that.
We're focusing on helping [the incoming administration] understand how many jobs are created in tourism and the relationship between attracting international tourism and the health of the economy. They're extremely receptive to our point of view, taking in everything.
But let's also say that we cannot be confident about what they will do until they start their government. They are eventually going to have to prioritize what they can do and what they cannot do.
AW: The U.S., which is Mexico's biggest feeder market, is in a record-breaking economic expansion. You're making some very aggressive investments, but you must also know that the cycle could end at any time. What are you doing to hedge against that?
JCA: We know that economies move in cycles. But we also know that Mexico has an enormous potential to grow in both city hotels and in leisure.
Right now, 15% of U.S. international travelers go to Mexico. If we were to increase market share just two or three points, that would mean a huge incremental increase in business. And that's true for visitors from many other countries, as well. It keeps us very optimistic.
The other thing that helps us hedge against a turn in the cycle is that we've become an asset-light company, focusing on managing and administering, creating brands, creating experiences. At the end of the day, our investment is much more focused on people, training, service, technology and channels of distribution, rather than investing in real estate. The leverage is lower than it has ever been because of this type of business model. Should the cycle start turning down, we would be able to keep on going.
AW: How many properties do you own?
JCA: Right now, out of the 170 properties, we own about 15%. That number has been changing. We've sold many properties. We're not just asset-light, we're asset-right. We also love to own strategic properties, ones that not only give us a good return, but also add value because of their location, brand recognition or something else. So we'll keep those strategic properties. Most likely, we'll end up owning somewhere between the 10% to 15% level. A few years ago, we were at 17%.
AW: You're expanding into Cuba, but indications are that American interest in Cuba is waning. Does that concern you?
JCA: Right now, only 5% of international travelers going to Cuba are from the U.S., small compared to Canadians or Europeans. We've always had very good relationships with companies that bring travelers there from Canada and from Europe and even from Asia and South America. And there are Mexicans traveling to Cuba; I think there is a lot of potential there.
We're more than happy with our business plan and also know that it's just a matter of time before the U.S. customer wants to go to Cuba. For us, Cuba is a long-term strategy. What we're trying to do is have the best hotels in the best locations, with very well-respected brands. When the U.S. market broadens, we'll be able to adapt and cater to it.
AW: You're also expanding to the Dominican Republic. Are you nervous about the impact of what seems to be an increasing threat from powerful hurricanes?
JCA: Being in the Dominican Republic is very logical for us. The customer there is the same customer we have in Cancun or Riviera Maya or Cozumel. The service and hotels are basically the same. Yes, there are things that have to do with climate change and ugly hurricanes, but the Dominican Republic is still growing and growing very fast. I think the perception about the increasing threat of hurricanes is worse than the reality. Let me put it that way. The hurricane season has never been the best season, but other than that, it's usually very nice, very safe.
AW: Have you surveyed Americans about the extent to which President Trump's rhetoric has impacted their decisions about going to Mexico?
JCA: What we heard is that during the period when families were being separated at the border, the reaction from American travelers was that they did not support that policy, and even though the families were mostly from Central America and not Mexico, they wanted even more to travel to Mexico, to be an ambassador of goodwill and show support. It was a very good example of how people in both countries feel when you take politics out of the equation. Americans and Mexicans can both separate politicians from ordinary people.