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Hoteliers shed no tears at Argentine building boom
Hotel & Motel Management / February 2, 1998

By Larry Luxner

BUENOS AIRES -- Despite economic uncertainties sparked by a sudden austerity program in Brazil, the hotel construction boom in neighboring Argentina continues unabated, with the industry expected to set records in 1998.

In addition, President Clinton's recent visit to Buenos Aires has helped trigger increased U.S. investor confidence in Argentina, which in spite of a troubling 16 percent unemployment rate managed to finish the year with virtually zero inflation and per-capita income of $8,000 -- far and away South America's highest.

Aureliano Vignati, general manager of the Hotel Inter-Continental Buenos Aires, says his hotel's occupancy rate as of November 1997 was 92 percent, with an average 78 to 80 percent for the year. Occupancy remained high despite the opening of a new, 20-story luxury tower by the Sheraton Buenos Aires, which with 942 rooms now ranks as the largest hotel property in South America.

"Demand from the business sector has increased 11 percent between 1996 and 1997," Vignati said in an interview in Buenos Aires. "It's been like that for three years. We think 1998 will be politically uneventful, because presidential elections aren't until 1999. These will affect us only if the perception of Argentina abroad changes."

Meanwhile, since 1990, foreign tourism has almost doubled -- from 2.7 million to 4.2 million. According to Enrique Spinedi, cabinet advisor to Argentina's Secretary of Tourism, the country is South America's leading tourist destination, and the fourth most popular in the Western Hemisphere. "The importance of tourism to our national economy cannot be underrated," said Spenedi. "It is now Argentina's most important source of foreign income, contributing over $4.57 billion a year."

In 1997, Buenos Aires became a finalist to host the 2004 Olympic Games. Even though Athens eventually won the bid, Argentina opened four new hotels and began construction on an additional 20. The tourism sector also stands to benefit from the pending privatization of Argentina's airport system, which could receive $2 billion in investment.

Antonio González, vice-president of AHAT (Asociación Hoteles de Turismo), says his organization represents 106 hotels, including all of Argentina's five-star properties and most of its four-star hotels.

"I think this is one of the best moments ever for hoteliers," González told Hotel & Motel Management. "Economic stability, followed by privatizations and investments, has produced an increase in businesspeople coming here, which is our most important segment. We've been growing very fast in the last two years, about 55 percent in total revenues of five-star hotels. The supply has increased tremendously, by around 25 percent. Even so, we've had more increase in demand than in supply."

At the moment, five-star hotels in Buenos Aires charge an average $163 a night. About 70 percent of the Inter-Continental's guests are business travelers -- primarily Americans -- says Vignati, whose 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 percent of the clientele.

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 near 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.

In addition to Howard Johnson's, which plans to build 400 medium-priced hotels around the country over the next few years, French hotel giant Accor plans to invest $100 million in Argentina. Chairman Paul Dabrule says his firm has two projects: to build a hotel in the up-and-coming Puerto Madero district of Buenos Aires, and to establish 20 to 25 hotels (with 100 rooms apiece) throughout Argentina's interior.

Yet Vignati thinks Buenos Aires may have reached the saturation point.

"There's been a big boom in luxury hotels," says the hotelier, whose own company plans to build a four-star Forum in the Puerto Madero district by 2000. "The city could take a couple more hotels, but now the market needs less expensive ones."

The hotel boom follows record U.S. investment in Argentina by multinationals ranging from Eastman Chemical to General Motors, McDonald's to Wal-Mart. This is crucial to hoteliers; in the case of the Inter-Continental, for example, 45 percent of hotel guests come from the United States, nearly all of them business executives.

"Why are U.S. companies choosing Argentina?" asks Marcelo Sierra, a researcher for Fundación Invertir in Buenos Aires. "There are several reasons: access to the Southern Common Market (Mercosur), macro-economic stability, deregulation and the convertibility plan which pegs the Argentine peso to the dollar. Mexico and Canada are good, alternate locations within NAFTA, useful for reducing costs, but not for conquering markets in other economic blocs."

Despite Argentina's strong performance up to now, however, not all indications are encouraging. Recent belt-tightening reforms by Brazilian President Fernando Henrique Cardoso in the wake of the Asian currency crisis are already having an impact on Argentina, whose economy is closely linked to Brazil's. For instance, industries highly dependent on exports to Brazil -- manufacturers of automobiles, chemicals, machinery and footwear -- have already seen sales suffer.

In addition, moves such as a doubling of Brazil's airport departure tax from $18 to $36 and a cutback in duty-free allowances -- both aimed at generating revenues for the central government -- have made it considerably more expensive for Brazilians to travel and spend money abroad. For the past few years, Argentina has been a favorite destination for Brazilians on vacation; the latest developments may signal a dropoff as cash-strapped Brazilians now choose to vacation at home -- if they can afford a vacation at all.

According to a recent report by Santander Investment Securities, "the economic slowdown in Brazil and the impact of a deterioration in Argentina's perceived credit risk on interest rates will limit economic growth into 1998. As a result, growth will likely register 3.5 to 5 percent."

Another issue concerning Argentine hoteliers is their own government's mandatory 21 percent value-added tax, which is tacked on all hotel bills. "We're trying to get the government to exempt foreigners from paying the value-added tax," says González. "People will come to Argentina anyway, but [removal of the tax] would help tourism a lot. At the congressional level, the Senate has agreed with us. Other chambers need to agree. In total, we're talking about $120 million in lost revenue. I think they can recoup this money elsewhere."

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