I’m writing this nearly 3,000 metres above sea level, perched upon the Andes in Quito, the world’s second-highest capital city. I arrived here after spending several weeks on the coast and I am only just getting used to the effects of the altitude. It’s not just the thin mountain air that takes your breath away – Quito itself is amazing.
The city was one of the world’s first Unesco heritage sites and the centre is a maze of tightly packed colonial streets and magnificent churches. Sadly, I’m here for work, so I don’t have lots of time to explore, but even walking around between meetings you understand why this place was so important to both the Incas and the Spanish.
Unsurprisingly, word is getting out about Ecuador; last year, the number of tourists visiting the country grew by 14%. It’s not just Ecuador. Countries all across Latin America are seeing a massive tourism boom and it’s creating a huge moneymaking opportunity for New World readers.
Expedia’s latest move is great news for one of my favourite sectors
Regular New World readers will know that Latin American tourism is one of my favourite long-term investment themes. I last wrote about it in 2013, and industry insiders are now starting to act on many of the long-term factors I highlighted back then.
Last week, Expedia announced that it was spending $270m to acquire a minority stake in Latin America’s largest online travel agency, Decol.com. That’s a lot of money, but Expedia was desperate to improve its exposure to Latin American travellers – when you take a look at the figures you can see why.
Some investors seem to discount tourism as a sector; it’s a word they associate with fun and holidays, but not large investment returns. In fact, over the last few decades, tourism has grown into a global industry worth around $1trn per year.
Firms like Expedia are getting excited about Latin America, because it’s becoming an increasingly important part of this massive sector. The UN World Tourism Organisation (UNWTO) says that, over the next decade, Latin American international arrivals will grow by 4.4% a year – twice the rate of developed economies.
Local prosperity is driving the tourism boom
Sure, Latin America is rich in culture, history and breathtaking landscapes, but that’s not the main reason for its tourism boom. There are more prosaic factors underlying the trend.
The first thing to explain is that Latin American tourism in generally is regional. According to the UNWTO, around 80% of the tourist journeys made in Latin America begin and end in within the region. So Latin American tourism is being driven, to a large extent, by Latin Americans.
Sure enough, local change is driving increased tourism in the region; the most important factor in the tourism boom is increased local wealth. Over the last ten years, Latin Americans have grown richer and richer: 80 million have been lifted out of poverty.
As of 2011, the middle class represents the largest segment of the population, and while economic growth slowed across the region in 2014, it has now started to pick back up again. London-based consultancy Capital Economics has predicted a stronger recovery over the next few years.
So, the market for local tourism in Latin America is strong, and getting stronger.
Improving infrastructure is playing a large role in the tourism boom. Take Ecuador: over the last eight years, the country has invested heavily in roads, opening up new swathes of the country and cutting journey times.
As a result, it’s now far easier for someone from neighbouring Colombia or Peru to drive over and visit for a few days. The emergence of the Pacific Alliance has also helped. This new trading block has cut visa requirements between the member countries of Mexico, Chile, Colombia and Peru. Moreover, the drive to increase integration between these countries should also boost visitor numbers.
Certain one-off events will also help boost tourism in the region. Large sporting events such as the 2014 Brazil World Cup (which, despite all the scaremongering, went off without a hitch), and the 2016 Rio Olympics are unique chances to showcase the region to the world.
The thawing of the relationship between the US and Cuba, meanwhile, will lead to a huge growth of American visitors to the communist island.
It’s worth noting that the tourism sector has massive political support in most Latin American countries. Policymakers here recognise that it’s a great way to earn foreign currency, boost local employment and bring development to depressed rural areas.
Last week, I interviewed Ecuador’s minister for tourism, Sandra Naranjo. She made it very clear that it’s a priority sector for the government, and she’s putting her money where her mouth is.
Last month, Ecuador became the first country ever to advertise during the Super Bowl. That advertising spot is one of the most expensive in the world, but Naranjo believes that the state has to invest in promotion to help support the tourist sector.
An old favourite of mine is looking even better now
When I first wrote about this back in 2013, I recommended Mexican airport operator Grupo Aeroportuario Centro Norte (Nasdaq: OMAB). The firm is up 11% since then, but I’d back it to make a lot more over the long term.
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.
Mexico is one of the region’s top tourist markets, with 30 million visitors a year. Like Ecuador, it’s also aggressively promoting its wares to potential visitors in Europe, the US and, more recently, China. That, coupled with a domestic growth that’s likely to outstrip the regional average over the next few years, should mean plenty of business for the firm.