Opportunities abound in Brazil’s hot market–but not without challenges
The 2014 World Cup proved a much-needed boost of good publicity for Brazil. The country is currently facing a recession and inflation stands at 6.5 percent. But over the summer, more than 1 million foreign tourists flocked to the South American country to watch their teams compete. Early indicators showed that each of the 12 host cities benefitted from the influx of tourists, and it looks like the party continues for the country’s hotel sector–despite broader economic challenges in Brazil.
“The promotional effects of the World Cup, coupled with the devaluation of the Brazilian real against the U.S. dollar, create a positive outlook for the hotels sector. There are major prospects for growth in foreign tourism, and the country is enjoying the enhanced image as a major tourist destination within the global market.” says Ricardo Mader, Executive Vice President of JLL’s Hotels & Hospitality Group
Hotels boost operating profit
Brazil hotels are working to minimize costs while maximizing revenue, according to JLL’s “Lodging Industry in Numbers Brazil 2014” study. For the survey, JLL talked to operators of 450 hotels, resorts and condo hotels about their 2013 performance. While operating costs, mainly for labor and food and beverage, were higher, that did not affect gross operating profits, which grew by 6.2 percent year-over-year. The study found that owners were able to decrease costs by focusing on technology and operating efficiencies. As a result, the overall gross operating profit margin rose one percent to 36.6 percent in 2013.
Even though occupancy rates have fallen 3.6 percent over the past two years, hotel owners have seen an increase in the average daily room rate by 23 percent during that same period.
Domestic travel dominates urban markets
Hotel occupancy rates in Brazil climbed slightly to 65.9 percent in 2013, but international tourists weren’t the ones filling hotel rooms. Brazil is home to 200 million people, and they make up the vast majority (83.7 percent) of hotel guests in Brazil’s cities. Most of the travelers are on business (66.7 percent), while additional 18.4 percent are traveling for leisure.
“Our country became a great showcase after the World Cup by demonstrating its organizational skills and the exemplary way it receives domestic and foreign tourists,” said Roberto Rotter, President of the Fórum de Operadores Hoteleiros do Brasil (FOHB). “Our challenge is to maintain good occupancy rates through the rest of 2014.”
The FOHB is bullish on growth in Brazil. The organization has been working with the country’s government to promote Brazilian destinations to domestic and international tourists alike, and Rotter expects there will be 23 percent more rooms in Brazil by 2016, translating to 30,000 new rooms in 150 hotels.
Facing strong headwinds
Although the overall economy in Brazil is dealing with its share of challenges, re-elected president Dilma Rousseff is vowing to tackle the economy head on. In the meantime, Brazil is shining the silver lining of countrywide economic uncertainty: travel can become cheaper. The Brazilian real currently trades at 40 cents to the U.S. dollar and 32 cents to the Euro: an exchange rate welcoming foreign travels. Brazil will soon get another chance to shine on the world stage when Rio hosts the 2016 Summer Olympic games.
Any doubts of the country’s ability to handle the next summer Olympics were alleviated by the success of the 2014 World Cup. And with attractions like Carnival, Rio and even the rainforest, there are plenty of reasons for Brazil’s hotels to keep growing.
