Buy a hotel or an airport – this place is booming

Latin Americans are venturing abroad in ever increasing numbers. That spells opportunity for intrepid investors, says James McKeigue. Here, he explains why, and tips the best share to profit.

"I realised that the plane was flying too low, but we still stayed calm until we heard a bang. There was panic... I looked down. It was suddenly sea." These dramatic words came from Andis', one of the passengers in the Bali plane crash this weekend. The exotic location, dramatic sea landing and the fact all the passengers survived the crash all made for an exciting story. But my attention was caught by something else in the article.

"A spokeswoman with the Department of Foreign Affairs and Trade in Canberra said efforts were being made to find out whether any Australians were on the flight. 'At this time we are not aware that there are any Australian victims.'"

It surprised me because, since the 1990s, Bali has become the premier destination for Australians, attracting almostone million of them every year. I was last there in 2008 on my way to East Timor and was caught up behind a big queue of sunburned, loud Australian surfer dudes in immigration. They were everywhere I went, and to be honest, it felt that the place had been invaded by an army of good natured, but somewhat loud and annoying, surfer bums.

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The idea that a flight was going to this party island without at least one would-be Aussie reveller is shocking. And it's also important for New World investors, becauseit's another piece of evidence albeit anecdotal that shows how the world is changing. Over the last five years, as countries in Southeast Asia have grown richer, more of their citizens have had the money to enjoy pleasure spots like Bali that were previously overflowing with Westerners.

This is something that my New World co-writer Lars has talked about a lot. "Bali has been a popular tourist spot for a number of decades now, but sat in Nguah Rai International airport, I noticed something about the hordes of people waiting to step onto their plane... they are all locals.

A home-brewed tourism boom is spreading across Southeast Asia. While Western tourists remain important, Asians accounted for almost 60% of all the visitors to Balibetween January and September 2012, for example. And in fact, visitors from Asean countries now account for 43% of all international tourism arrivals in Asean."

But the thing is, it's not just happening in Southeast Asia. It's happening in Latin America too, and there's a great investment story here. That's what I want to talk to you about today.

The global travel boom will run and run

Tourism and aviation both seem like classic cyclical industries. After all, when people have money they spend it on luxuries like holidays; when they don't, they don't. But if you take a step back, and look at both from a global, historical perspective, these industries are far more resilient than you might think. Indeed the story for the last half a century has been one of almost uninterrupted growth.

The UN World Tourism Organisation notes that, "in spite of occasional shocks, international tourist arrivals have shown virtually uninterrupted growth: from 25 million in 1950, to 277 million in 1980, to 435 million in 1990, to 675 million in 2000, and the current 983 million."

Within those figures, the rise of the aeroplane was particularly noticeable. Air travel now accounts for more than 50% of international arrivals and its share is rising. Indeed, the number of kilometres travelled by fare-paying passengers on aeroplanes has grown by more than 800% since 1970. As The Economist notes, there appears to be "an iron law of aviation: rising numbers of urban middle-class people will mean rising demand for air travel, whatever short-term blips the economy suffers".

This graph, from The Economist, shows the amazing resilience of aviation growth in the face of challenges that seemed so serious at the time.


One reason for that seemingly inexorable rise is that air travel has gone from being the preserve of the European and North American middle classes to being a global phenomenon. Economic growth in other parts of the world, first in places such as Japan and South Korea, then more recently in Russia and China, has added millions of people to the ranks of the global middle class, many of whom have jumped at the chance of international air travel. So what looks like a fairly steady rise in air traffic numbers is actually a series of mini regional booms in different parts of the world.

Now it's Latin America's turn

The first point to make about tourism is that it's usually regional. The UN World Tourism Organisation estimates that 80% of international arrivals it counts business or pleasure stays of at least 24 hours start and end in the same region. That makes it a great barometer of an area's economic health. It also makes it a great way to get exposure to the emerging economies of Latin America. Put simply, as people get richer they will travel more.

The second thing about tourism is that policymakers take it seriously. The fact it has a dedicated UN organisation is testament to that. Tourism is a great way to deliver economic growth, investment and employment to remote regions. As a result governments are increasingly providing supporting infrastructure such as improved transport links.

It will come as no surprise to you that I'm particularly interested in the tourism opportunities in the Pacific Alliance a trade bloc made up of Mexico, Colombia, Chile and Peru. The main reason is that these economies are enjoying sustainable economic growth, making it likely that international arrivals will continue to grow strongly. They're also investing heavily in transport infrastructure which will facilitate international travel.

At present the spectacular geography and poor infrastructure of two of the Andean members Peru and Colombia makes them difficult to get around. However, both are implementing billion-dollar investment programmes to improve road, rail and aviation links around their countries.

Another boost is that the four countries recently dropped visa requirements for member citizens, making it easier for people to travel within the Alliance. And you have to think that the efforts being made to increase business integration between members will lead to more travel between them.

How to play the Latin American tourism boom

Investors shouldn't wait. This isn't a story that's going to start happening it already is. For example, in the nine months before the visa ruling, the number of visitors from Colombia, Chile and Peru that arrived to Mexico increased by 25%, 14% and 28% respectively, compared to the same period in 2011.

Meanwhile, the most recent UN World Tourism report predicts that Latin American international arrivals and remember, most of these journeys are being made by Latin Americans will grow at 4.4% per year, twice the rate of developed economies.

So how can you get involved in this story?

Well, one of the best ways would be to invest directly. If you have the spare cash or time to open a boutique hotel, or buy a holiday apartment on Peru's coast these would be sound moves. Places like Trujillo are growing fast as Latin Americans have more time and money to spend by the beach. I have some friends who have done well out of selling land in coastal regions. But another, less direct way to play is to invest in airports.

Roberto Kriete, the president of the the Latin American and Caribbean Airline Association (ALTA), recently highlighted the opportunities facing the sector. He says that more than 30% of the flights in the region are already operating from congested airports. The situation will only get worse given the expected growth and lack of new airport projects.

One company that looks particularly well-placed to benefit is Mexican airport operator Grupo Aeroportuario Centro Norte (Nasdaq: OMAB). The firm runs 13 airports across nine states in northern and central Mexico, serving Monterrey the country's industrial heartland and tourist destinations such as Acapulco. As such it will gain from both business travel and holidaymakers.

Like a lot of Mexican shares at the moment it's not cheap trading on a forward price/earnings ratio of 22. However, in this instance I think the pricey premium is justified. That's because OMA won't just benefit from rising passengers, it is also working to increase revenues from its airport shops and eateries.

Lars too has tipped a great airport stock in his Profit Hunter letter. You have to think of this story as investing in the early days of the Club Med boom, says Lars

"Back in the 1970s and 1980s countries like Greece, Italy and Spain received hordes of Brits and Europeans lured by the sun, helped by buoyant home economies and supported by political integration (EU) which made travelling easier and cheaper. Club Med was born.

Beach resorts were crammed with young families taking their first trip abroad, walking around with a sore looking glow. Sunbeds were neatly packed together to fit as many sun worshippers in as possible. Streams of bars and restaurants popped up to satisfy the thirsty and hungry holidaymakers. Hotels and apartments were built wherever there was some spare land to build on. A vast thriving industry sprung to life in a matter of years.

This is now being replicated in Southeast Asia. And 'Club Asia' could deliver some serious investment opportunities over the next year."

To find out more about how to invest in this story, you should take a free trial of Profit Hunter. I think you'll be genuinely shocked at just how well these stocks have been doing. Just have a read of this.

In the meantime, I'm going to be keeping an eye out for other ways to play the Latin American tourism boom because I think it's a one way bet. Indeed ifyou have any tips on how to play it feel, free to post them in the comments section below.

This article is taken from The New World, MoneyWeek's FREE regular email of investment ideas and news from Asia and Latin America. Sign up to The New World here.

Profit Hunter is a regulated product issued by Fleet Street Publications Ltd.

James graduated from Keele University with a BA (Hons) in English literature and history, and has a NCTJ certificate in journalism.


After working as a freelance journalist in various Latin American countries, and a spell at ITV, James wrote for Television Business International and covered the European equity markets for the London bureau. 


James has travelled extensively in emerging markets, reporting for international energy magazines such as Oil and Gas Investor, and institutional publications such as the Commonwealth Business Environment Report. 


He is currently the managing editor of LatAm INVESTOR, the UK's only Latin American finance magazine.