The Secret Is Out

AND STILL THEY KEEP COMING

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Ever since the peace agreement was signed there have been high hopes for the tourism industry and it appears that the predicted wave of visitors has indeed arrived upon the shores of Colombia. Last year saw aggressive growth in the sector post the peace accord however wherever you looked this year the expectation was for a more modest expansion, mid single figures in most cases however thus far that has not been the case with numbers driving upwards once again however they need to be bored down into a touch to get the real picture. Overall March saw a total of 363k visitors arriving in Colombia which was a 52.21% increase YoY, when we look at Q1 the total is 1,070,905 which is up 50.17%, way higher than anyone's projections. There is a caveat of course and one we looked at during the Cucuta piece last week, the mass of Venezuelan's crossing the border, I found myself at the immigration office in Medellin yesterday and it was inundated with those arriving from the neighbouring country. So what if we strip out Venezuela ?

Well there is a dramatic effect because as an individual country it has contributed fully 68% of the extra people arriving in Colombia this far in 2018. Venezuelans passing through the border have risen 206% to 365,698 during Q1 and that has the effect of lowering the total increase from 50.17% to 18.68% once excluded. That is still a good number considering we have already seen healthy increases over recent years, just not as sexy as the headline. Also it is no great surprise that 64% of all visitors are from Latam & Spain but that to is perhaps an opportunity, the US is also a major contributor but in part that is due to the number of Colombian's living north of the Rio Grande - when we look away from those three areas the numbers are more modest with the rest of the world contributing 19.55% to the total, surely that number will grow over time. Air Travel lf we look to the skies then there is good news for growth in that sector for both those directly involved as well as the economy in general, according to a report from Aerocivil they are expecting a somewhat dramatic increase in air travel over the coming years. If infrastructure improvements at local airports continue at an adequate pace then they are looking for a total passenger number of 94.3mn which compared to the 2017 figure of 35.6mn is a more than two-fold increase and would be almost 5x the number seen in 2010. There is though a conservative end to that projection of 54mn which is still a 51.6% increase from 2017 and that would be Aerocivil's estimate if infrastructure isn't improved quickly enough and Bogota will be key to that given that El Dorado airport will account for 71.8% of that top end estimate of 94.3mn passengers. Already plans are afoot, with Grupo Argos heavily interested, to expand even further El Dorado in terms of both square footage and runways - a second airport has long since been mooted in order to transfer the slower traffic such as private planes and helicopters which cause a log-jam on a daily basis - there are clearly weather issues which cause problems but the hope is that technology can help. It is worth noting that Heathrow operates around 5x the traffic of Bogota on the same number of runways so potential there certainly is. Cartagena which is another key airport for tourism is already subject to a PPP proposal from Grupo Argos, it will be some time before we hear if it is confirmed and several years before completion but it is the direction in which the country needs to move. Other regional airports under the stewardship of companies such as Asur will also have to up their game in order to have capacity to accommodate the extra planes required for expansion. In terms of airlines Avianca are still by some stretch the top dog in terms of passengers carried but the panorama is slowly changing with LCC Viva Air now having eaten a chunk of the market and with 50 new planes scheduled to arrive in the region (they already service Peru) they will be looking for more space to operate including servicing new routes. As for Avianca there are still many questions over the United Airlines and their potential cash injection however one thing appears clear and that is the expansion into more and more international routes, many of them to be funneled through their El Salvador hub with potential in the future presumably to link into the United network. Since the pilots strike there have been extensive problems for the carrier in getting back on an even keel in Colombia, they have dispatched close to 200 pilots and that has an impact as new pilots into the airline need to be trained and many legacy routes have now been taken out of service whilst they organize. It may be (and is well whispered) that they will prioritize the international business over domestic in terms of expansion, that is good news for locals looking to travel who have already seen a doubling of international destinations from Colombia to 60 since 2007, as well as investors as it is those longer haul routes that provide much better returns. Locally the squeeze on margins is set to continue as more LCC airlines arrive and Avianca are perhaps wise to look at alternative international routes. Cruises Ever since Cartagena reappeared on the global travel map a decade or so ago the cruise companies and been lobbying to moor-up in the old city and whilst this may have come at a cost in terms of tourist pollution as the ancients streets get cluttered with camera wielding passengers there is no question that the city is firmly on the Caribbean circuit for the major companies. Looking at the data for Q1 we find that 160k passengers have arrived on a total of 86 cruise ships, that is a 14.17% increase - those who know more about the sector would suggest this is despite the poor infrastructure at Cartagena which again provides upside potential. Hotels Finally the hotel sector despite an enormous growth in beds available has seen a surge in occupancy levels over the past 12 months and the Tourism Ministry reports that the figure over the first two months of 2018 stood at 55.8%, up from 55.1% a year ago. If we glance across to the DANE figures we find an even rosier picture with 56% in February versus 53.5% a year before. So overall a pretty tidy situation within the travel & tourism sector and perhaps one highlight is that the region of the country, albeit off a low base, with the highest growth in visitors is Nariño in the very south of the country and previously off-limits for many before the peace agreement it has seen a 569% increase to 150,225 during the first quarter of the year as pilgrims arrive at Santuario de las Lajas which could have been transplanted directly from the pages of JRR Tolkien.

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