Travel Agent magazine held a roundtable at Tianguis Turistico in Guadalajara, Mexico, in late April. Joining us was our co-host, Rodrigo Esponda (above, left), regional director for North America, Mexico Tourism Board, along with top executives of the major tour operators. Also included in the discussion were (continuing from left) Tim Mullen, president, Apple Vacations; David Hu, president, Classic Vacations; Michael Schmeltzer, president, American Airlines Vacations; Jack E. Richards, president & CEO, Pleasant Holidays; Mark Benson, vice president, USA leisure product & sales support/Flight Centre USA and GOGO Vacations; John Caldwell, president, MLT Vacations; and Kevin Froemming, EVP & chief marketing officer, Playa Hotels & Resorts (Hyatt Ziva and Zilara).
We’ve already shared the some thoughts on how a strong dollar and increased airlift are driving Mexico travel. Here is a fuller version of the discussion.
Ruthanne Terrero: This year seems to have started off a little bit differently from past years in terms of different dynamics in the marketplace. How is business in general for all of you?
David Hu, Classic Vacations: This year started out really awkwardly. It was a perfect storm compared to last year. In the first quarter of 2015, anybody in their right minds probably had the best quarter they ever had. This January, you had the stock market crash by 10 percent, the advent of Zika and terrorism in Europe. There was a hurricane in Fiji, dengue fever in Hawaii and umpteen different things all at one time. All of the sudden, people were a little bit hesitant to go places. But, I don’t think the desire to travel has diminished. We’re hearing there is less inclination to go beyond the U.S. borders.
But, things are starting to normalize again. There is still a lot of choppiness, but it’s nothing in comparison to what we saw during the first part of the year.
Ruthanne Terrero: What about the election? Typically that has an effect as well, right?
David Hu, Classic Vacations: The way I see it, the uncertainty of the elections first filters in through the markets and then hits the consumers. People don’t know how the election is going to pan out, but they’re not going to hold off; they’re still saying, “Hey, economically, we’re okay.” Come October, past the conventions, it may be a different story.
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| Jack E. Richards, Pleasant Holidays; Tim Mullen, Apple Vacations and John Caldwell, MLT Vacations |
Jack Richards, Pleasant Holidays: We’re an exception to the rule. We’re actually having the best year in 10 years. All [of our] destinations ... are up, including Hawaii. Europe is up by 50 percent, despite the terrorist attacks. We see no impact of Zika or dengue fever. Across the board, it’s been consistent, starting in the fall of 2015, and has continued all the way through the first quarter. The only weakness is in Central America, and, we believe, that’s related to the jungles of Costa Rica, Nicaragua and Panama because of Zika. Having said that, the destination is still considerably up year over year. This is probably going to be the best we’ve seen in many, many years.
Specifically in Mexico, we’re getting a bump from Los Cabos. We took a huge multimillion-dollar decline in Los Cabos [after the hurricane], because the hotels were closed. Now they’re back, and it’s doing very well. The group business is back and that also is very strong. The destination wedding business is strong. We really don’t see any major headwinds in 2016.
Tim Mullen, Apple Vacations: For the last two years, our business has been up, and we have had a great run. In 2016, even though the business is up, it is not at the same levels as that of 2014 and 2015. I agree with David about some of the things that got in our way, including the stock market, with discretionary income being down a little bit. That tends to affect travel decisions and purchase. Overall though, business is good. I agree with Jack — the West Coast of Mexico has seen a nice rebound due to additional lift and the resurgence of the hotels after the hurricane in Cabo. Cancun always does well. It seems to reinvent itself every year. There’s new development, new projects and new lift. If those three things are happening, Cancun will always do well.
We focus mostly on Jamaica and the Dominican Republic in the Caribbean and it’s doing well. We’re not a huge player in Hawaii, as opposed to some of the guys on this table, but our business to Hawaii is up a couple of ticks. Business to Mexico is up the most.
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| John Caldwell, MLT Vacations and Kevin Froemming, Playa Hotels & Resorts |
John Caldwell, MLT Vacations: I echo that we’ve seen a little bit of a slowdown. For us, who have a great Midwest business, it was a little warm this winter, so we saw people not taking that second vacation, and with everything else combined, that probably dampened demand a little bit. But, when I look at our bottom line for the first quarter, we’re beating plan across the board, and we’re anticipating a very good year as compared to last year. We’re Delta-centric and somewhat Aeroméxico-centric, and for them capacity has slowed a little bit, so our overall growth has come down with the capacity. However, our profitability is up and we’re seeing an incredible bounce in group business right now, particularly to Mexico. We’re seeing a lot of people booking groups early. We’re up double digits into the third and fourth quarter.
Ruthanne Terrero: When you say groups, do you mean destination weddings?
John Caldwell, MLT Vacations: Yes, groups all across the board except for business groups. It’s remarkable. Every day I see six-figure groups just coming in, which is really exciting. Our Europe business is doing well; it’s shifting from Paris to London to Rome. We’re adding to the Amalfi Coast, and Barcelona is doing extremely well.
Domestic business in the U.S. is up. People are going to places like New York and L.A.; you can probably postulate that perhaps it’s a trade off and that they’re going away from where there might be troubles in the world. We’re having a very good year and the forward bookings are extremely strong for us.
Ruthanne Terrero: Rodrigo, could you speak about travel to Mexico?
Rodrigo Esponda, Mexico Tourism Board: We had a fantastic 2015, growing by double digits and definitely from the United States, which is our main market. We have been growing from other markets, and that’s probably been the most successful thing that the Mexico Tourism Board has been able to achieve over the past year. We have really diversified the number of visitors from other countries. Asia has been growing. China, for the first time, is growing at a pace that really is catching up with the potential that it has. South America is really the surprise for us. People in countries like Argentina, which have been going through difficult economic times, are also traveling. Brazil is another example showing that even though they’ve been going through difficult economic and political situations, they keep going to Mexico. Canada, with some of their situations with oil and the exchange rate, has been growing. We have seen that, from Canada to the Caribbean, it’s been flat or negative numbers, but, for Mexico, it’s been growing.
The United States has been a star. For the first time, we’ve been able to really grow market share; and, also for the first time, the number of U.S. air travelers has been growing. We used to be very flat in terms of the number of U.S. visitors to Mexico by air, but in the last three years, we have gained 2.6 million additional visitors.
Kevin Froemming, Playa Hotels & Resorts: From the standpoint of some of the challenges early on, I think David summed it up well. Overall though, the fundamentals are extraordinarily strong in the United States right now. I can speak a little bit more globally, because in addition to the United States being our core market, Canada and the local Mexico business come in second and third respectively. Mexico is actually the second largest business for our resorts. The biggest issue there is the strength of the U.S. dollar versus the Canadian dollar and the Mexican peso. Those destinations have become a little more expensive for Mexico, and a little bit more expensive for Canada, and also, for our local traffic as well. Our percentage of business has shifted, and you actually see larger percentages coming out of the United States right now.
We’re also seeing some tremendous growth in Korea and Japan. We’ve gone after that market, and successfully brought in a lot of people. Cancun is really benefiting and has brought in some significant growth for us. We’re diversified enough to continue to surpass our budgets for this year.
But, I think, everybody is having to work a little bit harder.
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| Michael Schmeltzer, American Airlines Vacations; Mark Benson, Flight Centre USA and GOGO Vacations and Rodrigo Esponda, Mexico Tourism Board |
Michael Schmeltzer, American Airlines Vacations: We have a little different story, because we went through the merger [with U.S. Airways] last year. So, last year, particularly the first half, was choppy for us. It was really not until July, and then particularly October, once the res systems merged for the airlines, that things really started going for us. We actually merged the vacation groups ahead of that on May 1st.
This year, as a result though, we are doing much better. A large part of that is because we’ve been investing in travel agents. It’s something that the American Airlines Vacation brand has not done in many, many years, so it’s new for the brand, although not new for our team. We’ve started putting salespeople in the field. Dallas was first and Philadelphia, L.A., Miami, Chicago are all up and running.
We haven’t even started with the large groups yet. We’re putting that off until fourth quarter this year. That’s just another boost that we’ll have. We think there is a lot more to come from us.
Mexico has been fantastic. Puerto Vallarta has the largest growth. Cabo is extremely strong. Cancun is very strong, too, but not as much as the other two. Throughout the Caribbean, Montego Bay is the strongest for us. Punta Cana is also very good. However, Puerto Rico and Aruba have been flat. Europe is robust with Rome having the strongest growth. Paris is, of course, not as strong and Brussels is rather flat for obvious reasons. But, Europe is still looking in very good shape for us. We’re very pleased about it.
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| Mark Benson, Flight Centre USA and GOGO Vacations and Ruthanne Terrero, Travel Agent magazine |
Mark Benson, GOGO Vacations: Very much reflecting on what the panel is saying, we did not have a very good start to the year with Mexico. I think, in one sense, being very Northeast-centric, there were a lot of issues. The weather was one of them. I hate using the weather excuse, but it was, and we heard that from our consultants. It did affect things. Having said that, I agree with [Mexico’s] west coast and Vallarta being extremely strong. Cabo, obviously, is slightly skewed compared to what it was last year. Cancun had a very, very strong summer.
Europe has had a sturdy growth. France is down, but the UK remains healthy. And, although, we’ve always been very, very strong in Italy, we’re seeing even better than expected growth there and Spain as well. Greece was always a nice little earner for us, but, now, it’s even better. Hawaii is also very strong.
Overall, this year has been very much about navigating the chess pieces a bit more cleverly, and being more reactive with our marketing efforts to make sure we were doing the right things to market our services. We’re doing a nice little push for the U.S. mainland with our media output as an ancillary to all the other parts of the world we’re taking to market.
Jack Richards, Pleasant Holidays: There are two areas where we’re seeing Zika. One is in Puerto Rico, because it’s a Caribbean hub, and then Florida. There are several cases already in Florida. We expect that to get worse as we move toward the summer. But, overall, the U.S. is pacing way ahead of last year, particularly in New York City, Las Vegas and Orlando.
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| Classic Vacations’ David Hu and Pleasant Holidays’ Jack E. Richards |
David Hu, Classic Vacations: I think the fundamentals for the American consumer are still very sound. I have [Expedia] as a parent company, which is, basically, an 800-pound gorilla, and I can look at their data. You can see the shifting around of where things are going. There is definitely a stronger push into the domestic U.S. What we’re seeing is they’ll shift back and forth, and you’ve just got to keep watching. But, the underlying American consumer mentality is that they still feel the propensity to go out and travel. They still have the discretionary income. Whether they spend as much as they had in the past years depends on their individual situation. I think there’s still a high inclination to go somewhere.
Mark Benson, GOGO Vacations: If I could actually add to that point, our worldwide travel business, which is an experiential, long-haul, multi-destination business, has actually doubled and the biggest growth area is Southeast Asia. You can’t think of a more experiential, more inviting, more multi-itinerary place than that.
Ruthanne Terrero: How about emerging destinations? Are there any surprise destinations or new markets that you’re going into that you can share?
Kevin Froemming, Playa Hotels & Resorts: From my perspective, at least in the short term, Punta Cana and Cap Cana are growth-oriented. It’s opening up. There’s tremendous opportunity there. I also think, just the Playa Mujeres area has a significant growth curve. To Mark’s point, some of the things that we plan to focus on down the line include considering Southeast Asia as a big opportunity. The fundamentals are perfect for high-end all-inclusive products. Whether it’s Bali, Bora Bora, Fiji or Phuket, all of these destinations are fundamentally strong.
While there is some pseudo all-inclusive product in the Far East, there are no major international brands there right now. That is something that we were looking at as a big opportunity, in addition to strengthening and growing in places like St. Lucia and Jamaica.
Michael Schmeltzer, American Airlines Vacations: I mentioned Rome has been very strong and Puerto Vallarta is probably one of our strongest growth markets. St. Lucia has jumped into our top 20 destinations and it’s never been there before.
Tim Mullen, Apple Vacations: I think you can’t answer the question about emerging destinations without citing Cuba. It is definitely an emerging destination, but it’s more PR right now. It’s definitely not there in numbers. The passenger numbers aren’t showing because of the limited inventory both on the airside and the hotel side.
Among the emerging Central American countries is Costa Rica, which is getting more airlift and hotel development every year. Panama already has an existing huge network of air capacity coming in. We’re seeing hotels develop there as well, including two new AMResorts, Dreams and Secrets. Cartagena, Colombia, is the new hip, trendy, safe place to go, and the hotels, particularly the all-inclusives that you see in the Caribbean and Mexico, are looking for development opportunities in Cartagena as we speak.
Ruthanne Terrero: Can anyone share any plans for Cuba, or are we still in waiting mode?
Tim Mullen, Apple Vacations: I think we all have some level of Cuba business. We launched a very small program there with a local, third-party company. We’re limited to the capacity of the hotels and the airlines. We wish we had more air seats available to us. It’s certainly easier for our customers to go there now. They simply check a box that they’re going to do a people-to-people program there. So, the onus is on them, not on the tour operators or the travel agent, which is good. I think that those restrictions will lighten as time goes on. What we’re really facing is a short-term inventory issue.
Jack Richards, Pleasant Holidays: We just had somebody come out of Cuba. My view is the infrastructure is six decades old and crumbling. The food’s terrible. The resorts are of a poor quality. The cruise ships will probably be the first that do it well, because clients can go back to the ships and eat American food, and so on.
Having said that, it’s a very complicated process. We’ve been working with lawyers in D.C. now for nine months. We’re going to be cleared. But now, you have to go through the Cuban Embassy process to get certified, which takes months. As Tim indicated, there’s just not enough hotel space.
By the Cuban government’s own estimates, they can only handle 600,000 Americans a year. There’s simply not enough room to try to get 600,000 people there in the first quarter. I think it’s going to be decades before this thing improves. Starwood and Marriott are going to build new hotels, but for the time being, it seems everybody probably wants to dip their toe into it, and make sure they have a foothold in the market. Then, when it’s ready to go, they’re off and running.
Kevin Froemming, Playa Hotels & Resorts: The first industry that is going to be emerging there in terms of connecting with the United States is not going to be tourism. It’s going to be manufacturing. The infrastructure isn’t there, at least for the five-star product. You’ll see that there’s some product there right now for the lower-end market. It’s particularly attractive for the Canadians. They’ve been going there for years, and I think, again, you’ll see growth from Canada. The point is, our guests can’t swim to the destinations. Until they solve the airlift as Tim mentioned, and with more regularity [it will be an issue].
The other issue that they have is you can’t own anything in Cuba. You’re basically subject to management contracts. You’re at the will of the government now. I don’t think you’re going to see major projects for companies going in there and spending a $100 million to build a resort, simply because the dirt that it sits on is not going to be theirs. That may be a fundamental issue that the government of Cuba is going to have to deal with as they try to open this up to the United States, the biggest market in the world for them.
Jack Richards, Pleasant Holidays: Air service is going to be fixed. The new agreement provides 120 daily roundtrip flights between the two countries to every airport in Cuba. Every airline being represented at this table has applied for rights, even Alaska plus others; so, I think the airlift problem is going to be solved long before the infrastructure is solved. The airlift will be there. We think visiting-friends-and-relatives traffic will be strong for a long time, but, for our part, there won’t be a lot of tourism or vacation package business.
Ruthanne Terrero: Rodrigo, let’s segue our discussion to Mexico. Everyone around the table is saying that business to Mexico is not only great but that it’s increasing every year. What’s making that happen?
Rodrigo Esponda, Mexico Tourism Board: I think there’s been great consistency with the Mexico Tourism Board and the Ministry of Tourism and within the whole industry sector. There is a group of business owners in Mexico, all related to the tourism industry, who have been providing key feedback to the president and that has been filtering down to everybody. There’s a very good collaboration in the private-public sector and in the public sector, and among the states and the destinations.
The political parties are working very well with the cities and with the federal government; nobody is looking to say, “Because you belong to a specific party, which is not mine, we will not work together.”
It’s the same with the public/private partnerships, if somebody has a good business project that needs to be supported and needs to be given some incentives in terms of taxes or regulations, that’s being worked through at all levels.
That’s one element. The second element is the partnership that we have outside of Mexico and that’s with all of you. You’ve been supporting Mexico throughout the years, through the good and the bad times.
Kevin Froemming, Playa Hotels & Resorts: There’s no one that has a better relationship with a major airline carrier [than the Mexico Tourist Board], so, I think, that’s a major factor in overall stability.
Ruthanne Terrero: Let’s open up the discussion to focus on Mexico. How is business?
David Hu, Classic Vacations: People are continuing to travel because they still see the great value, inventory and product in Mexico. This includes small incentive groups, destination weddings and family travel. Group situations are continuing to grow and a lot of that is powered by the all-inclusive concept. Once you’re there, you’re done. So, it’s the simplicity of selling coupled with lower airfares and a stronger dollar that allows for a confidence that lets people say, “We can book this far out.”
That’s helping us drive some nice growth into Mexico this year. It’s powering a lot of our forward bookings. FIT will settle itself down for us; we feel very confident that it will come back in a nice manner.
Mark Benson, GOGO Vacations: For us, Mexico is very much about partnerships with regard to working with the tourist board and the projects and the ad hoc things we can do, and in terms of the way we work with our suppliers. There’s never a butting of heads at all. And, when I think of Mexico, in terms of our growth and our business, what’s very important is the customer experience here. Some times we forget about that. If we go back to the discussions about Cuba and the demands of the American customer, Cuba is not going to be the customer experience that 95 percent of our American customers want. One thing about the customer experience in Mexico, whether you’re in a three-star or a five-star hotel, is you can take [the experience] to the bank. That’s one of the most exclusive and unique things about Mexico across the board.
Jack Richards, Pleasant Holidays: For us, Mexico is really about the air service and the proliferation of luxury resorts. We run two brands, Pleasant and our luxury brand, Journese. We’re focused primarily on four- and five-star hotels in Mexico that are selling exceptionally well with the currency rates, and with the prices being down, airlifts are up, and the hotel rates are moderate. It’s a good growth story where the luxury product has really evolved over the last several years into a world-class product that includes spas and dining, and not just fly-and-flop anymore. These people are coming for experiential vacations and they’re getting it here. The cuisine is probably one of the best in the world and particularly here in Guadalajara. We’ve seen an evolution of Mexico over the last five years and they’ve done a great job.
One area we need to talk about is pre-clearance from Mexico to the United States because we don’t have it. A lot of competing destinations have it; that is a key differentiator.
Michael Schmeltzer, American Airlines Vacations: We started flying to Merida recently, so that’s a new destination for us. It really has that cultural feel that you were just talking about, Jack. We’ve also started point-to-point service into Cancun and it has started off really well for us. So, we kicked off to Cancun from Kansas City, Pittsburgh, Raleigh and Nashville; that’s a big change for us.
Within Mexico, we’ve seen more and more product coming in from partners all across the board, so we have much segmentation now. That’s really helping us. Travel agents and their customers are seeing that they can get all these different products at one destination.
Tim Mullen, Apple Vacations: We’re very bullish on Mexico not because we have to be, but we are. The macroeconomics is beyond question. There are so many Americans,who have passports, and the number is growing. There are many Americans that haven’t been to Mexico and that’s growing. And, the value for the product is growing. The all-inclusives are matching the demands of the American market. Americans want good food, good quality of restaurants, a variety of restaurants, big guestrooms and good entertainment and activities. They’re willing to pay for that.
Over the last few years, we’ve seen the emergence of quality all inclusives. The hotels have invested more money per available room keeping the American market in mind. They have also invested in employing more personnels per available room. They’re building bigger restaurants, à-la-carte restaurants. The days of the buffets five days a week and two days à-la-crate are gone. The Americans want à-la-carte every night and the hotels are responding to that demand. We’re seeing a proliferation of quality with upscale five stars and all inclusives doing very, very well. I don’t think they’ve reached the ceiling at all.
In terms of development, everyone asks me, “When is enough enough?” Every year, it’s never enough. It’s not perfectly equal, but the airlift over two or three years matches the growth of the hotel development. For Mexico, it’s a very good harmony for future development.
John Caldwell, MLT Vacations: We’ve been very busy as Delta has expanded greatly into Mexico and, of course, with Aeroméxico’s penetration into the country. One thing we’re focusing on, and it’s really exciting, is this great product everybody’s putting together. The four-and-a-half star, five-star resorts are now representing 35 percent of our business. A lot of that is coming out of this nation; there’s a lot of product here and that is fabulous. Over 60 percent is four star and above for us in terms of our revenue right now. Our customers are demanding that. We’re able to deliver that in Mexico which is really exciting. The better the product gets, the more demand comes in for it. To Tim’s point, years ago, it was the buffet experience, but, now, it’s a five-star experience and people are willing to pay for it.
The other thing that we’re looking at is origin markets. There seems to be a demand for Mexico out of the west coast, from Los Angeles to Cancun.
There’s also an incredible amount of demand for summer coming out of places like New York and Los Angeles. Traditionally, in the summer, in the Midwest, everybody is going to the lake, but on the west coast and east coast, people are still interested in going down to Mexico.
Ruthanne Terrero: Rodrigo, can you explain the growth of the four-and-a-half and the five-star experience in Mexico?
Rodrigo Esponda, Mexico Tourism Board: That would be our main strategy. Our objective in 2016 — and moving forward, now that we’ve been growing our numbers from all over the world — is that we need is to get higher spending. The only way to achieve that is if we offer better product and experience. People are going outside the resorts and interacting more. It’s not just about the resort. We believe we have to improve a lot of things in terms of the airport experience and the pre-clearance that Jack mentioned.
Ruthanne Terrero: People in Mexico are truly warm and the guest service seems to be consistently elevating. What is driving that?
Rodrigo Esponda, Mexico Tourism Board: I think the improvement and the quality of service is due to those hotels that have international standards. When they come into Mexico, they find that the hospitality and the openness of the people makes the training more easy. I remember we once had a meeting with Isadore Sharp of Four Seasons where he explained that when they opened the Four Seasons Punta Mita the number-one concern they had was precisely that they would not find the human skills in the area and that they would need to bring people in from different parts of the world to get the level of service they were looking for. Sharp said he was surprised when Four Seasons applied its guidelines and standards of service with the local people that it was superior to what they’d find in other parts of the world.
That’s a combination of what you just mentioned, the human warmth of Mexicans, the international standards and the level of commitment that this company has when they think of Mexico.
Ruthanne Terrero: Kevin, that’s a perfect segue to you. Can you talk about opening up new resorts here and what it’s been like?
Kevin Froemming, Playa Hotels & Resorts: We launched our strategy with the new Hyatt Ziva and Zilara brands and started with the phrase “The Evolution of All-Inclusive.” The idea behind that was there’s a lot of share-shift that goes on with new hotels, but we saw an opportunity to broaden that market to the EP customer market. You do that first and foremost through service. What we’re most proud of is you can go to any one of our resorts in Mexico and Jamaica, where the service is at a high level. We use this expression, “Service from the heart.” Our people live and breathe that.
They love what they do in Mexico and they’re so proud of what they do. You see it in the guest commentary.
When people talk about Mexico, it’s not one destination. You have all these different destinations, so we build our product around that. If you have a private beach and a private cove, you build your resort around that.
Cancun is another example. When you talk about high-end customers, why would you spend $100 million in building the Hyatt Ziva in Cancun when you’ve got all these products that haven’t been recognized as the highest end destinations. When you think about what we did there and in conjunction with that, we see Cancun as a huge opportunity. You’re seeing people come in and they’re two of the most successful resorts that we have, the Hyatt Ziva and Hyatt Zilara in terms of occupancy and they’re ranked very high in Trip Advisor.
In that five-star-plus area, the opportunity for all of us at this table, and all the travel agents that read your magazines and watch you guys is that it’s not just share-shift. It’s literally going after those EP customers. Because we’re tied with Hyatt and Gold Passport members, we see the tremendous strength of these people coming in to the market place that are for the first time ever taking a chance on all-inclusive product. For us that’s what’s truly exciting and that’s why we continue to look for aggressive expansion.
It’s hard to find a bad destination in Mexico. If it’s got a great airlift and great beach, we know we’re going to find great people and great support from the government.
Rodrigo Esponda, Mexico Tourism Board: I would like to say that trade has been a key role in Mexico. Travel agents drive 60 percent of the business that comes from the United States to Mexico, so we need to keep improving our relationship with the trade, the travel agents and all our partners.
On behalf of the Mexico Tourism Board, I’d like to thank all of you for your comments and your commitment toward Mexico.