Tourism and aviation are on the mend, boosting Latin America’s tourism sector.
Latin America offers many contradictions: it is one of the regions least prone to the all-out war currently playing out in the Middle East and Europe, but it also suffers from fragile infrastructure, corruption, crime, structural poverty and declining social standards.
Thus, it is not surprising that Latin American countries have been among the hardest hit by Covid-19. As elsewhere, travel and aviation were among the hardest hit sectors; unlike other countries, both have come back strongly.
PhocusWright, a specialist travel market research firm, found that at the end of 2023, travel revenues in Latin America exceeded pre-pandemic travel revenues by 29%, reaching $62.1 billion. “Growth in the region will remain strong, and we forecast total market revenue to reach $71.7 billion by the end of 2024,” says Carolina Sass de Haro, PhocusWright senior Latin American market analyst and managing partner of MAPIE. Brazilian consulting company specializing in the tourism sector.
Oxford Economics forecasts slightly weaker economic growth in Latin America in 2024, but still predicts the region will outperform most advanced economies as travel and tourism are key drivers of economic growth.
Oxford Economics forecasts that growth will be driven by strong demand in the US, which accounts for 48% of the inbound travel market in Latin America; American visitors spent an average of 17% more in 2023 than in 2019. According to the company, intraregional travel will account for 34% of the market share in 2024; In many countries in the region, the domestic market is stronger than the external market.
This is especially true for aviation. According to the International Air Transport Association (IATA), Latin America’s load factor currently stands at 84.7%: the highest in the world.
According to Peter Cerda, IATA vice president for the Americas, last year was a successful year for airlines in Latin America. “Traffic is up 28.6%, capacity is up 25%,” and airlines “have done a really good job of not only restoring lost capacity and connectivity, but increasing it and creating new connections between cities that weren’t there.” in past”.
Two Western Hemisphere subregions have fully recovered from the pandemic based on international tourist arrivals, with Central America up 5% from 2019 and the Caribbean up 1%, according to the UN World Tourism Organization. South America still lags at -6%, although this is noticeably better than the global average of -12%.
“In the Americas, including North America, the total contribution of tourism to regional GDP is 0.5%,” says Sandra Karwan, Head of Tourism Market Analysis and Competitiveness at UNWTO. “It sounds petty, but there are countries that do not depend on tourism, such as the USA or Brazil. The US is heavily weighted and tourism makes up a smaller percentage of total GDP there. This is very different from, for example, the Bahamas, where tourism accounts for 15% of local GDP; Jamaica – 10%; or Mexico, where it is 7%.”
Regional winners
Mexico, Central America and the Caribbean benefit from their proximity to the US and the strength of the US dollar. U.S. travelers make up 82% of arrivals to Mexico, 49% to the Caribbean and 33% to Central America, based on 2023 trends, according to Oxford Economics.
“Mexico plays a large role in Latin America’s overall population,” says PhocusWright’s De Haro. “During the pandemic, it was able to position itself very differently and remained open while most countries closed their borders. This has led to a very rapid recovery in tourism, driven by the US outbound market.”
This, in turn, has strengthened Mexico’s position as the leading tourism market in Latin America, accounting for 51% of the region’s total, de Haro adds. Mexico’s tourism revenues totaled $8.9 billion in 2019, halving in 2020 but already rebounding to pre-pandemic levels in 2021. levels.”
Other major success stories, although smaller in absolute numbers, include El Salvador (up 36% on 2019 levels), Guatemala (+26%) and Honduras (+23%).
South America is seeing good but overall less impressive numbers. According to IATA, Colombia is expected to receive 29% more international arrivals in 2024 than in 2019; The country has already seen an 18% increase in international flight capacity compared to pre-Covid-19 levels, despite two of its airlines ceasing operations. Bucking the trend, Peru can expect a 28% decline in international arrivals compared to 2019 levels, largely due to civil unrest there and problems with tourist access to Machu Picchu.
And Argentina’s current sharp recession is skewing the numbers. IATA forecasts international arrivals this year to be 10% higher than in 2019, but with inflation running out of control at 211.4% and the Argentine peso falling (it was devalued by 54% in December), tourism the sector is actually shrinking in dollar terms.
“We calculate the numbers for Argentina several times a year because of inflation and exchange rate fluctuations, and it’s just disappointing,” says de Haro. “In 2016, Argentina’s tourism sector was worth $1 billion. Despite growth in both absolute numbers and pesos over the years, by 2019 the sector was worth only $317 million. In 2020, it plummeted to $37 million. Tourism grew by 72% between 2021 and 2022 and continued to grow in 2023, but we now forecast it will only bring in $121 million by the end of 2024.”
Brazil: opportunities and obstacles
Brazil perhaps represents Latin America’s most complex history. The economy grew 3.1% in 2023 to become the world’s ninth largest, according to the International Monetary Fund. But persistent infrastructure deficiencies, an undervalued currency, persistent fiscal imbalances, high corporate taxes, and labor and regulatory burdens point to meager growth of 0.4% in 2024, the IMF forecasts.
The country’s tourism and aviation sectors are largely supported by the domestic market, which most estimates accounted for between 75% and 90% of the $9.9 billion total in 2023. But Brazil’s domestic air travel capacity is now 15% greater than in 2019. Despite the country’s undervalued currency, PhocusWright forecasts tourism sector revenues will grow 17% in dollar terms to $11.6 billion in 2024, according to IATA.
“The prospects are very promising,” says Ana Carolina de Souza, head of the Brazilian Association of Travel Agents, a trade group representing 2,500 businessmen. “Despite the infrastructural gaps, the entire structure of the tourism sector has improved, become more professional and streamlined to better serve travelers. We obviously hope to attract even more foreign tourists, but the biggest driver of growth is still the domestic market.”
Another optimistic voice comes from Daniel Topper, CEO (OTA) of Zarpo, a Brazilian online travel agency focused on packages and largely focused on the domestic market.
“The quality and sustainability of the Brazilian market is high,” he says. “This means we serve several niches, but mostly domestic.” In 2023, Zarpo’s revenue grew by a double-digit percentage to BRL 150 million ($31 million), Topper reports.
Serra Verde Express, Brazil’s largest tourist train operator, runs the famous Curitiba-Morretes line through a mountainous stretch of rare Atlantic rainforest. The company saw revenue growth of 17% in 2023 compared to pre-pandemic levels and expects further growth of 12% this year. The figures speak volumes as the demand for rail transport in Brazil is significantly underserved. And although the line is famous throughout the world among rail travel enthusiasts, in 2023 domestic tourists accounted for 97% of passenger sales.
As a result, despite Brazil’s tourism potential, the country receives an average of only six million foreign visitors per year; By comparison, 10 million people arrived in the Dominican Republic in 2023. Brazil’s problems, including the lack of adequate infrastructure in the tourism industry and poor air connectivity, are common across the region.
“Airlines in Latin America are suffering weakly due to the undervaluation of local currencies compared to costs recorded in US dollars, poor infrastructure, extremely high taxes and over-regulation,” says IATA’s Cerda. “However, there are also many opportunities, including significant opportunities for flexible policies, public-private partnerships, competitiveness, passenger experience and, crucially, improved connectivity between both tier 1 and tier 2 city pairs.”
The introduction of long-range narrowbody twins such as the Airbus 321XLR should open the door to new routes into the region that previously did not make economic sense, Cerda said. “Despite the challenges, I am very optimistic about the region’s prospects in 2024,” he concludes.