With
destinations as intriguing and diverse as Machu Picchu, Patagonia, the Amazon
rainforest and the Galapagos Islands to vibrant cities such as Rio de Janeiro,
Buenos Aires and Mexico City, Latin America is home to a active travel
industry, attracting both local and international visitors.
According to Phocuswright's Phocal Point database, total
gross travel bookings in the region were worth $60 billion in 2018 and are
predicted to increase to $69 billion in 2020 and $78 billion in 2022.
IATA’s 20-year Air
Passenger Forecast from October 2018 predicts Latin America will grow by a
compound annual growth rate of 3.6% through 2037, serving a total of 731
million passengers.
That is all good news considering the region’s economic and political challenges
in the past several years.
According to Brazil-based Phocuswright analyst Carolina Sass de Haro: “We have
to consider that the political and economic turmoil that happens often is just
a given.
"We are used to living like that. Of
course, it does affect tourism and everything, but you see entrepreneurship and
the industry moving despite what is happening with the political and economic
crisis."
In fact, after a drop of 8% in gross bookings in Latin America in 2016, Sass de
Haro says there has been a bit of a rebound in the last few years – up 7% in
2017 and estimated increase of 6% annually until 2022.
And the region is doing well compared to the
rest of the globe.
According to the United National World Tourism
Organization’s 2018 Tourism Highlights report, while the average worldwide
annual growth rate for international tourist arrivals from 2005 to 2017 was
4.2%, Latin America recorded a faster pace. The UNWTO breaks the region down as
Central America – which grew at a rate of 4.9% - and South America, which grew
at 6% annually, faster than all other regions except South Asia and Southeast
Asia.
The UNWTO says Mexico, which represents 38% of total
gross bookings in Latin America, ranking sixth in the world for international
tourist arrivals in 2017, ahead of the United Kingdom, Turkey, Germany and
Thailand in the top 10, and growing faster than all but Turkey.
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This growth in both regional and international
travel is spurring activity across the accommodation and air sectors, as
existing suppliers look to keep up in an ever more competitive market and new
entrants aim to disrupt the status quo.
For the final piece in our analysis of the
region, we take a look at the challenges and opportunities in both hospitality
and air travel across Latin America.
Digital development
Breaking down total gross bookings in Latin America
by sector, Sass de Haro says hotels represent 47% of bookings, airlines 36%,
tour operators 14% and car rentals 3%, and that mix is expected to remain
steady until 2022.
But the region lags behind the global average
for online penetration.
According to Phocuswright’s Phocal Point
database, in 2018, an average of 46% of travel bookings worldwide took place
online, while 54% were offline.
Leading the shift globally are Europe and North
America, both with a mix of 49% online and 51% offline.
In Latin America, the online activity is much less –
just 37% compared to 63% still conducted offline. But those figures are expected
to inch closer in coming years, to approximately 43% online and 57% offline by
2021.
Leading this shift to digital are regional and
global online travel agencies.
Along with a strong presence from Booking.com
and Expedia, there are many homegrown OTAs such as market leader Despegar and
its Brazilian brand, Decolar, as well as Almundo, BestDay, Hotel Urbano,
Avantrip, Viajanet and others.
Despegar launched in 1999 and now provides
products from more than 300 airlines and 520,000 hotels throughout Latin
America. In 2015, Expedia invested $270 million in its Brazilian brand,
Decolar, and the two companies expanded their partnership through shared hotel
inventory.
One advantage the regional brands can offers is
an ability to accommodate local travelers’ unique payment preferences, such as
paying in cash or paying in installments.
“What
we see are the regional OTAs better understand the payment behavior that is
important in the region,” Sass de Haro says.
Hospitality
Within the realm of digital distribution in the
hospitality sector, OTAs hold a dominant position over
hotel-direct bookings due to the large number of independent properties in
Latin America and their reliance on intermediaries.
Historically there is this myth in the market that technology is too expensive and out of reach and that it will take human jobs.
Tatiana Vanvelzor - Sabre Hospitality Solutions
According to Phocuswright, OTAs captured 67% of
online hotel bookings in the region in 2018 versus just 33% coming directly
through supplier websites.
“That’s the challenge – even a brand with four,
five or six resorts or hotels that are excellent products – how do they make
themselves stand out in this ocean of offers?” says Tatiana Vanvelzor, Sabre
Hospitality Solutions' regional director of business development for Latin
America and the Caribbean.
“And especially when you talk about reaching new
markets, for example China is sending a bunch of tourists to Latin America. But
how do you capture that potential because traditionally these tourists may
choose a brand name rather than an independent property.”
Vanvelzor also notes the disruption caused by
home-sharing alternatives, especially Airbnb, which has more than 700,000
listings in Latin America and had 15.5 million guest arrivals there in 2018.
Airbnb says year-over-year growth of inbound guest arrivals in 2018 was 98% in
Mexico and 71% in Brazil.
These competitive pressures are fueling
independent properties’ interest in joining big brands – Vanvelzor says Accor
and Wyndham have been particularly active.
Along with better exposure in distribution
channels, consolidation gives independent properties access to technology that
might otherwise have seemed out of reach.
“Independent hotels have always seen technology
as a cost not an investment,” she says.
“Historically there is this myth in the market
that technology is too expensive and out of reach and that it will take human
jobs. Sentimental factors of culture in Latin America play a part in all of
this.”
But while adoption may be coming more slowly in
Latin America than in other parts of the world, Vanvelzor says the travel
industry there is gradually recognizing that the integration of technology is
both inevitable and necessary for future survival.
“It used to be a very simple world for
distribution back in the day. But now, if you don’t have data [or] market intelligence,
if you can’t pull reports and look at pace, look at your production, understand
your customer and make strategies to really drive distribution and open
markets, eventually my read is you’re not going to make it,” she says.
“So more and more we
will see that need drives the adoption of technology down here.”
Air
Unlike hotels, which are still primarily
purchased offline, Latin American consumers are more likely to buy their air
travel online.
According to Phocuswright, in 2018 54% of air purchases
were made online versus 46% offline. That puts Latin America ahead of the
global average for air – 51% online and 49% offline – but behind North America,
58% online and 42% offline.
There is lots of point-to-point traffic demand... so the potential market the airlines have to shift the bus traffic to air traffic is huge.
Victoria Huertas - Amadeus
In 2018, air travel bookings were valued at
about $22 billion in Latin America. And those sales are split nearly evenly
between direct sales (49%) and those done through OTAs (51%).
“Since the aviation market is heavily regulated
in the region, preventing foreign players to come, there are few supplier
options, making it easier for consumers to shop directly,” Sass de Haro says.
Competition among OTAs and suppliers to attract those travelers
will only increase in coming years as the market matures.
In a media briefing in Geneva in December, IATA’s regional
vice president for the Americas, Peter Cerdá, says lower fares, rising incomes
and population growth are driving significant passenger growth across Latin
America.
He cites full-service carriers Copa, LATAM and Avianca as
leading the way in “building trans-national brands to meet evolving consumer
demands.”
“The LatAm industry of 2018 bears little resemblance to
what it was at the turn of the century,” Cerdá says.
“In the last decade alone the number of passengers carried
by the region's airlines has more than doubled. And looking ahead, over the
next 20 years we expect 4.2% average annual growth so that over 750 million
journeys are expected to touch the region by 2036.”
More and more of those passengers will travel on low-cost
carriers such as Azul, GOL, Volaris, JetSmart, Viva Air and Sky Airlines.
Amadeus commercial vice president of airlines, Latin
America and Caribbean, Victoria Huertas says the large domestic markets in many
Latin American countries have made them ideal breeding grounds for low-cost carriers,
starting more than a decade ago in Brazil and Mexico and now expanding to countries
such as Chile, Colombia and Peru.
“There is lots of point-to-point traffic demand ... so the
potential market the airlines have to shift the bus traffic to air traffic is
huge,” she says.
These low-cost carriers, with their new
models for retailing, are driving a shift to offer greater choice and customized
offers to air travelers.
“We see a strong trend - not just the low-cost carriers but
now also the full-service – to offer unbundling services through the web, and
some are reaching interesting levels of additional revenue using these
ancillary services,” Huertas says.
IATA predicts Latin American carriers will record 700
million net profit in 2019, up from $400 million in 2018. But
industry experts agree work is needed to ensure the region can continue to grow
for years to come.
“To
allow aviation to be an engine of economic growth and cultural development, we
urge governments in Latin America and the Caribbean to be smart about the
regulation of the air transport industry and ensure the right infrastructure is
in place to maximize the many benefits the industry generates,” Cerdá says.
“Latin America has all the necessary elements to become an
aviation success story: competitive and efficient airlines, a growing middle
class, favorable demographics and a geography that necessitates travel by air. However,
with the exception of a few countries, the region’s governments are not
treating air carriers as partners who drive valuable social and economic
development.”