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Mexico's Image Problem With Tourists

Shelly K. Schwartz |Special to CNBC.com
Tuesday, 18 Sep 2012 | 9:42 AM ET

With competition from ecotravel hot spots in Latin America, a decline in U.S. visitors since the economic recession, and a drug war image problem it just can’t shake, Mexico’s tourism industry has suffered no shortage of setbacks.

Mayan Riviera, Mexico
Dennis K. Johnson | Lonely Planet Images | Getty Images
Mayan Riviera, Mexico

But you’d never know it from the crowds that flock daily to its ancient ruins and sunny shores.

Indeed, the Mexican government reports 2011 was a record year for tourism, with some 23.4 million international travelers.

That figure is up 2 percent over 2010, nearly 6 percent over 2009 when travel dropped sharply due to the global swine flu outbreak, and fractionally over 2008, which had been Mexico’s best year in history for international tourism.

“Our strategy since 2010 had been to recuperate and bring the tourists back to Mexico and show them that Mexico was still in great shape and that task has been achieved,” says Rodolfo Lopez-Negrete, chief operating officer of the Mexico Tourism Board. “Now, we have set the tiller for rapid growth in 2012 and 2013.” (More:Crime Explodes — But an Economy Booms)

So far, so good.

According to government data, international tourism in Mexico is up 5.6 percent for the first half of 2012, compared with the same period in 2011. Hotel occupancy rates at the 70 destinations tracked by the Mexico Tourism Board were up nearly 8 percent.

Tourism is a major component of Mexico’s economy, contributing roughly 9 percent of the gross domestic product. It is the third-largest source of revenue after oil.

A Wider Net

The industry’s recent growth spurt is attributed largely to programs that have sought to attract a more international mix of consumers, to offset the reduced demand from U.S. travelers.

In 2011, for example, the Mexican government launched a marketing campaign to help improve the country’s image abroad and showcase it as a top travel destination for Europeans.

Mexican officials also encouraged the opening of a direct flight from Beijing.

And starting in 2010, the country relaxed its visa requirements for foreign tourists, granting automatic entry to anyone with a U.S. visa. It simultaneously created an electronic visa application for citizens of Brazil, Russia and China, enabling them to obtain a visa online without having to travel to the Mexican consulate in their country.

As a result, the number of foreign visitors from outside the U.S. has climbed 23 percent since 2009, says Lopez-Negrete.

Last year, Mexico saw a 66 percent surge in tourists from Brazil, 55 percent increase from Russia, 30 percent gain from China, 23 percent increase from Colombia and 13 percent bump from both Italy and Australia, according to the Ministry of Tourism.

Spending a Challenge

Despite the volume of visitors, however, foreign spending by tourists has been negatively affected by the global recession and a decline in the number of American tourists coming by air and by cruise — from which the bulk of Mexico’s tourism dollars are derived. (More:How Mexico's Oil Industry May Benefit US Investors)

In 2011, foreign visitors spent $11.9 billion, roughly unchanged from 2010, and up just 5 percent from 2009 when the H1N1 swine flu virus kept travelers away.

According to the United Nations World Tourism Organization, Mexico has fallen 11 spots in its ranking of countries with the most revenue generated by international tourism — from the 12th position in 2000 to 23rd in 2011.

“Yes we are growing, but not at speed we need, and that has to do with the negative image in the media in the U.S.,” said Teresa Solis, vice president of international consulting firm Vantage Strategy in Annapolis, Md., and former CEO of the Center for Advanced Studies in Tourism for the Mexico Ministry of Tourism.

“The figures don’t look bad initially, but in the global ranking, we’ve fallen behind because of the tourism dollars we’ve lost.”

U.S. cruise lines have stopped visiting Mexican ports

According to the Tourism Ministry, the number of air travelers from the U.S. to Mexico last year fell 3 percent, partly a response to travel advisories from U.S. officials dating to 2009.

Puerto Vallarta, Mexico
Dan Gair | Lonely Planet Images | Getty Images
Puerto Vallarta, Mexico

The U.S. State Department, in fact, updated its advisory in February, warning that crime and drug related violence are “serious problems throughout the country.”

Nearly 48,000 people were killed in narcotics-related violence in Mexico between December 2006 and September 2011, according to the most recent homicide figures from the Mexican government.

The number of U.S. citizens reported to the U.S. State Department as slain in Mexico also increased, to 120 in 2011 from 35 in 2007.

The State Department notes, however, that resort areas and major tourist destinations in Mexico “generally do not see the levels of drug-related violence and crime reported in the border region and in areas along major trafficking routes.”

Nonetheless, many U.S. cruise lines have stopped visiting Mexican ports, including Mazatlan and Acapulco, according to Euromonitor International, a London-based global market research firm.

Destinations like Mazatlan and Acapulco once drew 500,000 cruise passengers per year.

The number of annual cruise passengers to those locations now is only about 600, says Solis.

To compensate for the loss of spending, hotels in the most popular tourist destinations have been forced to lower their rates to boost volume. (More:Is Now the Right Time to Invest in Mexican Real Estate?)

Year-to-date through June, tourism spending is up 7 percent over the comparable period in 2011, notes Lopez-Negrete.

Hotels Bet on Growth

Projections for continued growth in Mexico’s tourism industry have prompted a surge of private investment from some of the world’s leading hoteliers.

Among them: Sol Melia, Hilton hotels, Starwood Hotels & Resorts Worldwide and AMResorts LLC, and InterContinental Hotel Group, which announced plans this year to invest $500 million to build 47 new hotels over the next three years.

In May, Chicago-based Hyatt Hotels announced its acquisition of a 756-room hotel in Mexico City for $190 million, which it plans to renovate and rebrand as a Hyatt Regency Mexico City over the next three years with another $40 million. The company already operates three hotels in Mexico.

There’s no question that efforts to ease travel requirements and cast itself as a premier destination to international travelers are paying dividends for the Mexican tourism industry.

But without a strategy to bring back American tourists, it may not be enough to help Mexico boost its intake of tourism dollars, says Solis.

“There is a lot to be done with respect to branding and communication strategy that shows the real degree of security in Mexico,” she said. “Efforts have been made, but [tourism officials] have to learn what Americans need in terms of reassurances and how they want that message communicated.”

(This story contains a correction.)