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Rio de Janeiro Hotel Occupancy at 53.3%
Year-to-September 2004; Sao Paulo
Occupancy Rate Just 46.1% / Deloitte
Hotels within Brazil's gateway cities compete to recover

November 2004 - Year-to-September 2004 results from the HotelBenchmark Survey by Deloitte show hotels in Brazil's two principal cities, Rio de Janeiro and Sao Paulo, still have ground to recover before returning to the revenue per available room (revPAR) achieved during 2000. At the point of a much awaited turnaround, we review both Brazil's tourism industry and the latest hotel performance results.

Tourism in Brazil suffered a major set back throughout the political challenges and currency crisis of 2002. Prior to this, the country had emerged from recent years of significant growth in tourist arrivals. The number of visitors almost doubled in the later half of the 1990s to peak at around 5.3m visitors in 2000. Under the combined effect of a global and local economic downturn, major declines in visitor numbers were recorded towards the end of 2001 and throughout 2002. This was further magnified by the crises within Argentina, Brazil's principal source market.

Brazil's international tourism business is beginning to resurge from the recent years of recession. During 2003, 4.1m foreign tourists travelled to Brazil. The Minister of Tourism, Walfrido dos Mares Guia, recently announced the expectation of a 25% increase in visitor numbers by the end of 2004 while 2005 is predicted to exceed the industry's peak in 2000.

With a population of over 170m people, domestic demand within Brazil is an emerging market for hoteliers. In recent years, locals have elected to holiday within their own country as the unfavourable exchange rate continues to deter would-be outbound travellers from taking vacations abroad.

Rio occupancy rides the recovery

Rio de Janeiro is Brazil's most popular destination with over 2m international tourists and 5m domestic travellers visiting the city each year. Local hoteliers can look forward to continued growth in room night demand from both inbound and domestic markets.

The latest performance results from the HotelBenchmark Survey by Deloitte shows occupancy in Rio at 53.3% year-to-September 2004, a 3.9% increase over the same period last year. While a relatively disappointing result, this growth extends the pattern of optimism set in 2003 where occupancy improved from the previous year's low of just 50.3%.

Growing activity within the city's meetings, incentives, conferences and events (MICE) market has driven Rio's recent increase in room night demand. Ranked among the world's top destinations for cultural, commercial, technical and scientific events, Brazil's former capital is home to Latin America's largest convention centre. The city hosted approximately 350 events during 2003 and over 400 the previous year, according to the Rio Convention and Visitor's Bureau (RC&VB).

Being ruled out of hosting the Olympic Games in 2012 stopped Rio from receiving nearly US$1 billion in investments. A lack of hotels was among the deciding factors eliminating Rio from selection. However, in the lead up to the city hosting the Pan American Games in 2007, hotel supply in Rio is forecast to increase by 5,000 rooms from the current estimate of 24,000 rooms. With on going growth in demand, including over 200 confirmed events already secured by RC&VB over the coming years, hotel occupancy levels are unlikely to soften in the medium term. Notably, Rio's hotel market has some distance to cover before reaching performance akin to the 65% average occupancy achieved during 2000.

Rate rise in Rio

Average room rates in Rio de Janeiro have recorded growth for the first time since 2000. As at year-to-September 2004, room rates were $118.74 representing an increase of approximately 7% over the same period last year. While encouraging, the result is again a far cry from that achieved in 2000, when the city commanded an average room rate exceeding $152.00.

The following chart illustrates Rio de Janeiro's revPAR movement since 2000. As you can see, growth in occupancy during 2003 preceded improvements in rate inhibiting an upward revPAR change. Year-to-September 2004 results suggest that the challenges of recent years for Rio are drawing to a close with revPAR growing 11.2% over the same period last year.

Rio de Janeiro revPAR growth
2000 to year-to-September 2004

Source: HotelBenchmark Survey by Deloitte

Sao Paulo supply suffers

The recovery in revPAR within Brazil's economic and political capital, Sao Paulo, lags behind that of its eastern neighbour, Rio de Janeiro. While the city has seen improvements in occupancy over the last two years, Sao Paulo has struggled to improve average room rates.

The latest results from the HotelBenchmark Survey by Deloitte indicate that Sao Paulo achieved an average room rate of $75.00 year-to-September 2004, lower than that commanded during 2000. Moreover, hotels in Sao Paulo were less than half full during this period with an occupancy rate of just 46.1%. Although revPAR remained more than 60% below the 2000 high, a 10.9% increase in market-wide occupancy levels during year-to-September 2004 increased this indicator from $32.00 to $35.00 compared to the same period in the previous year.

The following graph illustrates Sao Paulo's occupancy improvement in both 2003 and year-to-September 2004.

Sao Paulo revPAR growth
2000 to year-to-September 2004

Source: HotelBenchmark Survey by Deloitte

It is no secret that Sao Paulo's hotel market is saturated and suffers from over supply. The city has over 30,000 branded hotels and 15,000 independent operators, a volume comparable to New York yet with half the demand. Accordingly, intense competition has resulted in a decline in average room rate year-to-September 2004. While a negative result, the loss is far less significant than that recorded during prior years. Sao Paulo can expect rate growth in 2005, pending on going increases in demand and stable supply conditions.

Economic growth paves way for industry confidence

Despite Brazil's recent history of economic challenges, evidence of a recovery is beginning to emerge. According to the Economist Intelligence Unit (EIU) Brazil is one of Latin America's most attractive countries for business. The strength of the country's large and growing market and diversified economy is attracting increased attention.

The EIU gross domestic product forecast of 4.5% reflects a strong economic upturn for Brazil in 2004 in comparison to recent years. Moreover, the EIU anticipate continued growth in 2005 and 2006. With inflation remaining under control, the general consensus for Brazil's medium term economic outlook leans towards a surge in business and consumer confidence.

This optimism extends to the country's hotel and tourism sector. A recent survey of over 800 local hotel operators and tourist agencies revealed the majority to be confident revenue in 2004 will be greater than last year. The Minister of Tourism bases this optimism on a strong performance in foreign trade, growth in domestic demand and inflation control. With signals of an official commitment to improvements in infrastructure and a tourism marketing budget of $US100m assigned for 2005, Brazil has set a pace to emerge from its recent history of challenges and showcase the extent of its tourism potential.

Notes: All analysis in $US

The HotelBenchmark Survey contains the largest independent source of hotel performance data outside of North America and tracks the performance of over 6,000 hotels and 1.2m rooms every month. 


HotelBenchmark Survey
Caroline Hardman
+44 20 7007 3520
Also See: Hard Times for Hospitality in Argentina / Andersen / April 2002
China Shines, with Promising Hotel Performance Results / Deloitte / October 2004

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