Party Like It’s 2007: The Spring Break Economy

“It’s the worst I’ve seen," said a Cabo San Lucas restaurant owner, "It is definitely the worst."

For a Mexican tourist hotspot like Cabo, that's bad news. One of the busiest tourist seasons for the area comes during the months of March and April, coinciding with the American spring break season. Spring break, the long-time college tradition of excess and

"The Arch" is an iconic landmark in Cabo.  Photo: Danielle Mozeleski

irresponsibility, is a time that many tourist destinations depend on to bolster profits, banking on the liberal spending habits of Americans on vacation.

Tourism is big business in Mexico, generating over $13.2 billion in 2008, and has grown steadily year over year from just under $10 billion since 2002. According to the Mexican Tourism Board (MTB) this past January saw 2 million international tourists visit the country, up 14.3% from a year earlier, generating $1.192 billion during the month.

Recently, Rodolfo Elizondo Torres, Mexico’s Secretary of Tourism, emphasized that Mexico is not immune to the effects of the global economic crisis, but notes that the country is still responding well, despite problems of its own. He has also recently announced investments of $115.3 million in 2009 to improve and promote tourism-related projects throughout the country.

On the southern tip of Mexico’s Baja Peninsula, Cabo San Lucas is at the tourism epicenter.

Beach Economy

Much of the economic action takes place on the beach. Vendors roaming the coastline operate on margins, reselling items from a central distributor and turn profits based on their ability to negotiate prices. They end up selling identical items, and suffer from relentless American

Cabo's Medano Beach.  Photo: Danielle Mozeleski

haggling, as skilled hagglers find that they can get as much as 60-75% off the vendor’s original asking price.

Jorge, a beach vendor now selling bracelets, was drawn to Cabo from his home in Mexico City. By his estimation, the number of Americans visiting the city on a yearly basis makes Cabo more profitable than many places in Mexico, even other tourist destinations like Cancun.

According to the MTB, in 2008 Cabo experienced an American tourist-to-resident ratio of approximately 14:1 (799,173 tourists vs. 56,000 residents), while Cancun had a more modest ratio of approximately 4:1 (2,410,483 American tourists vs. 570,000 residents). With more potential customers per resident, it’s not surprising that Cabo would be more profitable.

But “more profitable” is relative. Jorge estimates that on the best of days, a beach vendor will make between $120-140 in revenue, and on a bad day could easily come back empty-handed. It’s also not easy work, spending as much as 8 hours per day, with products in tow, in the scorching mid-day sun.

Return Economy

On the surface, it seems like American money is gushing into Cabo and cruise ships in particular ferry lots of cash into the city. The local newspaper, The Los Cabos News, reports that 418 vessels visited Cabo in 2008, carrying approximately 818,000 passengers (a 700% increase from 1997), and drawing revenues of approximately $65 million for the area. However, 2009 faces a decrease in cruise activity to Cabo, with only 374 ships scheduled to visit the city this year.

But in reality, the city exists as a virtual micro-economy for the United States.

Throughout Cabo are Wal-Mart , McDonalds , Subway, Dominos , Burger King and Hard Rock Cafe locations, and American investment is ubiquitous. Many of the resorts are foreign-owned, including the popular Spring break hotel Tesoro Los Cabos, which is controlled by the American firm Interstate Hotels and Resorts .

Many Spring breakers may also not be aware that the famous location “Cabo Wabo,” is owned by Van Halen guitarist Sammy Hagar and other night spots, like “The Giggling Marlin” and “El Squid Roe” are, at least in part, owned by Americans.

US currency is also the main form of exchange in the city, with all prices listed in American dollars, instead of Mexican Pesos, with exchange rates tending to fluctuate from place to place. Just as American cash seems to be flowing into Cabo, a good chunk of money is apparently flowing right back where it came from.

The Customers

The most powerful economic group that defines Cabo’s economic landscape is the college population on Spring break. Groups tend to book their trips through American agencies, which offer packages at an all-inclusive hotels and discounts for local vendors, a good

Spring Breakers on Cabo's "Lover's Beach"   Photo: Danielle Mozeleski

option for people watching their expenses. Even on Spring break, people are concerned with their bottom line.

"The cost of the trip was the most important factor when deciding where to go" says Marist senior Danielle Mozeleski, "But there were people on the trip who had no spending limit due to their parent's financial security [citing an instance where, on a whim, a student purchased a $500 VIP table with her father’s credit card]… but I feel that generally we are forced to make smart decisions about money in order to go out with friends, regardless of the state of the economy."

"I did notice myself still spending more than I should have. Also, most of the others did too," says Jessica Fiorenza, "I laughed when I heard a girl on the plane ride home checked her phone bill and said out loud, ‘Wow, my bill from this past week is only $196!' "

Although a trip to Cabo for Spring break is quite expensive for some college students (including airfare, hotel and other expenses, even the most frugal trips cost between $1300-$2000) this one-time splurge is something that is seen as an essential part of the Spring semester by many students. Somewhat insulated from short-term ebbs and flows of the economy, the one certainty for college students on spring break is that they’ll be spending money.

© 2012 CNBC.com