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Demand pushes Argentina's luxury-hotel boom
Hotel & Motel Management / July 5, 1995

By Larry Luxner

BUENOS AIRES -- When the $40 million Hyatt Park Buenos Aires opened for business on April 1, 1992, it became the first international hotel chain to inaugurate a luxury property here since the establishment of the Sheraton 20 years earlier.

Few guests know it, but the Hyatt -- located in the city's swank Recoleta neighborhood -- almost didn't open at all.

"We were delayed by the Israeli Embassy explosion," said general manager Massimo Ianni. "I was sitting here when the bomb went off about a block away. It was so powerful I thought it was the hotel itself. We had to replace all the windows."

Since that "terrible" first week, said Ianni, the 165-room Hyatt has prospered -- and so has its competition. Buenos Aires is now home to at least half a dozen five-star hotels, including the Marriott, the Park Plaza, the Caesar Park and most recently, the Inter-Continental Buenos Aires, which was inaugurated in March and is already running a 57% occupancy rate. About 1,700 five-star hotel rooms are now available in this city of 10 million.

Aureliano Vignati, the Inter-Continental's general manager, says he's seen a 68% jump in demand for luxury hotel rooms over the last five years. Roughly $300 million has already been spent on luxury hotel construction during that period, and there's no sign of the boom slowing down.

"Part of it has to do with parity with the dollar, and privatization of state-owned companies," said Vignati, interviewed in Buenos Aires. "Before, everything was in government hands, so there was no need [for foreign executives] to travel here. This has definitely created an increase in traffic."

Adds José Ponte, general manager of the Sheraton Buenos Aires Hotel & Towers: "It all started in 1992 with the Hyatt and the Caesar, and the feeling that President [Carlos] Menem's policies were positive. All those factors gave people the security that Argentina was on the right course."

Indeed, throughout Argentina -- where the "tequila effect" of Mexico's recent peso devaluation was sudden but short-lived -- foreign investment is once again booming. This year, according to the American Chamber of Commerce in Buenos Aires, multinationals will spend an estimated $3.5 billion on factories and other hard assets. Investors include everyone from Wal-Mart, which is building six department stores throughout metropolitan Buenos Aires, to General Motors, which is planning a $1 billion truck factory in Córdoba.

Menem's easy re-election May 14 was widely seen as an endorsement of his government's pro-privatization and free-market policies, even though these same policies have made Argentina one of the world's most expensive countries -- a clear disincentive for tourists.

"There's very little tourism here, and I think that will continue until something happens with the currency, which we don't want," said Vignati. "For business in general, it has been good, but not for leisure travel."

At the moment, about 70% of the Inter-Continental's guests are business travelers -- primarily Americans -- says Vignati, whose 315-room property cost $61 million, or about $193,000 a room. At the Hyatt, where room go for an average $250 a night, executives account for 85% of the clientele.

"Having a small hotel, the only way for me to make money is through keeping average rates -- not occupancy rates -- high," says Ianni, whose property recently hosted singer Phil Collins in its $2,500-a-night presidential suite.

The Hyatt, located on Avenida Posadas in the heart of the city's most fashionable shopping area, combines an elegantly restored turn-of-the-century mansion with a newly constructed guestroom tower. The two buildings are connected by landscaped gardens and a Roman-style swimming pool.

The Inter-Continental, situated in a financial district not far from the famous Plaza de Mayo, has 315 guest rooms, 12 meeting rooms that can accommodate up to 1,800 people, and the usual assortment of restaurants, bars and facilities found in hotels of this type.

Not to be outdone, the Sheraton -- which is already Argentina's largest hotel with nearly 800 rooms -- will soon have 1,000 upon completion of a 20-story tower in September 1996. That will make it the largest hotel property in Latin America.

Ponte says construction of the tower and an adjacent convention center is costing $50 million, or about $265,000 per room. So far this year, the Sheraton is running at about 87% occupancy, better than the Hyatt's 72%. On the other hand, the Sheraton's average room rate of $95 a night is the lowest of any five-star hotel in Buenos Aires. Unlike the Hyatt, it depends heavily on business from airline crews.

Vignati, whose hotel is the first new Inter-Continental in Latin America since the opening of the chain's Rio de Janeiro property in 1975, says airline crews were going almost exclusively to the Sheraton until the Inter-Continental opened.

"What we'd like is 20% crew business, 60% executive travel and 20% group travel and conferences," he said, estimating that at the moment, 70% of his guests are American, 15% are European and the rest from Brazil and other Latin American countries.

Efforts to attract more Americans, however, may prove difficult. With Argentina's peso on par with the U.S. dollar, the country is no longer the travel bargain it once was, with average luxury hotel rooms going for nearly $300 a night.

Ponte, whose Sheraton will host the Inter-American Development Bank's annual convention next March, says that although Americans have always been the majority of guests in his hotel, more Brazilians are staying at the Sheraton this year.

"With the change in currency in Brazil, it's actually cheaper for them to visit Argentina," he said. "Brazilians like to come to Buenos Aires, and they haven't been able to do that for a long time. For them, it was always the Paris of Latin America."

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