Mexico Tourism Report Q4 2009

H102 Tourist Arrivals Fall Sharply Data released by the Secretar?-a de Turismo (Ministry of Tourism, Sectur) shows that tourist arrivals fell in H109, slumping by 6.0% year-on-year (y-o-y), to 10.7mn. However, this was largely the result of a sharp drop in Q209, with arrivals actually having risen by 7.5% y-o-y in Q109. Tourist arrivals fell by 19.2% yo- y in Q209, one of the sharpest drops ever experienced in Mexico.

This unexpected decline was not a result of the economic slowdown affecting tourism - in fact, the Mexican tourism industry had been relatively resilient during the downturn. Instead, the main factor behind the decline was the outbreak of the influenza H1N1 swine flu virus in Mexico in April. The virus spread rapidly and the government shut down public services in Mexico City. This immediately affected tourism, with individuals and tour operators cancelling planned holidays. However, the impact has continued to be felt, largely due to the ongoing rate of infection. By August 2009, there had been 179 deaths and 20,681 confirmed cases in Mexico. Such a high rate of infection is continues to be a major deterrent to tourism, and this negative reputation is likely to linger for some months after the outbreak subsides. As a result, we have downgraded our forecast for 2009 and now expect arrivals to reach only 19.8mn.

Violence Prompts US Travel Alert In another blow to Mexico's suffering tourist industry, the US State Department released a travel alert in August warning US tourists of increased violence in Mexico. In particular, the alert warns tourists against travelling to the states of Michoac??n and Chihuahua at all, and to take particular care in other parts of Mexico by not travelling at night and keeping to tourist areas. There were 4,400 murders in the 12 months to August, an average of 20 per day. Much of this violence is linked to turf warfare between rival drug cartels, which are struggling for control of lucrative drug routes.

Much of the violence is in states near the US border, such as Chihuahua and Michoac??n, which is the power base of an emerging cartel called La Familia. Michoac??n's major tourist attractions are the colonial era monuments in the state capital Morelia and the Monarch Butterfly Biosphere Reserve, both of which are likely to suffer during the travel ban. The US is the primary source of tourists to Mexico, often in the form of 'fronterizados', or tourists who cross the border for just one day or night. The wave of violence on Mexican/US border states is likely to deter these short-stay visitors. Cruise Sector Suffers Disproportionately The cruise sector has traditionally been one of the most resilient sectors of the Mexican tourism industry.

The sector mostly located in the south, near the Yucat??n Peninsula, so is isolated from the violence occurring in the north. Also, cruise operators can change itineraries to reflect any security concerns in the region. Mexico is usually visited as part of highly popular Caribbean cruises, so benefits from association with the Caribbean rather than Central America. However, in 2009, the cruise sector has been suffering particularly badly. In H109, cruise arrivals fell by 24.8% y-o-y, to 2.7mn. Cruise arrivals started to decline even before swine flu hit, falling by 9.5% y-o-y during a period when arrivals in general were rising, They then fell by a shocking 46.5% y-o-y in Q209. It comes as little surprise that cruise arrivals are declining, given that cruises cater to the high-end, luxury tourist market and are therefore likely to receive less custom during an economic downturn. However, the sheer scale of the decline was unexpected. The fall in Q209 reflects the negative perception of Mexico created by the swine flu outbreak. Many cruise operators cancelled stops in Mexico altogether and have yet to reinstate them. As such, Mexico's cruise industry is set to suffer disproportionately in 2009.