Heritage sites and business travel drive growth in Mexico's tourism sector

Over the past decade, Mexico’s tourism industry has shown steady expansion, growing every year since 2011 despite security concerns and travel warnings. The 41.4m tourists that visited Mexico in 2018 reflect a 5.5% increase from the number of visitors in 2017, when the government estimated 39m foreign tourists entered the country. According to the World Travel & Tourism Council, tourism accounted for 17.2% of GDP in 2018. Additionally, the rate of growth outpaced that of overall economic growth, at 2.4% compared to 2%, the same year. Participation in the tourism workforce reflects the integral role the sector plays in the economy, with over 4.1m employees in the third quarter of 2018, up slightly from 4m in 2016.

Tourists are increasingly venturing out of the traditional tourist centres – Mexico City, the Mayan Riviera with Cancún as the star attraction, Riviera Nayarit with Puerto Vallarta and Los Cabos – to visit the up-and-coming destinations of Campeche, Yucatán and Oaxaca. Meanwhile, steadily increasing investment in popular resorts reflects the strength of Mexico’s beach tourism. Greater demand for business travel alongside niche alternatives such as ecotourism and cultural heritage visits also demonstrates the continued potential of the tourism industry.

Structure & Oversight

The industry is overseen by the Ministry of Tourism (Secretaría de Turismo, Sectur), which implements the government’s tourism strategy at a national level. Supporting Sectur is the National Fund for the Development of Tourism (Fondo Nacional de Fomento al Turismo, Fonatur). Established in 1974, Fonatur manages public-private partnership projects in the tourism sector. The two organisations work together to encourage both public and private investment, as well as oversee key projects such as the Maya Train, connecting the states of Quintana Roo, Yucatán, Campeche and Chiapas. The government is expected to invest around MXN65bn ($3.4bn) in the project – which will be managed by Fonatur – in a bid to boost tourism in rural locations and connect jungle destinations and coastal towns.

While the Maya Train is expected to bring momentum to the sector, those in the industry are looking to the government’s National Tourism Strategy 2019-24 to lay the groundwork for future growth (see analysis). Factors such as budget cuts in the austerity programme of President Andrés Manuel López Obrador – commonly known as AMLO – and the closure of the Tourism Promotion Council of Mexico (Consejo de Promoción Turística de México, CPTM) have caused some to adopt a wait-and-see approach. “I do not agree that this is the right moment and the way to build a tourist train,” Juan Ignacio Rodríguez Liñero, executive director of timeshare management company RCI Latin America, told OBG. “I believe that we need to focus on promoting our destinations in the country abroad, controlling levels of sargassum seaweed and improving the image people have of Mexico’s security situation.”

In the Air

The expansion of Mexico’s tourism industry has in part fuelled a need to increase air transport capabilities. The existing Mexico City International Airport is over capacity, with two runways accommodating some 40m passengers a year. Construction on a new international airport in Mexico City, to be called the New Mexico International Airport, began in 2015. However, in October 2018 AMLO announced his government would cancel the project following a referendum. Nevertheless, the government is seeking an alternative option to manage the flow of tourists and other travellers. AMLO proposed the construction of an airport in Santa Lucía, around 50 km north of the current airport, at a cost of MXN78.6bn ($444.7m), to complement the existing facilities. However, the distance would increase travel time from the airport to the centre of the capital city by at least an hour and make transferring between the two facilities time-consuming and inconvenient. “We would need to develop better travel connections between the city and the new airport in order for it to be a success,” Nicolás Cano Ibarra, director of strategic planning at Sectur, told OBG.

Increased connectivity between Mexican cities has also encouraged both leisure and business travel to a wider variety of destinations. New domestic flight connections between Mérida, Oaxaca, Tijuana, Monterrey, Las Mochis and Ixtapa will allow travellers greater access to holiday and business tourism destinations. Likewise, new routes between Hermosillo, Juárez and Mérida are scheduled for early 2020.

Performance & Size

Government investment in the tourism industry in 2018 totalled MXN3.8bn ($196.5m), a drop of 5.4% from 2017. Tourism contributed $209bn to Mexico’s economy, equal to 17.2% of the country’s GDP and 7% higher than the international average. While overseas travellers contributed 15% of spending in the sector, the biggest spenders were domestic travellers, who provided the remaining 85% of total spending. In 2018 the average tourist in Mexico spent $923.15, up 1.5% from 2017 but down from a decade-long high of $948.69 in 2014.

Source Markets

Mexican tourism has traditionally been dominated by visitors from North America, with 56.1% of all visitors in 2018 coming from the US and 11.5% from Canada, according to Sectur. Travellers from the UK accounted for 3.2% of visitors, followed by Colombia at 3% and Argentina at 2.6%. Other countries accounted for 23.6% of arrivals. New markets are also on the horizon for Mexico. Pending government approval, Dubai’s Emirates will start a daily flight to Mexico City via Barcelona in December 2019. In September 2019 Mexico City International Airport awarded Emirates the slot, but the agreement must first go through two additional rounds of approval and stave off a legal challenge by national carrier Aeroméxico.

Security

Although violence is rarely directed at tourists, a persistent challenge to the sector is the negative perception of security in the country. In response to increased violence in some states, travel warnings have been issued by the US and other governments in recent years. According to an April 2019 travel advisory issued by the US Department of State, Mexico ranked at Level 2 in terms of security, on a par with Egypt and Brazil. The US government cited crime and kidnapping as it urged citizens to exercise increased caution. US citizens were warned not to travel to the states of Colima, Guerrero, Michoacán, Sinaloa and Tamaulipas, and were advised to take caution in major tourist destinations including Baja California and Quintana Roo. Business tourism is the segment most affected by these warnings, as companies travelling for meetings and conferences largely must abide by the advisories. Despite these concerns, however, the number of tourists visiting the country has continued to increase.

Under the Sea

The increase in a seaweed known as sargassum in the Mayan Riviera region has also proved to be problematic, as many tourists flock to the country’s pristine beaches for their holidays. The algae is not only unsightly, but also causes harm to the delicate ecosystems that support marine life, suffocating reefs and destroying turtle nests. According to local media, around 168,000 tonnes washed up on Mexico’s coasts in 2018. Under the current conditions, this could rise significantly to between 500,000 and 1m tonnes in 2019 across 1000 km of beaches. In May 2019 the government of Quintana Roo declared a state of emergency, describing the situation as an “imminent natural disaster”. The move paved the way for federal funds to be earmarked for the gathering and disposing of the seaweed. In June 2019 the secretary of the Navy, Rafael Ojeda Durán, announced that MXN52m ($2.7m) would be allocated to projects to construct barriers and collect the seaweed across the coast.

Hospitality

Occupancy rates have held steady in recent years, hovering around 60% during 2015-18. Domestic tourists account for the majority of tourists in Mexico and represented almost 74% of total room occupation in 2018. New projects – principally in Cancún, Mexico City and Los Cabos – are expected to bring 27,000 additional hotel rooms in 2019. Luxury all-inclusive resorts are expected to dominate the new openings. Over the medium term there will be 352 hotels opening across the country between 2019 and 2022, according to the consulting firm CBRE.

Business Travel

Meetings, incentives, conferences and exhibitions tourism is a segment with notable potential in Mexico, employing nearly 900,000 people and contributing an estimated 1.5% to GDP. According to the International Congress and Convention Association (ICCA), in 2017 Mexico ranked 22nd worldwide in terms of the number of congresses and conventions held, having 198 events, up 8.8% from 180 events in 2016. In the Americas, Mexico ranked fifth in this category, behind the US, Canada, Brazil and Argentina. Competitive hotel, transport, and food and drink costs make Mexico a popular option for business travel.

Simply Magical

Mexico has sought to tap into its cultural heritage to attract visitors to some of its hidden gems. One such programme was the Sustainable Tourism Regional Development Programme, which managed 121 Pueblos Magicos (Magical Villages), throughout Mexico. These include San Miguel de Allende in Guanajuato, San Cristóbal de las Casas in Chiapas and Tequila in Jalisco. While in 2018 the Pueblos Magicos programme was allotted MXN586m ($30.3m), it did not receive a budget allocation in 2019, as the government was focused on austerity. Instead, industry players are looking to promote these destinations at international fairs and through deals with tour operators.

In addition, niche traditional events such as Mexican wrestling are increasingly attracting visitors, particularly as online marketing makes it easier to promote them to an overseas audience. “Mexican wrestling has already been declared as intangible cultural heritage by the Mexico City government and is now a major draw for foreign tourists visiting the country,” Dorian Roldán, president of Lucha Libre AAA Worldwide, told OBG.

Doctor's Orders

Mexico has proven to be an attractive destination for medical tourism, with competitive prices and high-quality treatments. Many of the clinics are centred around the northern border with the US in places such as Tijuana, Hermosillo and Ciudad Juárez, as well as the beach resort of Cancún. Most treatments require out-of-pocket financing, however, as there is a general lack of coordination between Mexican health providers and US insurance companies. Even so, the costs are low compared to the US, where health care and even insurance is expensive. The Mexican medical tourism segment is valued at approximately $8bn-8.8bn, or 5.6% of the worldwide total, according a study released in August 2019 by Deloitte. Domestic medical tourists accounted for nearly half of this value, at around $3.9bn-4.3bn. The study also estimated that demand would quadruple in value by 2030.

Marketing

The funds previously earmarked for the CPTM’s campaigns and foreign offices were redirected to the Maya Train, and the responsibilities of the overseas offices were shifted to the Mexican foreign missions. State governments and private firms are expecting to have to invest more in marketing campaigns to maintain the same level of exposure granted under the CPTM. This is particularly challenging due to the fact that in Mexico 60% of trips are purchased through traditional travel agents instead of online, and many hotels continue to be available for reservation only in person. This limits the reach of rural or smaller destinations to the international tourist population. “Artificial intelligence will become very important,” Julián Balbuena, president and CEO of Best Day Travel Group, told OBG. “Through models and algorithms, players in the sector can more effectively track client behaviour and develop targeted tourism products and strategies accordingly,” he continued.

Outlook

With high levels of growth that show little sign of slowing down, the outlook for tourism in Mexico remains positive. While national challenges such as crime and the war on drugs remain an issue, tourism appears largely unaffected. For this expansion to continue, the government needs to maintain its focus on addressing security concerns, while increasing promotional activities to fill the shoes of the CPTM.