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The Wall Street Journal

Latin America Attracts Spain's Hotels

By Enza Tedesco

27 August 2003
Copyright ©2003
Dow Jones & Company, Inc. All rights reserved.

MADRID -- The warm weather, sandy beaches and palm trees of Latin America continue to attract the attention of Spanish hotel chains, offering them a rare sunny spot in an otherwise gloomy global-tourism market.

After two decades of investments, operations in Latin America account for as much as 42% of revenue for top Spanish hotel chains. During 2001, regional tourism receipts fell to $39.4 billion from $39.9 billion during 2000. But industry players remain confident, seeing the decline as slight considering the effects of the Sept. 11 terrorist attacks.

Analysts say that, along with the historic cultural ties to the region, Latin America is an attractive area for Spanish chains due to the abundance of cheap labor and reasonably priced beachfront land for hotel construction. Plus, the climate makes it a year-round tourist destination, helping companies maximize investments.

Leading chains, such as Sol Melia SA, Riu Hotels & Resorts, Barcelo Hotels & Resorts and Iberostar Hotels & Resorts -- all based on Spain's Mallorca island -- have plans to build hotels in the region, encompassing the Caribbean, Central America and South America.

Sol Melia, Spain's top hotel group, is set to open a 500-room, $120 million hotel in Puerto Rico at the end of the year.

The company, the first Spanish hotel chain to gain a foothold in Latin America, has 73 units in the region, with 21 in Brazil, 20 in Cuba and 11 in Mexico.

"[Latin America] offers great opportunities for growth. Today we own 21 hotels in Brazil. Five years ago, we had just one," said company spokesman Jaime Puig de la Bellacasa, who added that the region contributed 28% of the group's 2002 revenue of 939 million euros.

However, he said that the company likely would pause to consolidate its holdings until the market improves.

Riu Hotels & Resorts is planning to invest $120 million through 2006 to open hotels in Cancun and Los Cabos, Mexico, and an additional hotel in Jamaica.

The investment figure excludes renovation work planned for establishments in the Dominican Republic, where Riu has eight hotels, and other areas.

Company spokesman Miguel Angel Violan said the group hopes to increase Riu's total bed capacity in Latin America -- currently at 60,000 beds -- by about 10% in three years.

Revenue out of Latin America represents 25% of Riu's total, which during 2002 was 700 million euros ($762.2 million), making it the second-largest beach-and-sun chain in Spain in terms of revenue.

"Business in Latin America is not seasonal like in Europe," he said. "We work 12 months a year there, and we see three big markets converging in the region: [tourists from] Europe and North America and from the local market, which is also very important."

Mr. Violan said that while Riu was satisfied with its performance in the Dominican -- where it established its first Caribbean hotel during the 1990s -- business has been especially strong in Mexico since the turn of the new century.

He added that Mexico recovered quickly from the post-Sept. 11 crisis in the industry, while places such as Puerto Plata in the Dominican Republic have yet to bounce back fully.

Barcelo Hotels & Resorts, which entered the Caribbean market during 1985 with a hotel in Playa Bavaro in the Dominican, said it also is optimistic about the market in Mexico, where it is planning to develop a property in Quintana Roo on the Yucatan Peninsula.

Alvaro Pacheco, Barcelo's director of communications, said two hotels with a combined capacity of 1,100 rooms have been operational since 2000, but he said he expects the chain to expand its room count on the Yucatan to 3,200 to 3,300 by the end of 2004 or early 2005.

Barcelo, which has 43 hotels in Latin America, also has scouted Cuba for hotel sites. It has one hotel there and is set to open an additional five from 2003 to 2006, Mr. Pacheco said, though he wouldn't quantify the investment.

With one-third of the group's hotels in Latin America, the region accounted for more than 42% of Barcelo's 2002 revenue of 255.9 million euros.

Iberostar Hotels & Resorts, which had revenue of 427 million euros during 2002, is planning to build a resort in the northeastern Brazilian state of Bahia and in the Riviera Maya area of Mexico.

That would increase its hotel lineup in Latin America to 16 from 14, according to an Iberostar official who declined to estimate the chain's investment. He said more ventures were on the way. "We've been betting on this region for years," the official said. "In Cuba, for example, we have four hotels, but we're planning to double that in four to five years."

With Americans accounting for 41% of its clientele, Iberostar also is planning to expand its presence in English-speaking destinations in the Caribbean, such as Jamaica, the Bahamas, even Miami.

"Those are destinations oriented toward the American tourist," and there's potential to increase the percentage of American guests at Iberostar's hotels, he said.

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