Sargassum, oversupply blamed for downturn at Mexican hotels

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Resorts in Cancun.
Resorts in Cancun. Photo Credit: Flickr/dronepic

Mexico's hospitality sector appears to have hit a stumbling block. According to recent data from STR, the country's hotel industry experienced a significant downturn in the second quarter, as RevPAR and average daily rate (ADR) dropped 6.1% and 3.1%, respectively, countrywide. 

Concurrently, occupancy slipped 3.1%, marking the lowest second-quarter occupancy level for Mexico since 2013.

Jan Freitag, STR senior vice president of lodging insights, attributed the shrinking occupancy to a stark imbalance between supply and demand. STR reported that second-quarter supply growth in Mexico rose 3%, while demand for the period decreased 0.2%.

"This is the fifth quarter in a row that occupancies have declined, and that in turn has an impact on pricing," Freitag said.

Freitag added: "Indeed, what we've seen is that room rates have really deteriorated starting in the last quarter of 2017. So, you have this double whammy of occupancy and ADR declines, which then leads to a RevPAR decline. RevPAR has declined for seven straight quarters, and that trajectory downward is now accelerating."

Even more worrying is a pronounced negative performance on the Yucatan Peninsula, which includes the popular vacation destinations Cancun, Riviera Maya and Cozumel. STR reported that second-quarter RevPAR in the region was down 12.3%, while ADR fell 7.3%. Occupancy in the market declined 5.4% as supply rose nearly 4% during the quarter.

These troubling metrics were mirrored in the Q2 results for Mexican hotel owner and operator Grupo Hotelero Santa Fe, which reported late last month that RevPAR across its company-owned properties decreased by 8% compared with the same period in 2018. Likewise, the group's ADR fell 7.6%, and occupancy at owned hotels dropped three-tenths of a percentage point, to 60.7%.

Grupo Hotelero Santa Fe's portfolio spans 28 properties across 17 Mexican cities.

Meanwhile, both STR and Grupo Hotelero Santa Fe blamed sargassum for some of Mexico's recent softness. The vine-like, floating seaweed has accumulated on many beaches along the Cancun and Riviera Maya coastlines. 

Travel advisors agree that this year's particularly bad outbreak of sargassum has been a concern for tourists.

"The sargassum situation can change hourly," said Lori Gold, a Mexico-based travel advisor with Twil Travel. "You really have to explain to clients that a beach might be fine now, but you just never know when that might change."

Gold added that many resorts throughout the Riviera Maya region have made efforts to control the sargassum build-up by deploying floating barriers. 

The Desire Riviera Maya Resort in Puerto Morelos, for example, has invested $96,000 in a 918-foot linear barrier that, according to Alessio Giribaldi, general manager of Desire Resorts, has "provided guests a sargassum-free beach" since its April installation. The diverted sargassum is removed and transported to a government-designated collection center.

Lizzie Cole, executive director of promotion for the Quintana Roo Tourism Board, said, "The sargassum arrival is a natural global phenomenon, [and it] does not happen only in the Mexican Caribbean. Both the state government and the hoteliers have taken several actions to deal with this, [including] barriers on the water, twice-a-day cleaning of beachfronts, barges that collect on the water, etc."

Still, despite robust efforts to remediate the situation, Joyce Smith, co-owner of Colorado-based Time of Your Life Travel, said that the sargassum may be having a measurable impact on demand.

"We work with Apple Vacations' Funjet Vacations a lot, and our Cancun charters are not as full as they used to be," Smith said. "We're really discounting prices, and that seems to be helping a little bit."

Both Smith and Gold pointed out, however, that while the vast majority of the Riviera Maya coast has been affected by sargassum to some degree, there are some small pockets that have been spared. 

Moreover, beaches in western destinations, like Puerto Vallarta and Riviera Nayarit, remain pristine, Smith said.

Sargassum is also not an issue in Los Cabos on the West Coast, where the hospitality sector remains especially healthy. 

According to Los Cabos Tourism Board managing director Rodrigo Esponda, the destination saw tourist arrivals increase 8.1% in June versus the same month last year, while hotel occupancy jumped from 83.4% to 87.8%. Los Cabos RevPAR was up more than 19% for June, while ADR rose 21% compared with the same month in 2018. 

But for all its growth, Los Cabos -- like most tourism-reliant destinations across Mexico -- is still reeling from the Mexican government's decision to disband the Mexico Tourism Board earlier this year. Money previously used to fund the organization is being diverted to bankroll the construction of a rail line linking destinations across the Yucatan Peninsula.

In response, the Los Cabos Tourism Board has ramped up its promotional efforts. This September, the board will open a Los Angeles office to better liaise with U.S. travel agencies, tour operators and meetings planners. 

"We acknowledge the fact that the dissolution of the tourism board has put us in a unique situation," Esponda said. "But we've taken it as an opportunity to strengthen our partnerships and establish a private trust."

For Mexico tourism organizations with fewer resources, however, driving tourism growth could prove to be an uphill climb.

Mexico's president "doesn't see these issues as a major problem," said Time of Your Life Travel's Smith. "And yes, it's great to have a train, but if you don't have people coming, then you won't need that train. So we really need to concentrate on taking some steps to make Mexico more attractive to those considering a visit."

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