Hospitality_Insights_Colombia_Tourism

The Future of Hospitality Industry in Colombia

What are the challenges faced by the Colombian hospitality industry?

On November 24, 2016, the signing of the Final Agreement for the Termination of the Conflict between the Colombian State and the Revolutionary Army Forces of Colombia (FARC) put (at least formally) an end to the oldest and largest civil war in the Americas. Already the expectations or even the hope for the signature was a turning point for Colombia and its hospitality industry, which accounts for 2% of the Colombia’s GDP and provides 1.357.103 jobs, according to DANE (Departamento Nacional de Estadistica), 2018.

The peace treaty might explain the increase in international tourist arrivals, which augmented by 11% in 2016 according to the WTO.

Furthermore, hotel nights demand increased by 4.1% in 2017, the ADR rose by roughly 2.2%, while the RevPAR augmented by approximately 3.2%.

All those results were reflected in an average increase of the revenue by 6.4% in 2017[1].

Now the question is: what are the challenges faced by the Colombian hospitality industry?

To answer this question, we need to profile the typical tourist that checks in Colombian’s hotels. Tourists are evenly distributed among holidaymakers and business travelers.

Business travelers accounts for roughly 44% of non-residents tourists and 49% of local travelers, while tourists stricto sensu make 44% of non-residence guests and 40% of domestic travelers[2].

Only business tourism and resident tourism are translated into Colombian’s hotel guests check-in

Why? The reason lies behind the typical Colombian international holidaymaker tourist profile.

The persona of the typical tourist traveling to Colombia is a young backpacker that spends roughly two weeks in Colombia traveling around. She has a limited budget and she avoids luxury and business hotels. She is traveling low cost. Usually, she lands in Bogotà just to move quickly to the Eje Cafetero to trace then the cost for visiting Cartagena, Santa Marta, Palomino and Tayrona National Natural Park. She is interested in the characteristic breathtaking wild nature, perfect landscapes and natural parks of Colombia.

On the opposite, the typical resident holidaymaker traveler is keener to hotels.

As Colombian GDP has been increasing in the last decades, there was also an increase in local tourism. Additionally, the peace treaty on the one hand and the government effort to increase security on the Colombian touristic destinations on the other one, made commuting easier and safer. Residence tourists leave Colombian cities, such as Bogotà or Medellin, in order to reach the Caribbean coast or the Eje Cafetero and spend one or two weeks away. Colombians travel mainly in Christmas time (which is also summer time) and sometimes at “a meta del año” (around July/August) making this type of hotel demand strongly seasonalized. As a result, from a hotel revenue management perspective, this type of tourism might provide a fixed income but might not justify the fixed costs of the hotel.

Finally, business travelers.

Business tourists flights directly to urban destinations such as Medellin, Calì or Bogotà[3].  They spend nights on hotels. They are not seasonal tourists. By definition, business travelers are business cyclical. There is, indeed, a strong and reverse causality among the economic growth and business tourists. If on the one hand, good economic perspectives attract investors, on the other hand, business tourists contribute to the economic growth itself. Business guests have been growing exponentially over the last decades.

To help sketching the inbound tourism demand faced by Colombia consider Figure 1 and 2.

Figure 1 shows the percentage variation of foreign direct investments (FDI) in Colombia and the variation of international arrivals. The FDI figure aims to catch the business tourism demand. It emerges that tourists arrival responds (though with a certain lag) positively to a variation in FDI. Similarly to what we observed with FDI, tourist arrivals have been growing.

Hospitality_Insights_Foreign_Investments_Colombia

Figure 2 reports the worldwide search in Google for the words: “Colombia Hotels” approximately for the past 250 weeks. It is undeniable that there is a growing interest for Colombia as a destination.

To conclude, the hotel Colombian sector faces the following challenges:

  • We should expect an increase in hotel demand from business travelers in the main Colombian cities. As it is already happening, hotel chains will meet this demand more and more. Hotel chains also took advantage from the enacted Law 788, 2002, which included tax and tax incentives for the housing sector. Following the Law 788, 2002, there has been a growth in the hotels, constructions and real estate remodeling for housing services, in the presence of international hotel chains and, probably, in the qualification of management and services.
  • The traditional family owned hotel, which characterizes part of today’s market, will see its share reduced and it will need to adopt a more aggressive online marketing to promote their market and choose carefully a niche[4].
  • The need to implement all those innovations and be ready to meet the increased demand will imply an increase in the demand for educated hoteliers in the job market. This means that it will be necessary to operate in the education sector and invest more in hospitality business schools.
Colombia has wild and breathtaking nature. Most of those places were paradoxically preserved by the guerrilla that used to hide there during the civil war. Now that the peace treaty is becoming effective, those unexplored landscapes will attract tourists from all around the world. The challenge for Colombia will be to convert part of their backpacking visitors into hotel guests. However, the Colombian State and society have great challenges to make these territories, which were scenarios of the armed conflict, now sustainable destinations for tourism. These challenges go beyond infrastructures, now still precarious, and they require the indispensable security demanded by tourists and local communities whom active participation is a sine qua non condition for tourism development. The peaceful resolution of the conflicts should persist.

[1] Data retrived from STR.

[2] Cotelco

[3] https://oxfordbusinessgroup.com/analysis/checking-new-hotels-and-more-rooms-underpin-sector-expansion

[4] https://oxfordbusinessgroup.com/analysis/checking-new-hotels-and-more-rooms-underpin-sector-expansion

Hospitality_Insights_Investment_Trends_Europe
Dr Giuliano Bianchi
About the author

Dr Giuliano Bianchi is an Assistant Professor of Economics at EHL. He conducts empirical research on forecasting, executive compensation, economics of crime and tourism economics.

Giuliano holds a PhD in Economics from the University of Bologna (Italy), a Master Degree in Economics from the University of Edinburgh (UK), and a Bachelor Degree in Economics from the University of Lugano (Switzerland). Before joining EHL, Giuliano was a Wertheim Fellow at the Labor & Worklife Program, Harvard Law School.

Giuliano’s work has been published in refereed international journals, including Applied Economics and The Quarterly Review of Economics and Finance.

Dr-Isabella-Blengini_EHL
About the author

Dr Isabella Blengini, is an Assistant Professor in Economics. Her research interests include exchange rate movements, expectations, international capital flows, financial crises optimal monetary policy and portfolio choices.Isabella teaches in the bachelor program the courses of microeconomics and hospitality economics.

After taking her Ph.D. at Boston College, she did a post-doc at the University of Lausanne. She has been visiting fellow in the economics department at MIT and summer intern at the Boston Fed.

manuel_leguizamon
About the author

José Manuel Leguizamón Tiusabá is a research professor at the Faculty of Administration of Tourism and Hospitality at the Externado University of Colombia, where he has carried out several researches on the preservation and transformation of traditional Colombian cuisine and gastronomy.