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Chile red hot as economy shows recovery
Hotel & Motel Management / October 21, 1996

By Larry Luxner

SANTIAGO -- The skyline of Chile's capital city is changing rapidly as new office towers, hotels and condominiums jostle for space in Santiago's booming suburbs.

So far this year alone, the supply of rooms in five-star hotels has jumped 9.3%, according to James Hughes, marketing manager of the Hyatt Regency Santiago. That luxury property, which opened four years ago, has 310 rooms; other large properties include the Sheraton (with 383 rooms, and another 140 opening in November 1997); the Holiday Inn Crowne Plaza (293 rooms); Santiago Park Plaza (104); Plaza San Francisco (156); Carrera (322), Sonesta (103), Radisson (160) and the Regal Pacific (104).

"There's a lot of foreign investment that has already matured in the sense that, in the beginning, when a foreign company invests in a business, you get a lot of visitors who come to set up," said Hughes. "Once the investment is made and things are running smoothly, the tendency is for travel to drop off. We're sort of seeing that now, although tourism is increasing incredibly."

The main reason for the boom is Chile's economy. Under President Eduardo Frei, inaugurated in March 1994 to a six-year term, Chile has grown rapidly, achieving a gross domestic product of $56.6 billion (or $4,015 per-capita) in 1995. Stretching 2,690 miles from Arica in the north to Tierra del Fuego in the south, this mountainous, pencil-shaped nation has the fastest-growing economy in Latin America and is the 20th most competitive nation in the world, according to the 1995 World Competitiveness Report. In 1995, Chile enjoyed a GDP growth rate (8.2%) that actually kept up with inflation (8.2%).

Furthermore, earlier this year Chile became the first Latin American nation to be assigned an "A" rating by the London-based Economic Intelligence Unit. The EIU says its decision to upgrade Chile to its top rating band follows a fall in interest payments as a share of exports, triggering an improvement in its creditworthiness.

"For the first time in many years, the Chilean economy has shown 13 years of consecutive growth," said Jaime Estevez Valencia, president of Chile's Chamber of Deputies and a socialist who represents Santiago's poorest neighborhoods. The lawmaker recently visited Washington in hopes of winning Congressional support for including his country in the North American Free Trade Agreement.

Although election-year politics in Washington have prevented Chile from gaining entry into NAFTA, that hasn't stopped Chile from joining Mercosur -- South America's most important customs union -- effective Oct. 1. The deal provides Chile easier market access to 200 million consumers in Argentina, Brazil, Paraguay and Uruguay, while giving companies from those four nations the access they've long sought to Chile's Pacific ports, and hence the Pacific Rim. It also boosts prospects for business travel.

"Basically, we went from a lack of hotel rooms to too many," said Hughes. "Other hotel companies were attracted to Chile because of the economic stability. Also, there's been a shift of businesses leaving the downtown area and coming up toward this part of the woods."

Indeed, Santiago is heading towards a hotel-room glut. At the moment, Chile has just over 25,000 hotel beds -- of which 51.7% are in the Santiago metropolitan area, home to nearly five million of Chile's 14 million people.

According to Diego Durruty, general manager of Property Information Exchange Chile, availability of hotel rooms increased 7.8% between 1984 and 1992. By the end of this year, the country will have registered 5.8 million hotel nights; by 2015, that will more than triple to 18 million hotel nights. Of this total, says Durruty, some 28.5% will be in four- or five-star hotels (of which Santiago has 27).

Earlier this year, Radisson Hotels Worldwide inaugurated its first hotel in Chile, a 160-room, five-star property within the new World Trade Center. The $24 million Royal Santiago Hotel is Radisson's second in South America (the first was in La Paz, Bolivia).

"The combination of the hotel's location, design and technology positions it as a national gathering point for Chileans to host global business," says general manager Colin Turner. According to a Radisson press release, the property "features a striking architectu-ral design with one portion of the building cantilevered over the other, forming the appear-ance of two unique tower structures connected only at the top floors with a free-floating space toward the building's center."

Currently, the capital city has 14 five-star hotels with a total capacity of 3,671 beds; 40% of those beds are in the eastern suburbs of Providencia, Vitacura and Las Condes. Chile's only five-star hotel outside of Santiago is the Hotel Explora, a small luxury property located in Torres del Paine, near Punta Arenas in extreme southern Chile.

Hughes says 51% of the Hyatt's guests are business individuals, 20% individual leisure travelers, 9% tour groups and 12% conventions. They come primarily from the United States (45%), Argentina and other Latin American countries (36%), Europe (13%) and Asia (3%). The Hyatt's average room rate is $165, compared to $123 for the industry as a whole.

Though business may be good, says Hughes, the Hyatt will get some stiff competi-tion when Marriott International puts up its own hotel right down the street -- in a $110 million venture with local real-estate firm Nueva de Lyon, which developed the Radisson.

The mammoth project, located on Avenida Kennedy past the Parque Arauco shopping mall, includes one large 42-story building and two smaller office towers, all of which are expected to be completed by August 1998. This project constitutes the first direct Chilean investment for Marriott, which is also building a hotel in Quito, and is involved in negotiations for luxury hotels in Bogotá, Caracas and São Paulo.

Interestingly, hotels aren't the only ones gearing up to accommodate all the new arrivals. Despite its gleaming new makeover, Santiago's Arturo Merino Benítez International Airport -- focus of a $60 million expansion project inaugurated in March 1994 -- can no longer keep up with the crush of air travelers, already estimated at three million passengers a year.

"Only two years after its construction, airport capacity has already been surpassed, as the amount of passengers using the airport at present had not been expected for two more years," says the U.S. Embassy in Santiago. Completing the expansion project's second stage will require another $40 million, plus an undetermined amount to rehabilitate airport cargo. When operating at full capacity by 2010, Chile's leading airport should be able to handle nine million travelers a year.

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