Tourism and aviation are on the mend, boosting Latin America’s travel sector.
Latin America offers a wealth of contradictions: One of the regions least prone to all-out war of the type currently playing out in the Middle East and Europe, yet plagued by wobbly infrastructure, corruption, criminality, structural poverty and declining social standards.
Thus, it is no surprise that Latin American countries were some of the worst affected Covid-19. Like elsewhere, travel and aviation were among the sectors hardest hit; unlike elsewhere, both have made a strong comeback.
PhocusWright, a specialized travel market research company, found that Latin America surpassed its pre-pandemic travel revenue by 29% at the end of 2023, reaching $62.1 billion. “Growth in the region will remain strong, and we forecast that by the end of 2024, the total market revenue should be $71.7 billion,” says Carolina Sass de Haro, PhocusWright’s senior analyst for the Latin American market and a managing partner of MAPIE, a Brazilian consultancy specializing in the tourism sector.
Oxford Economics forecasts slightly weaker economic growth in Latin America in 2024, but still predicts the region will outperform most advanced economies—with travel and tourism key drivers of economic growth.
Bolstering that growth will be strong US demand, the source of 48% of the Latin American inbound travel market, Oxford Economics predicts; American visitors spent an average 17% more in 2023 than they did in 2019. Intraregional travel will account for 34% of market share in 2024, the firm says; in many of the region’s countries, the domestic market is stronger than the foreign.
This is particularly the case in aviation. Latin America’s load factor is currently 84.7%: the highest in the world, according to the International Air Transport Association (IATA).
According to Peter Cerda, IATA’s vice president for the Americas, last year was a success for airlines in Latin America. “Traffic rose 28.6%, capacity climbed 25%” and the airlines “did a really good job not only recuperating the lost capacity and connectivity but increasing it and bringing new connectivity between cities that didn’t exist in the past.”
Two Western Hemisphere subregions have fully recovered from the pandemic as defined by international tourist arrivals, according to the UN World Tourism Organization: Central America is 5% above 2019 levels, and the Caribbean is 1% over. South America still trails at -6%, although that number is markedly better than the worldwide average of -12%.
“In the Americas, including North America, the overall contribution of tourism to regional GDP is 0.5%,” says Sandra Carvão, UNWTO’s chief of Tourism Market Intelligence and Competitiveness. “It sounds small, but you have countries that do not depend on tourism like the US or Brazil. The US has a big weight, and tourism makes up a smaller percentage of total GDP there. This is very different compared, for example, the Bahamas, where tourism is 15% of the local GDP; Jamaica, where it’s 10%; or Mexico, where it’s 7%.”
Regional Winners
Mexico, Central America and the Caribbean benefit from their proximity to the US and the strength of the US dollar. According to Oxford Economics, travelers originating in the US comprise 82% of arrivals in Mexico, 49% in the Caribbean, and 33% in Central America based on 2023 trend numbers.
“Mexico plays a big part in total Latin American numbers,” says PhocusWright’s de Haro. “It was able to position itself very differently during the pandemic and it remained open while most countries closed their borders. This led to a very rapid recovery of tourism, propelled by the outbound US market.”
That in turn bolstered Mexico’s position as the top tourism market in Latin America, representing 51% of the regional total, de Haro adds. Mexico’s tourism revenue came to $8.9 billion in 2019, dropping by half in 2020 but already recovering to pre-pandemic levels in 2021. “As of mid-2023, we forecast Mexican tourism sales to reach $15 billion, inching toward double the pre-pandemic levels.”
Other major success stories, albeit smaller in absolute numbers, include El Salvador (up 36% from 2019 levels), Guatemala (+26%), and Honduras (+23%).
South America is seeing healthy but generally less dramatic numbers. Colombia should welcome 29% more international arrivals in 2024 than in 2019, according to IATA; the country has already seen an increase of 18% in international flight capacity compared to the pre-Covid-19 period, despite the fact that two of its airlines have ceased operations. Countering the trend, Peru can expect international arrivals to shrink by 28% from 2019 levels, largely due to civil unrest there and issues surrounding tourist access to Machu Picchu.
And Argentina’s current sharp recession skews the numbers. IATA forecasts 10% more international arrivals this year than in 2019, but with inflation out of control at 211.4% and the Argentine peso crumbling—it was devalued by 54% in December—the tourism sector is actually shrinking in US dollar terms.
“We run the numbers multiple times a year for Argentina because of the inflation and exchange rate fluctuations, and it’s simply disheartening,” says de Haro. “Argentina’s tourism sector was worth $1 billion in 2016. Despite gains in both absolute numbers and in pesos-value through the years, the sector was worth only $317 million by 2019. It fell drastically to $37 million in 2020. Tourism grew by 72% between 2021 and 2022, and it sustained growth in 2023, but we now forecast it’ll end 2024 generating only $121 million.”
Brazil: Opportunities And Obstacles
Brazil may be Latin America’s most complex story. According to the International Monetary Fund, the economy grew 3.1% in 2023 to become the world’s ninth largest. But lingering infrastructue deficiencies, an undervalued currency, persistent fiscal imbalances, high corporate taxation, and labor and regulatory burdens point to a meager 0.4% growth in 2024, the IMF forecasts.
The country’s tourism and aviation sectors are heavily propped up by the domestic market, which by most estimates represented anywhere from 75% to 90% of the $9.9 billion total in 2023. But Brazil’s domestic air travel capacity is now 15% greater than in 2019, according to IATA, and despite the country’s undervalued currency, PhocusWright predicts travel-sector revenue will grow by 17% in US dollar terms, to $11.6 billion in 2024.
“The outlook is very promising,” says Ana Carolina de Souza, head of the Brazilian Association of Travel Agents, a 2,500-business-strong trade group. “Despite the infrastructural gaps, the entire tourism sector structure has improved, further professionalized, and streamlined to better cater to travelers. We obviously hope to attract even more international tourists, but the biggest growth driver is still the domestic one.”
Another optimistic voice is that of Daniel Topper, CEO of (OTA) Zarpo, a package-oriented Brazilian online travel agency that focuses heavily on the domestic market.
“The quality and resilience of the Brazilian market are strong,” he says. “This means we cater to several niches, but mostly domestically.” Zarpo grew by a double-digit percentage in 2023 to a revenue of BRL150 million ($31 million), Topper reports.
Serra Verde Express, Brazil’s largest tourist-train operator, runs the famous Curitiba-Morretes line through a mountainous section of rare Atlantic rainforest. The company enjoyed 17% revenue growth over pre-pandemic levels in 2023 and expects further growth of 12% this year. The numbers are telling because rail travel demand is vastly underserved in Brazil. And while the line is known internationally among fans of train journeys, domestic tourists were responsible for 97% of passenger sales in 2023.
The upshot is that despite Brazil’s tourism potential, the country receives an average of only six million foreign visitors per year; by comparison, the Dominican Republic saw 10 million international arrivals in 2023. Brazil’s problems, including lack of adequate infrastructure across the travel industry and poor air connectivity, are common throughout the region.
“Airlines are poorly impacted across Latin America due to undervalued local currencies against costs fixed in US dollars, poor infrastructure, extremely heavy taxation, and overregulation,” says IATA’s Cerda. “However, there are also many opportunities, with ample room for policy flexibilization, public-private partnerships, competitiveness, passenger experience, and—crucially—improved connectivity among both first- and second-tier city pairs.”
The introduction of narrow-body, long-range twin jets like the Airbus 321XLR should open the door to new routes into the region that previously did not make economic sense, Cerda notes. “Despite the challenges, I am very optimistic about the regional prospects in 2024,” he concludes.
