Don’t cry for me Argentina - Buenos Aires Hoteliers at Last Start to See Signs of Improvement

29th Aug 2003

Argentina has certainly had more than its fair share of economic, social and
political problems over recent years, which have naturally had a knock-on
effect on the tourism industry.  2002 saw the country enter its fourth year
of recession - GDP contracted by 10.9 percent, unemployment rose to almost
19 percent and peso was devalued by 70 percent in January.  The economic
situation in Argentina naturally brought with it social challenges, over
half the population are believed to live in poverty.  Television coverage at
the beginning of 2002, showing outbreaks of violence, albeit limited did
little to woo would-be travellers to the region.  In addition to this global
economic conditions as well as the fall-out of 9/11 saw a number of
international carriers reduce services to the country during the year. 
Despite these challenges many are optimistic about the country’s future.
Figures from the Economist Intelligence Unit (EIU) show that after 17
consecutive quarters of declines, Argentina’s GDP grew by 5.4 percent during
the first quarter of 2003 (however 2002 performance was amongst the worst
months in decades).  Overall GDP is forecast to grow by 5.1 percent during
2003 and unemployment is expected to fall to just over 16 percent.  In May,
the country elected a new president, Nestor Kirchner, albeit with a small
majority.  Last week however saw the departure of German Perez, the
secretary for tourism, plus 11 other officials from the government.  The
devaluation of the peso as well as announcements earlier this year by some
airlines of plans to increase services to Argentina bode well future of the
tourism industry.

During the 1990’s tourism to Argentina expanded rapidly, between 1996-2000
visitor numbers increased at an average annual rate of 3 percent.  However
by 2001, both global economic conditions as well as internal challenges were
taking hold.  According to data from the Secretaria de Turismo de la Nacion
in 2001 visitor numbers to Argentina fell by 9.9 percent to 2.6 million
compared to the prior year - the largest decline in visitor numbers to the
country since 1991.  Whilst the main source market in terms of visitor
arrivals to Argentina is South America, with Chile, Paraguay and Uruguay
ranking amongst the top three, it is Europe, North America and Chile that
generate the highest levels of tourism expenditure for the country.  Given
the importance of the European and North American market it is perhaps not
surprising that in 2001 tourism expenditure also fell by 11.7 percent to
US$2.5bn compared to the prior year.

Although more recent figures for the country as a whole are not yet
available, tourism figures from the country’s capital Buenos Aires are
encouraging.  Latest figures from the CEDEM (Centro de Estudios para el
Desarollo Economico) show strong growth in tourism arrivals to the city
during the first half of 2003 compared to the same period in 2002.  During
the first six months of the year, the number of international and national
visitors to the city increased by 45.5 percent to 3.4 million, whilst
international visitor numbers alone, increased by an impressive 181.2
percent to 1.5 million. 

The abandonment of fixed parity in January 2002 and the consequential
devaluation of the peso have had a positive impact on tourism. Once
considered to be one of the most expensive countries in South America, the
devaluation of the peso has sharply reduced prices for visitors, making
Argentina a more affordable option than previously.  As well as luring
visitors from neighbouring countries, the unfavourable exchange rate has
kept Argentineans close to home.

Although a number of international carriers reduced their services to
Argentina in 2002, the good news is that a number of airlines have recently
announced plans to start increasing their services to the country again.
Iberia plan to increase the number of weekly flights to Madrid from seven to
ten, American Airlines plan to fly daily to Dallas and Lufthansa will in
December resume daily flights to Germany.  Also, Aerolineas Argentina, the
national airline, which until recently has been in bankruptcy proceedings
managed to post a profit during the first half of 2003.  In November the
airline is expected to increase the number of services provided - flying
three times a week to Sydney, daily to Miami and ten times a week to Madrid.


Monthly hotel performance data on Buenos Aires from the HotelBenchmark
Survey by Deloitte & Touche shows that even during 2000 hotels in the
capital were still performing fairly well considering the economic
situation.  It was not until the beginning of 2001 that hotels really
started to suffer.  Year-end data shows that compared to 2000, occupancy
levels fell from 59 percent to 53 percent, whilst average room rates
declined by US$31 to US$144.  2002 saw hotel performance decline further
still, with occupancy falling to 42 percent, whilst average room rates fell
to US$84 - this is approximately 40 percent lower than in 2001 and 50
percent lower than in 2000.  It is however important to remember, that the
fixed parity of the dollar to the peso was abandoned at the beginning of
2002 therefore the currency devaluation will have a bearing on these
Data for the first six months of 2003 outlined here shows
improved performance for hotels in Buenos Aires compared to the same period
in 2002.  Both occupancy levels and average room rates have experienced
double-digit growth, resulting in an increase in revPAR (rooms revenue per
available room) of 53 percent, albeit from a relatively low base.


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