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.
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.
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.
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.
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.”
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.
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.”
The Bottom Line:
Latin America is a growing travel destination, despite stereotypes of danger and historical political instability. It features some of the world’s most spectacular natural wonder, adventure, and richness of cultural and linguistic diversity. In this analysis, the author breaks down the following sectors of the region’s travel trends:
- Digital movement: in essence, its growing. Although not as many people are booking through digital means, the infrastructure and demand to do so are both steadily on the rise.
- Hospitality: there are many small-business hotels, hostels, and even local families, who all rely upon intermediary booking sellers. Many of these happen do online, with a growing trend towards this digital movement. However, other companies like AirBnB are also exponentially plowing into the market, providing a competitive force to the major hotel chains.
- Air: this is the sector that has most potential, according to experts, for smashing success. The growing population in Latin America, paired with increasingly accessible flight costs, has caused a large shift towards air travel. If properly leveraged, it has the potential to grow even more.
For the source of this original article, and more fascinating and cutting-edge travel news, visit: https://www.phocuswire.com/Latin-America-part-4-distribution