The South American hotel industry is in great shape and on the rise, both in terms of demand and in the development of new hotel projects, which translates into opportunities to increase and reconvert assets, and expand the offer in very profitable segments, such as concept and lifestyle hotels, or in categories with a consolidated demand from mature markets, such as urban and holiday luxury. This is the main conclusion of the report “The hotel market in South America: Opportunities in mature source markets”, prepared by the global tourism intelligence platform, Mabrian, part of The Data Appeal Company.
For this report, Mabrian has focused on Argentina, Chile, Uruguay, Peru, Ecuador and Colombia, six destinations in South America that represent around 65% of the total number of foreign visitors to this region, according to official statistics and figures from UN Tourism on arrivals of foreign travelers in 2023.
The data studied correspond to the hotel offer of these destinations, in the categories of 3, 4 and 5 stars, analyzed from the distribution by categories, rates per night (ADR) and the Hotel Satisfaction Index, both of international guests globally, as well as of five issuing markets of great relevance for South America: the United States, Spain, France, Germany, Italy and the United Kingdom.
The luxury and lifestyle market: opportunity for hotel expansion
According to Mabrian's data, the distribution of categories is very similar in all the countries analysed, except in Argentina, Uruguay and Peru. In Ecuador, Chile and Colombia, only between 1% and 2% of hotels are marketed as 5-star hotels, between 16% and 19% are 4-star establishments and between 79% and 83% are 3-star hotels. In the case of Peru, the proportion of 3- and 4-star hotels varies; in fact, 3-star hotels represent 93% of its market, and 4-star hotels 6%.
“Chile, Colombia and Ecuador have great potential to grow in the 4-star category, either by updating facilities and including new services in lower-category hotels, or by building new hotels, especially in the urban and lifestyle ranges,” explains Carlos Cendra, partner and director of Marketing and Communications at Mabrian. Expanding the 5-star offer, both urban and holiday, is also a great opportunity to attract visitors from very mature source markets, such as the United States and Europe.
The case of Peru is striking because the figures show a possible deficit of intermediate supply, “which could be a very interesting formula for penetrating and expanding in this well-known destination, and laying the foundations for growth in other categories.” On the other hand, the distribution of hotel categories in Argentina and Uruguay is very similar, and is more similar to the average for European destinations. 3-star hotels represent 69% of the hotel supply available in Argentina and 64% in Uruguay, 4-star hotels represent 27% and 32%, respectively; while 4% of the accommodations in both countries are 5-star hotels.
Tariff disparity, a symptom of the heterogeneity of the offer
Mabrian's data on hotel rates show two distinct price levels across all hotel categories analysed, one positioned at the highest end, which in the case of high-category hotels can triple the lowest ADR; and another level, with lower rates.
The average nightly rates for 5-star accommodation in Peru and Ecuador reflect what we call the 'Machu Pichu effect' or 'Galapagos effect', sub-destinations in these countries that have a particularly high average nightly rate, which affects the national average.
Cendra explains that the behavior of hotel rates “has a multidimensional interpretation: a limited offer in higher categories, in markets with a lot of international demand, such as Peru or Chile; a misalignment between expectations and experience, which pushes prices downwards; and the need to update and expand the 3 and 4 star hotel offer, to compete in better conditions, not only at a regional level, but also internationally.”
Addressing demand and satisfaction challenges by target markets
Guest satisfaction with their stay is a factor that must be addressed by markets and segments, since, as reflected in the Hotel Satisfaction Index (HSI) for accommodations in each of these destinations, demand scenarios are diverse.
Overall, the Spanish and French are the most demanding when it comes to hotel offerings in the countries analysed. The key is in 5-star accommodation, which, as Cendra explains, “overall, receive lower scores than mid-range hotels, a trend that is more pronounced in the American, Spanish, French and British markets.” The imbalance between the expectations of mature markets and the available supply explains these results, which must be addressed “from the available supply and from the strategy of new openings,” says Cendra.
Mabrian's data shows that the hotel experience in 3- and 4-star hotels in Chile, Argentina, Peru, and Ecuador (a market with very strong HSIs in this segment) is consistently very satisfactory for the source markets analyzed. For their part, Colombia and Uruguay have the challenge of increasing satisfaction with the experience in certain source markets, especially among Spaniards and French.
“Maintaining the standards of facilities and services in this segment contributes to increasing overall satisfaction with the experience in these South American destinations,” recalls the Mabrian spokesperson. “The reconversion of assets, the introduction of new services, and agreements to operate these accommodations with reference brands are factors that can be introduced into the long-term strategy for this type of hotel, which will contribute to attracting more travelers from international markets.”
Source: Mabrian.