With the World Cup coming to Brazil in 2014 and the Olympics following shortly after, combined with numerous emerging economies beginning to flex their muscle coming out of the global recession, hotel developers are increasingly turning their attention to Latin America. Alvaro Diago, COO of IHG in Latin America and the Caribbean, talks about the company’s growth plans and the outlook for the hotel industry in general in the region.
HOTELS: Generally speaking, what is the outlook for the hotel industry in Latin America for the rest of 2010 and into 2011?
Diago: As an industry, we are cautiously optimistic about the remainder of 2010 and 2011 for Latin America. The continent is very vast though. Some areas are far more reliant on intraregional travel—Colombia to Venezuela, Brazil to Argentina, the whole of Central America, etc.—than simply North Americans traveling South, so it is difficult to speak about the region as a whole. We are seeing slow, incremental growth in business travel from the U.S. and abroad, as well as an increase in intraregional travel, but clearly the market as a whole remains tenuous, and we expect it to remain so through 2011.
HOTELS: Which markets in Latin America are IHG targeting in the coming years?
Diago: First, I’d like to note that IHG does not invest directly, and looks to owners to provide the capital needed for hotel development across all-brands. That said, Brazil is a major focus of growth and expansion with the upcoming World Cup and Olympics after that. The size, depth and breadth of the Brazilian market makes it crucial to IHG’s long-term growth strategy in the region. Beyond major centers such as São Paulo and Rio, we are looking at key business centers in primary, secondary and emerging cities, which often have a million-plus residents.
IHG has 64 years of roots in Brazil, with no other international hotel company having our longevity in the country. We believe this clearly gives us a differential advantage. Currently in Brazil, IHG has a total of 13 hotels open, totaling 3,133 rooms. So far this year two new Holiday Inns have opened: Holiday Inn Manaus and Holiday Inn São Luís. We dealt with five separate investment groups to develop four new Holiday Inn Express properties, as well as for the conversion of an existing independent full-service Holiday Inn. The fact that we were able to strike agreements with five separate ownership groups—a deal that was actually consummated in 2009—is a testament to the company’s strength in the country.
Colombia is another major focus for our company. We have been a continuous part of Colombia’s hotel industry for more than 55 years. Colombia has seen a remarkable turnaround over the past couple of years, providing incentives for new hotel construction, such as treating capital expenditure or renovations as tax-deductible, and general support for the industry as a whole. We have recently announced both a new InterContinental Hotel and a new Holiday Inn both in Cartagena, with ongoing discussions in other key markets in the country.
Lastly, Central America is active and we have recently opened new properties in Costa Rica and El Salvador, with more announcements on the way.
We believe that our combination of brands, long-term success and decades-long experience in the region affords us a value proposition unlike any other hotel company.
HOTELS: Which IHG brands show the greatest promise for success in Latin America?
Diago: Clearly Holiday Inn and Holiday Inn Express show tremendous promise in the region. It is simply an ideal hotel product for Latin America’s ever-expanding middle-management travel market, the region’s faster-growing travel segment. We believe that Holiday Inn is ideally positioned to meet those needs. That said, we are seeing interest across most of our brands, recently opening the company’s first Hotel Indigo, this one in San Jose, Costa Rica. We’ve also just announced a new InterContinental Hotel in Cartagena, Colombia. But as a whole, we anticipate that the largest percentage of new hotels will be Holiday Inn products. They are very popular, extremely cost-effective on a per-key basis to construct, and highly efficient to manage. This makes for a winning combination that new potential owner after new potential owner we speak with seems to be embracing.
HOTELS: Will conversions and reflaggings be the primary vehicle for hotel industry growth in Latin America for the foreseeable future, or is there still opportunity for new-build expansion?
Diago: We are seeing a great deal of new-build because, alluding to Holiday Inn and Holiday Inn Express again, these properties are so cost-effective to construct. Like renovating our home, sometimes it’s simply more cost-effective to build from scratch than try to renovate an older property to meet modern standards. That said, countries like Brazil still have an inordinate amount of unflagged, one-off properties that would be ideal. These are often new apartment-hotels which can be effectively converted to meet our service and life-safety standards, and we are continuously in discussions with owners that are interested in establishing their properties with an international hotel flag.
