Travel Markets Insider / October 2005
By Larry Luxner
Despite the chronic political unrest that has given Ecuador seven presidents since 1996 and a well-deserved reputation for instability and corruption, tourists continue flocking to this Colorado-sized country — eager to see everything from Amazon rainforests to Andean mountain peaks.
This year, 900,000 foreigners will flood the South American nation, up from the 792,000 who came in 2004. Overseas visitors stay an average seven days and spend $650 (not including airfare) during their stay, though that figure jumps to around $3,000 for the 80,000 or so tourists who also take in the expensive, remote Galápagos Islands.
"We are looking more for quality than quantity," said Patricio Tamaríz Dueńas. "We need responsible travelers to come to Ecuador, and what we want to show them is authenticity."
Tamaríz is executive director of the Fondo Mixto de Promoción Turistica del Ecuador, a public-private entity that oversees the country's tourism promotion efforts.
He said tourism generated $430 million last year, "but we believe we can reach $1.1 billion by the end of 2007 or the beginning of 2008."
That's still a lot less than what Ecuador earns from the export of petroleum, though tourism is already a bigger foreign-exchange earner than either coffee or shrimp, and is likely to overtake bananas within a few years if current trends continue.
Among Ecuador's unique attractions: it's the only South American country that has adopted the U.S. dollar as its official currency, making transactions easy for Americans. It is also in the same time zone as Chicago, visas are not required and prices are extremely low (25 cents a minute for calls to the United States at public telephones, and fares of $1-2 for most local taxi rides).
Furthermore, the country's location on the Equator and its mountains give it an unusually high degree of diversity, enabling tourists to experience an incredible variety of climates, landscapes and cultures all in a country roughly less than four hours' flying time from Miami.
"Next year, we expect to have sufficient funds for a big consumer push. Our goal for 2007 is to generate at least as much money from tourism as from bananas," Tamaríz said, adding that "the good thing about the fund is that regardless of our political situation, the fund keeps on going."
To that end, Ecuador is spending $8.8 million on a new U.S. promotion campaign aimed at promoting the country's "four worlds" — the Pacific coast, the Amazon, the Andes mountains and the Galápagos Islands located in the middle of the Pacific Ocean, 625 miles due west of the mainland.
"The Galápagos offer has always overshadowed Ecuador's tourism promotion efforts," Tamaríz said. "Overseas, some people think the Galápagos is a separate country, or that it belongs to Peru, because all the tourist packages combine Machu Picchu and the Galápagos. We know it's our hook, but the islands can only handle a maximum of 120,000 people per year, and we're already getting 80,000."
Tamaríz said his Fondo Mixto gets its revenues from a $5 tax on every airline ticket sold in Ecuador, as well as a 0.1% capital assets tax paid by hotels and other tourism businesses. In addition, Ecuador's Ministry of Tourism provides some revenues.
"Because of the change of governments, basically we don't know what's going to happen with the money situation, but it doesn't matter because we're still getting fed by the tickets and the tax," he explained. "Our new minister of tourism, María Isabel Salvador, is working hard inside the cabinet to double the budget for next year to around $14 million."
Official statistics show that of last year's 792,000 tourist arrivals, around 200,000 came from neighboring Colombia, followed by the United States (174,000), Peru (90,000), Great Britain (21,400), Germany (21,300) and Spain (20,000). The rest came from other Latin American and European countries as well as Australia, Israel and the Far East.
But the Americans remain far and away the biggest spenders in Ecuador, and the country is making a serious effort to capture this lucrative market.
Ecuador's promotional efforts include a 10-week TV advertising campaign on CNN International and CNN en Espanol, which will consist of 60-second spots during the first five weeks and two different 30-second spots in the second five weeks.
The government is also placing large display ads in such magazines as National Geographic Adventurer, Travel & Leisure and Conde Nast Traveler, as well as mainstream newspapers like the New York Times, The Los Angeles Times and The Miami Herald.
"Our target market is the accessible adventurer. There's a huge population of Americans who have visited exotic destinations in the last three years," he said, noting that Ecuador's main competitor is Peru, which has twice the travel promotion budget.
Tourism — and the duty-free industry — will no doubt be helped by the construction of a new international airport for Ecuador's capital city, Quito, and a new air passenger terminal for its financial hub and largest city, Guayaquil.
Gema Novoa, a spokeswoman for Corporacion Quiport S.A., told Travel Markets Insider that Quito's long-suffering Mariscal Sucre International Airport is hemmed in on all sides by urban development and cannot grow.
"We have a lot of demand for commercial and cargo traffic, and we no longer have space to enlarge the airport, so there's really a necessity to build a new one. It's also dangerous, because we're right in the middle of the city," she said, noting that four fatal air accidents have occurred at Quito's airport in the last 15 years, killing at least 100 people.
In September, financing was approved for the $420 million project, which envisions a new airport to be built 18 kilometers east of Quito, on a 1,500-hectare tract of land (the current airport sits on only 150 hectares). The project, a 35-year concession, is a joint venture between Brazil's Andrade Gutierrez (with a 48% share), local construction firm AECON (with 45%), Toronto-based ADC and Houston Airport System Development Corp. Their investment is expected to begin paying off by around 2015.
The new airport will boast a 3,800-meter runway and be able to handle 4.3 million passengers a year by 2010, 5.5 million by 2020 and 7.5 million by 2030, compared to the current airport, which handles 2.8 million passengers annually. The Municipality of Quito has already built a 4-km access highway that will connect a nearby expressway to the new passenger terminal.
Arriving passengers will also like the new airport because it'll be situated at around 2,400 meters (7,900 feet) above sea level, considerably more comfortable than the current airport, whose altitude of 2,808 meters (9,213 feet) is so high that signs warn arriving passengers to walk slowly in order to avoid the effects of altitude sickness.
The new airport will also have double and possibly triple the current area for duty-free shopping, said Novoa, though specific details on those concessions haven't been released yet and aren't likely to be for some time.
The current duty-free operator at Quito's airport is Polival Duty Free, a wholly owned affiliate of Waked Internacional S.A., based in Panama.
Local representative Marianella Baida, general manager of Polival Duty Free, says her company actually began its Ecuador operations in Guayaquil, where in 1996 it opened the first of two stores at Simón Bolívar International Airport. The second was inaugurated a year later.
"We operated at Guayaquil until August 2004," said Baida. "Until then, the Dirección de Aviación Civil (DAC) ran the airport. When the municipality took over the restructuring of the city, they also took over the airport to improve it. Our contract was still valid and in effect when the airport was renovated. They invited us to bid, and supposedly we were finalists, but we didn't win."
However, Polival did win the bidding at Quito's recently renovated airport about a year and a half ago, defeating Inter Duty Free and Motta International.
Currently, Polival operates three stores at Quito airport under the brand La Riviera. The largest of them, La Riviera II, measures 180 square meters, has two entrances and boasts an extensive product mix including liquors, electronics, tobacco and local products.
There's also La Riviera I, measuring 82 square meters and located next to the VIP lounge. Here one can find exclusive products such as high-end perfumes, cosmetics and spirits. Top-selling spirits include Johnnie Walker Black Label, Chivas 12-Year-Old, Buchanan's, Old Parr and Absolut Vodka. The third shop, La Riviera III, is 50 square meters and specializes in toys and chocolates.
Perfume currently accounts for 35% of the shops' revenues, with the most popular brands being Ralph Lauren, Calvin Klein and Clinique. That's followed by spirits (28%) and accessories such as watches and sunglasses (8%). Cigarettes and electronics account for most of the remainder.
Baida, who's in the process of transferring Polival's offices from Guayaquil to Quito, said only 600,000 of the 2.8 million passengers who transit Quito's airport are international arrivals and departures.
Unfortunately for Polival, 60% of departing passengers are poor Ecuadorian emigrants on their way to better lives in Spain, Italy or the United States.
"These people don't buy anything in duty-free stores," she said. "They have everything they need in their baggage."
As a result, only 3-4% of departing passengers ever set foot in Baida's shops, and only half of them make purchases, with the average ticket coming to just $11.40. Her best customers are Colombians, Americans, Europeans and others with disposable income.
"We're hoping for more, because we can do better," said Baida, who's been Waked's Ecuador representative since 1999. Before that, she managed a local chain of fragrance stores.
Low penetration isn't Baida's only problem; other hassles include a proliferation of counterfeit U.S. currency — particularly $20 and $100 bills — and constant hassles with Ecuador's Customs over the importation of merchandise.
Nevertheless, Baida told Travel Markets Insider that Polival "has an excellent relationship with Quiport, the agency that administers the airport. We are practically partners. They support us in all our necessities, and when they do, we benefit equally."
One way to boost sales is through special promotions, and Polival is paying particular attention to Espíritu del Ecuador, a tropical fruit-flavored liqueur created in 1992 by New Jersey entrepreneur James A. Wasas.
The drink itself consists of 20 different fruits and other plants, combined with pure sugarcane alcohol to create a 60-proof spirit. It is sold in glass and ceramic decanters shaped exactly like the Mitad del Mundo monument — a popular tourist attraction that marks the spot where the Equator crosses the Pan-American Highway.
Normally, the 750-ml ceramic bottle alone sells for $18, and the glass bottle for $16, but Polival is offering a two-pack promotion for $22.
Juan Carlos Albán, sales manager at Espíritu del Ecuador, says annual revenues for Espíritu del Ecuador are around $1 million, and that the Quito-based company has begun exporting to the United States through its U.S. distributor, Dallas-based Conklin Marketing Inc. Duty-free sales are also an important part of total revenues, though Albán declined to say how much.
Polival, which doesn't release sales figures, enjoys a five-year exclusivity at Quito airport, which will expire around the time Quito's new airport is finished in 2009. At that time, a new bidding process will take place and Polival will have to compete for another concession if it wants to remain in Quito.
A similar process is underway in Guayaquil, Ecuador's commercial capital and largest city, where Terminal Aereo Guayaquil S.A. (TAGSA) has a 15-year concession to build a new international and domestic passenger terminal. TAGSA is 60% owned by Aeropuertos Argentina 2000 and 40% by Grupo Deller, a local construction firm.
"The globalized world demands that we have airport infrastructure that meets challenges presented by trends in tourism and commerce," recently stated Guayaquil Mayor Jaime Nebot, one of Ecuador's most prominent politicians.
As such, TAGSA is building a new 30,000-square-meter terminal that'll be able to handle up to 3 million passengers a year, compared to the current terminal, which covers 10,000 square meters. The $70 million project also envisions a 6,000-square-meter cargo terminal and a 31-meter-high control tower. Once construction is finished in July 2006, the existing passenger terminal will be converted into an exhibition center, with Guayaquil's FITE 2007 tourism fair slated to be one of the first international events to be held there.
Originally, the new terminal was going to be utilized only for overseas arrivals and departures, leaving domestic flights in the existing terminal. But Nicolás Romero, manager of the Guayaquil Airport Authority (AAG), said the agency changed its mind partly so that the new convention center could be built as soon as possible.
Romero conceded that an entirely new airport for Guayaquil might have been a better choice, though — unlike the case in Quito — financing was hard to come by. In any event, Guayaquil's new passenger terminal should cover air transport needs in the area for the next 15 years, he said.
DF Ecuador S.A. holds a 15-year concession for duty-free operations at Guayaquil, having won the license in October 2004, according to manager Ricardo Cadena.
"Before this, the airport didn't have duty-free as we have now," he said. "There were only six or eight small stores selling local products, and one or two perfume stores."
At present, 100% of all passengers enter through his 650-square-meter shop on their way to the departure gates; because of the design at Guayaquil, they have no choice. Thirteen percent of them buy something, spending an average of $44.00 — nearly four times the average ticket at Quito.
"Our expectation was exactly 13%, and we're there," said Cadena, estimating that 415,000 passengers will have flown out of Guayaquil in 2005, up 14% from 2004 figures.
Cadena said perfume accounts for 27% of DF Ecuador's sales to date, followed by accessories (20%); liquor (17%); cosmetics (12%); cigars and cigarettes (12%), food products (9%) and electronics (3%).
Broken down by origin, 37% of passengers flying out of Guayaquil are Ecuadorians, followed by Americans (19%); Colombians (7%); Peruvians (5%), Spaniards (6%), Chileans (5%) and Europeans (5%). Other Latin Americans as well as Asians comprise most of the remaining 16%. Cadena said U.S. citizens spend about 20% more than other nationalities.
Cadena said he expects sales to grow by 25% next year, but declined to specify revenue figures. He did say the initial investment in the Guayaquil store was $600,000, not including $1 million in merchandise, and that the company expects profits this year.
"For the moment, we have only a departure shop, though we're planning to have an arrival store once the new terminal is opened in June 2006," said Cadena, who oversees 37 employees.
The new DF Ecuador shop will be twice the size of the current one, while the arrivals shop will measure 300 to 400 square meters, though this requires government approval.
The Quito and Guayaquil airport projects are the latest in a series of massive infrastructure efforts aimed at improving daily life in Ecuador and luring tourism and international investment.
One project, the $360 million Via del Sol superhighway, will cut travel time between the two cities to four hours. In Guayaquil, the recently completed Malecón 2000 project involved the rehabilitation of Guayaquil's waterfront with shops, boutiques, a pedestrian walkway and impressive works of art.
Part of that project centers on Las Peńas, a restored neighborhood of colonial houses clinging to Cerro Santa Ana, a hill overlooking the city of 2 million.
"The mayor is working to fix the city's problems in order to bring more tourists," Cadena says. "Guayaquil has improved its reputation with Malecón 2000, Las Peńas and fixing the roads. He's also working to reduce crime. The tourist who comes back to Guayaquil now will be surprised."
In Quito, partially thanks to a global rise in oil prices, which has been a boon to this petroleum-exporting country, a new cable-car to the top of a 4,100-meter-high mountain peak opened three months ago, and a major renovation is planned for Ecuador's most famous landmark, the Mitad del Mundo.
The 50-year-old concrete globe and painted yellow line marking latitude 0ş0'0", where the Northern Hemisphere meets the Southern, is visited by 400,000 tourists a year.