Buy a hotel or an airport – this place is booming

published 16 April 2013

"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.

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.

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".

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.

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.

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.

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.

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.

James graduated from Keele University with a BA (Hons) in English literature and history, and has a certificate in journalism from the NCTJ. James has worked as a freelance journalist in various Latin American countries.He also had a spell at ITV, as welll as wring for Television Business International and covering the European equity markets for the Forbes.com 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.