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LAC Profit Pops in Q1 Amid Enduring COVID-19, Inflation Worry

If it’s not one thing, it’s another—or two or three. The Latin America and Caribbean region is not alone in the hardship exacted by COVID-19 and now added detriments, including high inflation, rising interest rates and labor costs, but the region’s hotels are showing resilience.

Like the rest of the world, COVID is not through with the LAC region. As of May 2022, LAC had nearly 1.7 million deaths, which amounts to more than 27% of deaths worldwide, according to the Pan American Health Organization (PAHO). Peru had the highest recorded COVID-19 mortality rate in the region, followed by Brazil, Chile, Argentina, Colombia and Trinidad and Tobago.

Caribbean nations, which depend largely on tourism dollars, have been impacted. The International Monetary Fund (IMF) reported a 7% economic contraction for the region in 2020 with a slight recovery in 2021. The IMF is forecasting 2.5% regional growth in 2022.

For hotels and resorts, the slog back to profitability is now compounded by the high inflation that has gripped the region. This is particularly spotlighted in the so-called LA5: Brazil, Chile, Colombia, Mexico and Peru. Inflation in the region began to accelerate in the latter part of Q1 2021 and has not abated and according to the IMF, inflation in the LA5 is about 150 basis points higher than the U.S., for comparison.

But as COVID infection rates across the region drop and restrictions loosen, the region is ripe for a travel renaissance, benefitting from pent-up demand and myriad resort options to satiate the avidity. Most countries in the region have met the World Health Organization’s target of vaccinating 70% of their people, while in Mexico, where daily cases fell from 40,000 in late January to 1,000 in mid-April, masks are no longer mandatory in most places.

Hotel performance data show signs of correlation with the trends. In Latin America, gross operating performance per available room (GOPPAR) was recorded at USD $139 in March 2022, which is only $1 off what was recorded in March 2019 and higher than any other preceding month back to 2018. Q1 2022 GOPPAR of $101 was $17 lower than Q1 2019.

Though occupancy rate in the entire region is now above 60% on aggregate, it’s rate that has delivered the bottom-line success. ADR in March 2022 eclipsed any pre-pandemic high, underscoring the present-day return to travel, particularly the leisure segment. Though corporate volume mix remains comparatively infinitesimal, transient volume mix is making up for the hole, as it has throughout the pandemic, and stood at 66% in March 2022.

In Mexico, resort locations have led the way. Quintana Roo, home to Cancún, Cozumel and Playa del Carmen, among other tourist-heavy areas, recorded GOPPAR of $154 in Q1 2022, reaching $205 in March. It’s $60 higher than Mexico on aggregate in Q1. Though occupancy was up to nearly 70% in March, it’s been a rate-driven led, with ADRs in the region pushing past $300 in many areas.

Though Peru has been perhaps the hardest hit area of South America, its hotel performance is starting to turn. Between February and March, GOPPAR increased nearly $25 to $42, which is inching back to pre-pandemic levels. Peru has been able to keep expenses at bay compared to other areas of South America, with total payroll in Q1 2022 some $7 lower than the rest of South America.

Meanwhile, Rio de Janeiro is climbing back to pre-pandemic numbers and then some. It’s $30 GOPPAR in March 2022 was a full $20 higher than in March 2019. Q1 2022 GOPPAR of $35 was 169% higher than Q1 2019.

Caribbean territories are each taking their own approaches to welcoming travelers back. Some have reopened regardless of COVID-19 vaccination or testing status, while others have in place more stringent protocols that require travelers to take extra steps ahead of their trip.

Overall, the region has seen vast performance improvement and March 2022 saw its GOPPAR pop to $266, $3 higher than in March 2019—evidence that the tourism haven is making its way back to its normal plateau. As total revenue escalates in the region (TRevPAR in Q1 2022 was $90 off Q1 2019) so too are expenses, which is not an aberrant trend globally. Total payroll in the region in Q1 2022 was $20 off Q1 2019, but in March 2022, it was $10 below March 2019.

The LAC region has had its fair share of hardship, but it’s also one of the most tourist-driven regions in the world. Its resort destinations and culturally significant attractions make it a beacon for travel annually and though headwinds exist, the region is seeing its fortunes turn, month by month.

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