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Hotel development: sport is in the air!

Hoteliers, get ready! With the FiFA World Cup 2014 and the Olympics in Rio in 2016, Brazil is ready and waiting. Embratur, the national tourism authority, is counting on the opening of 300 new properties for 70,000 rooms by 2017. In the twelve host cities at the world’s futbol (*) venue, the supply should grow by 30% before the kickoff. This global event that should draw 500,000 fans will put hotel development in training. “Of the 61 hotels in our pipeline, 16 propertiesB. C. : The country continues to progress in the ICCA ranking. 19th position in 2003, Brazil has been in the Top 10 for 3 years. In 2009, the country hosted a total of 293 international events versus 62 six years earlier. These are excellent results if one thinks that Brazil cannot present its candidature for congresses that are exclusively European or Asian. Sao Paulo is now ahead of New York but the city is not the only one to benefit for this interest. In 2003, 22 Brazilian cities participated in the ICCA ranking. On 2009 they were 48 (Editor’s note: this diversification strategy benefited from the work of the Rio, Foz do Iguaçu and Porto Alegre Convention Bureaus). The infrastructures are ready and, in light of the two sports events, business and incentives tourism should continue to progress. This will also benefit the leisure segment since half of those attending congresses also visit the country when they come.are in the cities hosting the world cup,” explains Roland de Bonadona. But the general manager for Accor in Brazil warns many candidates: “we are reaching the limit for 2014. In order to go be realized, dossiers must be complete in the next six months. Developing hotels in Brazil is a long process.”These bureaucratic holdbacks don’t scare the competition. For many hotel groups with little or no presence in the country outside Sao Paulo and Rio but that are attracted by the economic rise of the country and its forthcoming global exposure, the second decade of this century will be Brazilian or won’t be. Starwood, Hyatt, Hilton, Four Seasons, Jumeirah: the hotel industry’s great names recently declared their enthusiasm to the South American giant and will actively seek opportunities to establish their presence. Last May, Marriott also demonstrated its will to reinforce its presence on this attractive market by opening a development office in Sao Paulo and placed Guilherme Cesari, a specialist in local hotel investment hotelier, at its head to develop a network covering its entire brand portfolio.Knowledge of the market is a strategic element. Unlike other emerging countries where everything remains to be done, Brazil is not virgin territory. In addition to many independent hotels, several local players have staked out their territory: Hoteis Othon, Blue Tree and Nacional Inn across the country, Bristol Hosteleria around its bases in Vitoria, and Belo Horizonte like Hoteis Transamerica in Sao Paulo. Several international groups have progressively blended into the landscape. Having arrived in 1977, Accor is the leader on the market with 143 hotels and 22,500 rooms at present, including 53 Ibis and 11 Formule 1. Logically connected to the southern part of the American continent, Portuguese and Spanish groups and Sol Melia have opened ten or so hotels each, like IHG and the Mexican group Posadas which took over the brand Caesar Park in 1998. Finally, franchise development continues. The hotel management companyAtlantica Hotels International plans to expand the networks of Choice Hotels (54 hotels today) and Carlson in addition to a few Four Points by Starwood. BrazilHospitality Group, meanwhile, is successfully developing brands by Golden Tulip.Finding one’s position on this hotel market thus requires a certain amount of mastery. Established in the country for 20 years, the manager of the French group tries to cool enthusiasm: “beware, because the last period of development led to long and costly period of overcapacity”. At the beginning of the 2000s, the competition grew rapidly in cities such as Curitiba, Belo Horizonte and Salvador. But Sao Paulo was the most affected with the appearance of 20,000 rooms that landed on the market brutally. “At the time it was difficult to find traditional long term financing for the hotel industry. The real estate sector found thesolution with hotel residences where individuals could buy and rent their apartment or put pool them. This system proved to be interesting and many programs were launched, in response to a high demand in real estate. But the hotel industry needs were quite exaggerated,” recalls Roland de Bonadona.With growth in arrivals and the repositioning of certain hotel condominiums towards residential properties, the economic capital of the country is just beginning to regain appreciable levels of the RevPAR. And the country over all is showing satisfactory results since 2007. “Our average OR varies between 60 and 65%. The average daily rate is up and we benefited from an increase in the value of the real with respect to the euro,” rejoices Dionisio Pestana, president of the eponymous Portuguese group. Positive aspect, the crisis has not curbed this steady global growth. “The first semester was difficult but a true recovery was visible in the second,” observes Roland de Bonadona.Nonetheless, the balance remains delicate and local players fear that the forecasted wave of development will change the situation. “Hoteliers do not want to relive the Sao Paulo situation. This is why it is important not to underestimate the potential of certain markets. There is a risk of overcapacity in Bahia, Curitiba and, to a lesser extent in Rio,” warns Peter van Voorst Vader, CEO Brazil Hospitality Group (BHG). But caution does not mean inactivity. The titled partner of Golden Tulip, thanks to the merger in 2009 between Invest Tur, the Brazilian real estate investor specialized in tourism, and hotel management company LAHotels, will continue studying the market. “With a very fragmented market and many small family owners, BHG sees a very important growth margin with opportunities for individual hotel acquisitions in which low-capacity hotels may be enlarged,” remarks its CEO.While the conversion of existing hotels has the merit of not adding additional pressure, the Brazilian market is not so accessible as it appears. The conversion of existing properties requires careful selection of targets because the cost of rebuilding can be very high. And that despite a program to help modernize hotels totaling 420 million euros announced by the government in light of hosting the World Cup. “The conversion of many hotels built until the 80s is complicated,” stresses Roland de Bonadona, “renovating these properties is technically difficult and represents a high price which may be justified for the Copacabana but not if the location is not optimal. It is more profitable to develop new hotels. Moreover, as inflation and interest rates were very high until1994, existing properties have often accumulated major liabilities that are difficult to free themselves from.”If one adds to these difficulties the matter of the global increase in real estate and investment costs, less accessible financing than in North America or Europe in addition to occupancy that is essentially Business travelers, thus high during the week and low on weekends inn most cities except Rio, the picture is less than heartwarming. But is Brazil set up to delude? Its two prime destinations Sao Paulo, heart of the business world and city of congresses, and Rio, tourism capital that is changing as 2016 approaches (see article p.93), still have the wind in their sails. And a dynamic economy stimulates needs for accommodations in Belo Horizonte, Brasilia, Curitiba and Porto Alegre as well as in areas specializing in the food industry such as Goiana, Cuiaiba, Campo Grande.This positive evolution supports the development of budget hotels, which until now have been the poor cousin alongside a well-supplied upscale segment. Thus Atlantica Hotels will open its first Go Inn in Manaus while continuing to perfect the network of Comfort and Sleep Inn. “With the strong growth of the middle class and SMEs, the Economy segment delivers excellent results,” demonstrates Roland de Bonadona. The future of Ibis and Formule1 looks good with fifty or so properties planned with new constructions. IHG is also planning 4 Holiday Inn Express properties by the end of 2011 in Belem, Cuiaba, Maceio and Manaus.Demonstrating developers interest in international brands, these properties benefit from licensing contracts with local players such as Hotel e Restaurante ViaNorte, MC3 Hotelaria, Diamante Azul Hotelaria and Platinum Hoteis. “The buoyant economy and tourism continue to offer excellent opportunities for expanding our midscale brand’s presence,” rejoices Alvaro Diago, president of IHG Latin America.While the places available are more limited on the upper segments, the combined development of MICE and leisure tourisms could generate growth in demand for upscale hotel products. Embratur forecasts arrivals to double over the next decade, growing from today’s 6 million to over 11 million in 2020 for growth by 304% in tourism spending in the territory. “Already at present, quality tourism is developing that spends more and stays longer,” explains Brice Cicconetti, manager Embratur for France and Belgium. The sounding board of the World Cup and Olympics should make it possible to go further while eliminating ignorance of the market’s diversity while stimulating a desire to discover. By the end of the World Cup in South Africa, tourism promotionwill be intensified to showcase a very rich heritage with 10 historic World Heritage sites (including Bahia, Ouro Preto, Olinda, Goias, Sao Luis, Oscar Niemeyer’s futurist Brasilia and probably Paraty in the near future) and 7 natural sites, with the famous Iguazu Falls and the Pantanal conservation area for starters.All these efforts could promote the emergence of a resort segment that is still limited despite over 8,000 kilometers of beaches that are practically untapped.“Brazil’s current goal is not to compete with the Caribbean. It is not to pollute the shoreline, but to create luxury eco-resorts,” explains Brice Cicconetti. Untilnow, results have not been outstanding. “These hotels are very seasonal with peak periods between December and February and during European summer holidays. The rest of the year business depends on school vacations locally and in Argentina where there are no beaches,” remarks Dionisio Pestana.Proof of a simmer, projects are beginning to come to fruition to satisfy long-haul tourists’ desires for farniente as well as needs of domestic and regional clientele who are increasingly numerous. BHG plans to develop its brand Txai by 2014. Another example, not far from Salvador de Bahia, where the developer Property Logic will transform Ilha de Cajaiba, an unscathed island of 1,100 hectares bought in 2006, into a luxury beach resort. The new lifestyle brand by Rezidor –Hotel Missoni– should open there in 2012 and 5 other luxury properties are planned. All new competition for Buzios and Florianopolis, the St Tropez’s of Brazil.Brice Cicconetti, director of Embratur for France and BelgiumHTR : How does Embratur plan to use the next World Cup to develop tourism in Brazil?Brice Cicconetti : According to FIFA rules, starting July 11, the end of the World Cup in South Africa, Embratur will be able to promote the next edition organized in Brazil in 2014. This event will be broadcast in 214 countries for a cumulated audience of 26 billion viewers. And we are planning to take advantage of this exposure to promote the destination’s diversity. European clientele is not aware of the diversity of this country that goes well beyond Rio, Bahia and Iguaçu. The World Cup concerns all the regions and will bring to light many cities that are not well known to the general public. During many road shows that we are already organizing, there is a very favorable welcome from tour operators when we bring them information about the existing possibilities for visiting Amazonia, about eco-tourism, the Nordeste beaches; the baroque cities in Minas Gerais.HTR : How do you plan to go beyond this event?B. C. : We will not focus our promotion on football. With the marketing plan Aquarela and by highlighting of the brand Brasil Sencacional, our goal is to develop quality, upscale tourism that focuses on cultural travel and eco-tourism. But a trip to Brazil is not just a contemplative experience, it is above all about experiencing life. And our primary strength for developing tourism lies in Brazilians and their sense of hospitality. They play an important role in achieving a satisfaction rate of 98% for French clientele with a 92% rate for desire to renew the experience. Regarding TOs and travel agents, this satisfaction is a gauge of security for offering the destination.HTR : In addition to leisure tourism, Brazil has become a major destination for congresses. How do you expect this segment to evolve?

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