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Peruvian tourist boom leads to luxury hotel glut
Hotel & Motel Management / October 19, 1998

By Larry Luxner

CUZCO, Peru -- South America's third-largest nation in size, Peru boasts the world's most spectacular lost city, its most colorful Inca festival, one of its driest deserts and its largest prehistoric puzzle.

Yet for much of the 1980s, few tourists ventured here because of the threat from Shining Path terrorists, and because of the infamous street crime in Lima -- considered the continent's most dangerous city after Bogotá and Medellín.

But in 1993, following the capture of Shining Path leader Abimael Guzmán, the attacks tapered off and tourism began climbing again. This year, Peru expects to receive some 830,000 tourists -- a 240% increase over 1992 figures -- and is hoping for one million visitors by the year 2000.

"We realize that our absolute numbers are very small, especially when we consider Peru's potential," says José Miguel Gamarra, the country's vice-minister of tourism. Nevertheless, he suggests, "Peru offers everything you can find in the rest of South America, except that it's all in one country."

Gamarra, a former investment banker who's been in his current job less than three months, told Hotel & Motel Management that roughly 30% of all visitors to Peru are from the United States and Canada, another 30% from Europe (primarily Germany, Great Britain, France, Italy and Spain) and yet another 30% from the rest of South America, mainly Chile. The remaining 10% come from the Far East and elsewhere.

The remaining 10% of tourists come mainly from the Far East, and on that score Gamarra says he's encouraged by the Japanese government's July 29 lifting of its travel warning on Peru that had been in place ever since the December 1996 armed takeover of the Japanese ambassador's residence in Lima and the four-month hostage crisis that ensued.

"We expect a substantial increase in tourism from Japan" as well as from the United States, where American Airlines alone offers four flights a day to Lima and Cuzco; other U.S. airlines serving Peru include Continental, Delta and United.

"Visitors to Peru spend an average $1,300 per visit and stay 14 days," he said, "well above our main competitors in the region."

Carlos Zuñiga Quiroz, president of Peru's Cámara Nacional de Turismo (Canatur), says that "to be considered a real tourist destination in the world context, we need 2.2 million arrivals annually." He predicts that Peruvian tourist income will hit $1.7 billion by 2002, up from $527 million in 1995, $632 million in 1996 and $850 million in 1997.

While tourist arrivals are definitely on the way up, hotel occupancy rates in Lima are struggling to stay above the 50% mark. That's because a few years ago, local and foreign investors -- anticipating the current tourist influx -- began building one luxury hotel after another. In 1996 alone, seven luxury hotels opened in Lima with a combined 625 rooms; in 1997, another seven hotels opened, adding 645 rooms, and so far this year, five hotels have opened, adding 352 rooms.

This means that in the last three years, 1,622 new rooms in four- and five-star hotels, not counting the 87-room Hotel Meliá Lima, scheduled for completion in October, or the 318-room Marriott Lima, due to open in January 2000.

"There's too many hotels for the demand," complains Luís Gómez, general manager of the 431-room Lima Sheraton Hotel & Casino, Peru's largest. "Everybody's discounting, way below rack rates. Hilton has been talking about coming here for five years, but no international company's going to put their own money in."

Adds David C. Griffith, general manager of the 151-room Hotel Las Américas in Lima's upscale Miraflores district: "They're overbuilding. It has to level out, because there's no new players coming into the scene right now. The only project going full steam is the Marriott, which is being promoted by local investors."

The $50 million, 24-story Marriott, which is 30% complete, will boast a casino, banquet hall, business and commercial center, health spa and five floors of underground parking. Parsons is managing integrated design, procurement and construction of the 26,000-square-meter hotel, as well as construction of an adjacent 17,000-square-meter office complex.

In all, some $450 million has been invested in hotels throughout Peru in the last three years, 70% of it in Lima. Says Gamarra: "There's definitely been a boost in construction, which is related to the general investment boom, and the movement of businessmen coming to study investment opportunities."

Lima already has 12 five-star hotels, including the 244-room Swissotel (formerly Oro Verde) in Miraflores, the 207-room Hotel Los Delfines in San Isidro, and the 117-room Prince Hotel in San Borja. Outside Lima, smaller properties are also being upgraded, thanks in part to the government's recent divestiture of Enturperú -- a state-owned lodging chain with 1,797 rooms in 15 hotels, 34 hostels and five very small inns.

In Cuzco, the country's most important colonial city, two five-star hotels cater to well-heeled guests: the Monasterio and the Libertador.

Yet even potential tourists who know Peru no longer has a terrorist problem are still discouraged from coming because of the crime.

"The worst thing you can do is give the impression you're trying to hide things, because we are conscious of the sense of insecurity, and there is a problem," acknowledges Gamarra, formerly the chief of foreign investment promotion at PromPeru, a government agency. "We want people to feel they can walk safely in the streets."

Another challenge confronting the government is the lack of international airports near major tourist sites such as Machu Picchu and the famous prehistoric Nazca Lines. Crosswinds and extreme altitude prevent the government from building an international airport at Cuzco, the nearest major city to Machu Picchu.

As a result, foreigners wanting to visit the fabled lost city must fly to Lima, catch a domestic flight to Cuzco and then take a four-hour train and bus ride from there to Machu Picchu. Recently, the government awarded a $10 million concession to a private firm to build a cable-car system that would whisk tourists up to Machu Picchu in six minutes -- yet opposition from bus drivers and local merchants worried about losing business may stall the project for a long time to come.

"This is a very tough year for the economy in general," says Gómez. "We used to have a very important influx of Japanese visitors, which has dried up because of the warning by the Japanese government not to come to Peru. The economic crisis in Asia has also hurt us indirectly, since Asian destinations like Indonesia are more competitive now."

Gómez, who estimates business executives comprise 45% of all his guests, says "I have no reason to be optimistic for next year, but on the other hand, we'll continue with moderate growth in tourist arrivals. If the Japanese don't come, someone else will."

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