Despite perceived security issues, visitor numbers to Mexico continue to rise

Recording consistent growth since 2011, Mexico’s tourism sector has continued to expand steadily. According to government counts, more than 39m foreign tourists visited the country in 2017. Arrivals remained relatively strong throughout the year, being only slightly affected by natural disasters, namely the hurricane that battered popular tourist destinations Los Cabos and Baja California Sur in August, and the two earthquakes that hit Mexico City and Oaxaca in September. New international travel connections, especially aviation routes added to key markets in Asia, have helped to propel much of this growth. However, there are still significant challenges, such as negative international perceptions of crime in the country and hurdles in expanding tourist operations at the local level. These obstacles will need to be surmounted if Mexico is to attract 60m international visitors by 2024, a goal outlined by the National Tourist Business Council (Consejo Nacional Empresarial Turístico, CNET), an industry association.

Security Perception

There were more than 25,000 homicides in 2017, a record-high year since crime figures first started to be recorded by the Ministry of the Interior in 1997. This has not appeared to have improved yet, with the number of homicides in the first quarter of 2018 growing by almost 20% year-on-year. Over the course of 2017 and during the beginning of 2018 both Germany and the US issued travel warnings to their citizens for certain cities in Mexico. These warnings have mainly coincided with second-tier tourism destinations, such as Acapulco, though several international media outlets have published stories about violence in some of the country’s first-tier destinations as well. While this trend does not appear to have resulted in a drop in tourist activity so far, industry stakeholders are nevertheless concerned about the long-term effects this could have if security issues persist.

The Ministry of Tourism (Secretaría de Turismo, Sectur), has been working closely with local authorities at central tourist destinations and has also opened dialogue with other government departments. To this end, the administration of President Enrique Peña Nieto established a Tourism Cabinet in August 2013, which serves as a platform for inter-governmental coordination. The cabinet includes Sectur, the Ministry of Defence, the Ministry of Communication and Transport, among others. In order to develop a security plan to combat violence in Quintana Roo, which is an important state for the sector, a meeting was held with the minister of tourism, the governor of Quintana Roo and representatives from other state authorities in February 2018. Sectur has said this action plan will be fundamental in demonstrating to international media and other governments that efforts are being made on the ground to mitigate the security issues. In addition, representatives from Sectur have met with the US Embassy to discuss why the travel alerts were being launched and what could be done to resolve the issue.

Taking Flight

The increased number of flights between Asia and Mexico has facilitated a rising number of tourists from this source market. Furthermore, a new route has been announced between Dubai and Mexico City, which is scheduled to open before the end of 2018. Overall, however, added flights to the capital city are being delayed until the new international airport in Mexico City (Nuevo Aeropuerto Internacional de la Ciudad de México, NAICM) commences operations. Construction on the infrastructure project began in 2015 and is due to be completed in 2020. Coming in at $13bn, according to official figures, the NAICM is expected to replace the Benito Juárez International Airport (Aeropuerto Internacional Benito Juárez, AICM) and become the country’s largest airport. “Requests to expand flights from Asia to Mexico City are being held up because the existing international airport does not have the capacity to receive more flights,” Pablo Azcárraga, president of the CNET, told OBG.

Completion of the NAICM should enable a greater flow of international visitors to not only Mexico City, but also other destinations across the country, as a large percentage of business visitors from Asia first fly into the capital and then catch connecting flights to other cities. The existing airport has two runways administered by the same operator, while the NAICM will have three, each of which will be operated independently. The NAICM will be able to handle 120m people, triple the 44m-passenger-per-year capacity of the AICM.

Bottlenecks

In terms of land connections, there are concerns that the existing road and motorway networks and local transportation services will not have the capacity to cope with the higher volumes of tourist arrivals. “Air connectivity is a work in progress and the NAICM is a major step forward in this sense, but the country’s motorways still leave a lot to be desired. Our land transport generally needs to be improved,” Carlos Trujillo Balmaseda, executive president of the Mexican Association of Tourism Developers, told OBG.

Not only is physical infrastructure required to answer market demand, but local transport providers will also need to increase the range and frequency of their services in order to improve the ease of mobility for tourists. However, some innovations have disrupted the local transport industry and caused considerable controversy in recent times. For instance, international ride-hailing app Uber began operating in Cancún in September 2016, but had to halt its operations a few months later. “There have been issues with local transport unions, like the recent case of Uber being removed from Cancún,” Trujillo told OBG. “The local taxi service is insufficient there, and Uber could have provided a solution to this problem.” Chinese firm Didi Chuxing, which offers similar services to Uber, also entered the market in early 2018, and a referendum asking citizens whether they approve of transport services contracted through digital platforms will take place in July 2018.

The CNET has estimated that the government has invested approximately $9bn in the country’s tourism infrastructure over the 2014-17 period. In addition to building infrastructure to improve the ease of travelling across Mexico, stakeholders have also called for more locally focused infrastructure at important tourist sites. “Even though tourism is the second-biggest contributor to economic production in Mexico, the sector is still not being prioritised highly enough by the authorities,” Azcárraga told OBG. “In many areas we have weak tourism infrastructure that needs to be improved, while in others there is over-construction.”

Big Spenders

According to Sectur the number of international tourist arrivals rose by 12.3% in 2017, moving the country up two places to be the 6th most visited country in the world. Mexico’s ranking for tourism receipts was lower at 14th in 2016, though this was still two spots higher than its position in 2015, according to UN’s World Tourism Organisation. The value of its tourism receipts increased by 10.4% in 2016 to $19.6bn, which was the second-highest result in the Americas behind the US. “The big goal is to try and enter into the top-10 countries for the amount of income derived from tourism by 2025,” Trujillo told OBG. “Furthermore, we want to attract tourists that spend more per capita. In order to achieve this, we should be targeting more tourists from the US, and also Canada, Europe and Asia, as these tourists tend to have high purchasing power.”

As per CNET statistics, Mexico is running behind its regional competitors in terms of average spending rates per tourist. In the US, for example, average expenditure is around $1700, while visitors to Mexico spend an average of $512. However, when border tourism is excluded from this figure, the average spend increases to $837. Mexico is also lagging behind smaller regional competitors, for instance tourists in the Dominican Republic spend an average of $1000. “This gap represents huge opportunities to create better tourist experiences with higher added value that convince tourists to spend more money,” said Azcárraga. “We need more value-added services that allow the main driving force to be the experience, not the cost. We are still very focused on the all-inclusive ‘beach-andsun’ tourism model, but Mexico is a country with a great variety of resources that we should be utilising.”

Adding Value

Industry leaders have highlighted the need to diversify the country’s tourism offerings beyond its beaches. Adding value to Mexico’s already successful tourism products is one way that this could be done. For example, in early 2018 Xcaret Park, a popular eco-archaeological theme park in the state of Quintana Roo, introduced an “all-fun inclusive” pass that includes lodging and food, as well as universal access to all of Xcaret’s parks. In addition to the country’s natural beauty, Mexico is also rich with culture. The colonial-era city of San Miguel de Allende in the state of Guanajuato is a prime example of how cultural and art-based attractions could be used to tap new markets. The city of 140,000 people has shown impressive sector growth in recent years, with municipal tourism income rising by 27% in 2016 to reach more than MXN4.7bn ($254m), according to local government statistics. Additionally, the income derived from hotels rose to MXN500m ($27m) that year, signifying a jump of 50%. The success of this municipality could serve as a successful model for other cultural tourism destinations moving forward.

More could also be done to target people visiting the country for business purposes. “Around 50% of business travellers take advantage of their business trips for leisure purposes as well,” Gerardo Vera Prendes, director-general of Carlson Wagonlit Travel Mexico and Central America, told OBG. “Therefore, it is important for companies to adapt their travel policies to effectively account for this new phenomenon.”

Cross Border

The Tijuana Cross-border Terminal, also known as the Cross Border Xpress, is a pedestrian bridge that connects the airport terminal located in San Diego in the US to the Tijuana International Airport. Upon opening in late 2015, it became the world’s first binational airport, allowing passengers to exit and catch flights from either side of the crossing. The Cross Border Xpress has boosted the number of transit tourists in Tijuana, and has also created a pathway for tourists to explore other cities in Mexico. “The Cross Border Xpress has opened up Tijuana Airport,” Azcárraga told OBG. “Because it offers cheaper flights versus Los Angeles International Airport and San Diego International Airport, it is an attractive option for many.”

The increased access to the Southern Californian market of over 20m people will boost the flow of US tourists into Mexico, and could in turn raise the number of international visitors travelling via the US. As a result of the success of the Cross Border Xpress, there has been discussions over deploying the model at other prominent border cities, such as El Paso-Juárez, Mexicali-Calexico and Matamoros-Brownsville.

Nursing Growth

Medical tourism is another segment that is being targeted for development by both Sectur and the private sector. Demand for Mexico’s medical tourism is expected to pick up, largely as a result of the recent changes made to the US health care system under the administration of Donald Trump. The number of US patients that received treatment in Baja California alone rose by 12% in 2017. To tap this growing demand, the government has begun formulating alliances with medical providers, creating plans to promote this type of tourism in potential source markets. However, there have been some logistical issues, such as determining whether international tourists, specifically those from the US, are able to obtain health care under their domestic insurance carriers. Health care facilities in Mexico need to obtain the necessary accreditations to satisfy US insurers, and there also need to be agreements in place to allow US doctors to provide treatment at medical facilities in Mexico in order to satisfy insurance requirements. At the moment, the government is pursuing a strategy to permit this, which should overcome the obstacles within US insurance policies. Regardless, a hospital or medical facility must still have the appropriate accreditations for it to be accepted by international insurers.

“One of the principle steps towards developing Mexico’s medical tourism market is for individual hospitals to gain accreditation with foreign regulatory agencies, specifically from the US,” Rafael Espino, director-general of Amerimed Hospitals, told OBG. “Once this is done it will be easy to convince insurance companies and patients from North America that Mexico is an economically viable and safe treatment option.”

Outlook

Mexico’s natural beauty has long attracted tourists, but now the country is working to fully harness its broad potential. Some providers have already begun to differentiate themselves from traditionally successful models, branching into niche segments and adding value to maximise spending. “Tourism continues to post strong growth in Mexico, and companies in the sector are well prepared to meet this long-term demand,” Enrique Salcido, CEO of Groups2Go, a local conference logistics provider, told OBG. New transport links have been built and further projects are under way, which should boost the flow of tourists. However, there is room for improvement in terms of infrastructure at tourist centres and international perceptions of security. Whether the sector maintains or loses momentum under the new administration remains to be seen.

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The Report: Mexico 2018

Tourism chapter from The Report: Mexico 2018

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