LAC earnings rise in first quarter amid lingering COVID-19 and inflation concerns
If it’s not one thing, it’s another—or two or three. The Latin America and the Caribbean region is not alone in facing the challenges imposed by COVID-19 and its added downsides, including high inflation, rising interest rates and labor costs. work, but hotels in the region are showing resilience.
Like the rest of the world, COVID is not done with the LAC region. As of May 2022, LAC had nearly 1.7 million deaths, representing more than 27% of deaths worldwide, according to the Pan American Health Organization (PAHO). Peru has recorded the highest COVID-19 death rate in the region, followed by Brazil, Chile, Argentina, Colombia and Trinidad and Tobago.
Caribbean countries, which rely heavily on tourism dollars, have been affected. The International Monetary Fund (IMF) has reported an economic contraction of 7% for the region in 2020 with a slight recovery in 2021. The IMF projects regional growth of 2.5% in 2022.
For hotels and resorts, the difficult return to profitability is now compounded by the high inflation that has gripped the region. This is particularly highlighted in the so-called LA5s: Brazil, Chile, Colombia, Mexico and Peru. Inflation in the region started accelerating in the latter part of the first quarter of 2021 and has not diminished and according to the IMF, inflation in LA5 is about 150 basis points higher than in the states States, for comparison.
But as COVID infection rates in the region decline and restrictions ease, the region is ripe for a travel renaissance, benefiting from pent-up demand and a myriad of resort options to sate the demand. ‘greed. Most countries in the region have met the World Health Organization’s goal of vaccinating 70% of their population, while in Mexico, where daily cases have fallen from 40,000 at the end of January to 1,000 mi- April, masks are no longer required in most places.
Hotel performance data shows signs of correlating with trends. In Latin America, gross operating performance per available room (GOPPAR) was recorded at $139 in March 2022, just $1 less than March 2019 and higher than any previous month through 2018. GOPPAR Q1 2022 of $101 was $17 lower than Q1 2019.
Although the occupancy rate in the region as a whole is now over 60% overall, it was the rate that enabled the ultimate success. The ADR in March 2022 eclipsed any pre-pandemic peak, underscoring the current comeback in travel, particularly the leisure segment. Although the companies’ volume mix remains relatively infinitesimal, the transient volume mix compensates for the hole, as it has throughout the pandemic, and stood at 66% in March 2022.
In Mexico, resorts have led the way. Quintana Roo, home to Cancún, Cozumel and Playa del Carmen, among other hotspots, recorded a GOPPAR of $154 in the first quarter of 2022, reaching $205 in March. That’s $60 more than Mexico overall in the first quarter. Although occupancy reached nearly 70% in March, it was driven by rates, with ADRs in the region exceeding $300 in many areas.
Although Peru was perhaps the hardest hit region in South America, its hotel performance is starting to turn. Between February and March, GOPPAR rose from almost $25 to $42, gradually returning to pre-pandemic levels. Peru has been able to rein in spending compared to other parts of South America, with total payrolls in the first quarter of 2022 around $7 lower than the rest of South America.
Meanwhile, Rio de Janeiro is going back to pre-pandemic numbers and then some. Its March 2022 GOPPAR of $30 was $20 higher than March 2019. The first quarter 2022 GOPPAR of $35 was 169% higher than the first quarter of 2019.
The Caribbean territories each take their own approach to welcoming travelers. Some have reopened regardless of vaccination or COVID-19 test status, while others have implemented stricter protocols that require travelers to take additional steps before travel.
Overall, the region has seen a huge improvement in its performance and in March 2022, its GOPPAR reached $266, which is $3 more than in March 2019, proof that the tourist paradise is returning to its normal plateau. While total revenue is growing in the region (TRevPAR in Q1 2022 was $90 compared to Q1 2019), so is spending, which is not an outlier trend globally. Total payroll in the region in Q1 2022 was $20 compared to Q1 2019, but in March 2022 was $10 lower than March 2019.
The LAC region has had its fair share of difficulties, but it is also one of the most touristic regions in the world. Its resort destinations and culturally significant attractions make it a beacon for travel each year and although headwinds exist, the region sees its fortunes turn, month after month.
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