Article

Hotel chains expand in Argentina despite pandemic

Most are conversions of independent establishments in a sector with a tight budget. What the plans are, and when they estimate recovery

June 09, 2021

Tourism is experiencing the worst crisis in its history since the beginning of the pandemic. However, the largest international hotel chains do not stand still: they are advancing in their expansion projects in Argentina.

Companies such as Marriott, Accor, Hilton, and Wyndham are negotiating various agreements to install their brands in different destinations across the country, as they estimate that the advance of vaccination will allow the reopening of borders and will boost travel. After months of isolation and measures limiting movement, people will be eager to travel and have fun, they say. Although the hotel business, like the rest of those associated with tourism, was seriously affected by the pandemic.

The chains estimate that, from October, the sector would begin to reactivate. However, the recovery to levels similar to those of 2019 would be seen between the end of 2022 and mid-2023. In terms of profitability, perhaps, we should even wait until 2024.

"Hotel investment projects that had a significant degree of progress are still active, although they have been delayed. But the vision is that the repressed demand that exists for hospitality will generate a recovery in hotel performance in the coming years, as is already happening in other markets," said Santiago Berraondo, Senior Vice President of JLL, the Hotel Consulting firm.

The specialist explained that, in the United States, where the vaccination process is already advanced, hotel occupancy grew from 30% in the first quarter of the year to 50% in the last two months. The business is expected to recover in 2023.

"There is a strong repressed demand in leisure tourism. The segment is estimated to get recovered. First, local tourism, then the international one as the restrictions are lifted. Later, corporate tourism will be allowed, and lastly, they will allow organizing offline meetings," he explains.

Buenos Aires, like the rest of the capital cities of the region, was mostly hit by Covid-19: RevPAR (income per available room) was reduced 89% in 2020 compared to 2019, Berraondo said.

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"We see a lot of interest in the development of suburban hotels and leisure-oriented destinations, both in Argentina and around the world. Also, in the long-stay segment, which was one of the ones that best resisted the crisis, and in mixed-use projects," he added.

The major hotel chains say they are advancing in various conversations to expand their presence in the country, either through franchises or management.

Although they evaluate some projects to be built from scratch, most of the opportunities, today, focus on the "conversion" of hotels: independent establishments that, in the face of the pandemic, see the need to have an international brand to ensure a certain demand at a better price for reactivation.

With the pandemic, they explain in the chains, the interest of belonging to an international brand grew even more for two reasons. Guests expect to stay in a hotel that applies all the hygiene protocols that chain establishments comply with respecting international standards. Also, this is a safeguard for travel agencies when selling nights. But, in addition, because belonging to a chain gives access to millions of loyalty program guests, which ensures a better distribution: being able to sell more nights more efficiently, in general, at a higher rate, by the international quality and value seal.

Marriott's loyalty program, Bonvoy, has 150 million members who access more than 7,000 hotels worldwide, 300 of them in Latin America and the Caribbean. Accor has 65 million partners in its program, of which 10 million are from South America.

Hilton Honors, Hilton's program, has more than 112 million members, while Wyndham has 85 million members to its loyalty program.

The plans of each chain

The chains especially look at the traditional tourist destinations of the country even, where they already have a presence, and for brands designed, especially, to adapt to existing hotels and the ones seeking to reconvert.

Marriott, which has 11 hotels in Argentina, plans to open the Sheraton Bariloche in 2022, an establishment where Panamericano Bariloche used to operate, which is now in full remodeling.

A year ago, Marriott Buenos Aires opened, where the Panamericano Porteño hotel operated. "We're very interested in Argentina, and we are developing projects in many cities, closing deals in popular tourist destinations such as Bariloche, Iguazu, Mendoza, Ushuaia, and other business-related destinations, such as Rosario or Neuquén," said John Walls, director of Development for Marriott South America.

"We have brands that fit very well for existing hotels of different ranges, such as Autograph Collection, Tribute, Delta, or Four Points, both for management contracts and franchises. We also evaluated a new cheaper lifestyle brand, Moxy, with a lot of design but at a lower cost," added the executive.

Hilton, with six three-brand hotels in the country, advanced in its expansion amid the pandemic. "In Latin America and the Caribbean, we closed 2020 with more than 170 hotels in 25 countries and more than 100 projects underway. In 2020, we signed more than 30 new projects for more than 5300 rooms. In Argentina, 2020 was a record year in this sense: working together with different investors and developers allowed us to sign six new projects," said Facundo Lozada, Development Manager for Argentina & Uruguay at Hilton.

"For Hilton Garden Inn, we agreed to four hotels: Posadas, Corrientes, Santiago del Estero, and the northern corridor of the Province of Buenos Aires. In addition, we signed the contract for Cheval de Feu, Curio Collection by Hilton in Technopolo, General Rodríguez, and a Hilton in Ushuaia, with a striking location in front of the Beagle Channel," he said.

In addition, the construction works of two new projects for the Hampton by Hilton brand are progressing: Parque Leloir and Rosario. "All these hotels are in different phases, with openings planned since 2022, except for the Hilton Garden Inn in Santiago del Estero, which we hope will be open this year," he said.

For hotel conversions, consider brands like Curio Collection and Tapestry Collection by Hilton in the full-service segment, including DoubleTree by Hilton. In projects from scratch, they seek to strengthen Hilton Garden Inn and Hampton by Hilton.

"Many of the projects we have understudy are mixed-use ventures, where our brands play a central role and relate in a very positive way with other uses, whether they are residences, shopping malls, corporate offices," said Lozada.

Among the destinations sought, Hilton points to Iguazú, Salta, Mendoza, Córdoba and some of Patagonia, such as San Martín de los Andes.

The French Accor, with 12 hotels in the country, is also making progress in projects. "The Puerto Madero SLS is ready to open. It was planned to be open in 2020, but it strongly depends on the regional business, especially Brazil, and the international one," explained Luis Mirabelli, vice President of Development for Hispanic Countries in South America of the chain.

"We are working on many opportunities, especially in the leisure and lifestyle segment, in which we have 13 brands. We are focused on hotel conversions, working with several independent hoteliers. Some brands, such as Mercure, Ibis Style, and M Gallery, are well suited to these projects," he added.

"This year, besides the SLS, we are about to open a hotel built outside of Buenos Aires," he anticipated.

Among the target destinations, Accor points to locations such as Córdoba, Mendoza, Iguazú, Bariloche, and, also, with some mixed-use projects, hotels with residences. And it does not rule out any hotel "Works in the country, if conditions allow it," Mirabelli said. In January, the French group partnered with Argentine businessman Alan Faena to manage the current hotels that bear his surname and develop new projects, mainly overseas.

Wyndham has been one of the most active, especially with the expansion of the Howard Johnson and Days Inn brands in recent years. It already has 54 establishments and seeks to bring new brands.

"We are looking for opportunities and partners to develop Super 8, a leader in the economic segment in the United States, or Tryp, which is strong in Europe," said Jimena Faena, vice president of Marketing, Communication, and Loyalty for Latin America and the Caribbean at Wyndham.

"There are many opportunities in hotel conversion. We are about to open the Esplendor Tango in Buenos Aires in September. In addition, a Dazzler in La Plata and, with Howard Johnson, openings are planned this year in Bahía Blanca and Alvear, Santa Fe. There is a confirmed project for Dazzler in Pilar, and we are looking for opportunities in Bariloche, Iguazú, and in secondary and tertiary cities, such as Villa María, Santa Fe, or Paraná," he lists.

"We see potential to install Super 8 on Argentine routes, with the expected growth in domestic tourism. We want to close the year with 60 hotels in Argentina," said Faena of Wyndham.

Financing

The conversion of hotels requires investment, something that, in a context where hoteliers have been almost without operation for a year or at a low rate, does not seem easy to access. However, the chains assure that there are different types of conversion and, depending on the hotel, in many cases, such large disbursements are not necessary or can be realized gradually.

In this regard, Berraondo, from JLL, admitted that "many independent hotels do not have the back to access credit; therefore, many closed or are for sale."

"And those who closed temporarily require investment in working capital to get them up and running," he added. "But there is also a segment of hoteliers with economic power to make the conversion because hospitality is not their main source of business, and others are even doing it with third investors who provide the capital," he said.

In this sense, a local businessman, known in the sector, recognizes that the closure of tourism – especially that of conventions –, will cause the appearance of plenty of hotels with a sign "up for sale for pennies."

This article was first published in El Cronista on June/03/2021, author Nuria Rebón.