Thesis: Brazil Hospitality and the 2014

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[. . .] Accor intends to build 85 new hotels in Brazil in the period up to 2015 (Embassy of Denmark, 2010). This will increase the number of hotel rooms it has by 5000. This will be achieved through expansion of their 20 Formule 1 and Ibis hotels. The hotel chain is also remodeling 31 of its 65 Mecure hotels and 8 of its 51 Ibis hotels. These will cater for economy class tourists. Atlantica currently operates 72 hotels in Brazil (Embassy of Denmark, 2010). It is planning to build 28 more hotels. Sol Melia is a Spanish hotel chain that currently owns 24 hotels in Brazil; nine are in Sao Paolo, three in Brasilia, and two in Reis. They have not announced their expansion plans. Grand Hyatt Sao Paolo is a five-star hotel in Sao Paolo that has 466 rooms and suites (Embassy of Denmark, 2010). They are focusing their expansion on under-penetrated market in Brazil. Hilton has two hotels and Resorts. One is in Sao Paolo and another in Belem. The chain is intending to open up in Salvador. Marriott International chain of hotels has two hotels in Sao Paolo, one in Rio, and Marriott Executive Apartments in Sao Paolo which has 114 apartments (Embassy of Denmark, 2010).

Blue Tree hotels have 22 hotels and resorts. It has 9 hotels in Sao Paolo, one each in Recife, Porto Alegre, Florianopolis, Curitiba, Joinville, and Brasilia. It also owns the beach resort Blue Tree Park Cabo de Santo Agostinho in Parnambucho, beach and mountain resort Blue Tree Park Angra dos Reis in Rio, and the Blue Tree Park Brasilia (Embassy of Denmark, 2010). The Hoteis Othon group offers more than 5,000 rooms in more than 40 properties. The Intercontinental Group operates 12 hotels across Brazil including InterContinental, Crowne Plaza, Holiday Inn, Holiday Inn Express, and Staybridge Suites. The group is planning to build two Holiday Inn hotels and four new Holiday Inn Express hotels (Embassy of Denmark, 2010). The Brazil Hospitality Group manages 31 hotels in large urban centers. The Orient Express units are Copacabana Palace in Rio de Janeiro and Hotel Cataratas in Iguazi Falls. Pestana operates seven hotels in Brazil (Embassy of Denmark, 2010). It manages nine hotels in six of the 12 World Cup2014 host cities. Rio Atlantica Hotel and Angra Hotel are some of the units it owns (Embassy of Denmark, 2010).

Brazil has economic classes and this significantly affects the domestic demand for hotels fostering the development in new hotels and the occupancy on the whole. Brazil's middle class has reached 50% of the total population. Consumers have more disposable income to spend on leisure time as travels. This trend is expected to continue over time. By 2014, the middle class are expected to represent 60% of the total population. This falling in class AB spends more money in leisure time than the middle class (Paula R., 2013). This spurs the demand for luxury hotel affecting positively the domestic demand in the hotel industry. Brazil is blessed with massive natural resources to be exploited. The economic development in the country is driving to a significant business demand in the Hotel Market from Brazilian people. The tendency is reinforced by the important foreign investment in the country. Business travels are organized to manage investments in Brazil by international firms. These firms have to stay in the country during some days to manage the investment. This increases hotel occupancy. Because of improved capacity and technology the Brazilian airspace is connected to the rest of the world. Major airlines operate in its myriad international airports. A financial indicator used in the hotel industry is Average Daily Rate (ADR).

The ADR measures how well a given hotel performs compared to its competitors and itself. The ADR increases gradually raising the revenue generated by a hotel. It is not healthy to use this indicator to describe the financial health of a hotel as it never takes into consideration the occupancy. Another performance indicator used is Revenue per Available Room. This performance metric is calculated by dividing a hotel's total guestroom revenue by the room count and the number of days in the period being measured (Mignonac, 2012). The metric can also be calculated by multiplying a hotel's average daily room rate by its occupancy rate. The Revenue per Available room growth in Brazil continuously increases over time due t high economic growth in the hotel sector. In 2010, Brazil recorded revenue per available room growth of 17.3 per cent. The booming domestic and international travel demand continues to drive up occupancy and average daily rates. The rise in ADR is outpacing Brazil's GDP growth (Mignonac, 2012). This is a clear sign that the sector is recovering. This has transformed the Brazilian Hotel investment into an attractive market. The hotel industry faces management challenges. Rampant corruption in Brazil forces investors to find managers who can work better in this environment. The country also lacks skilled developers with enough experience and ability to manage massive development strategies in the hotel industry. Another limitation in new hotel development in Brazil is the relatively low ADR level (Mignonac, 2012).

Despite the fact that there have been previous indication in ADR increase, its level still remains low compared to other major lodging markets. The low ADR is attributed to high building pace of condominium hotel projects in the late 1990's (Mignonac, 2012). Land price is also an issue for the investors in the hospitality industry in Brazil. The cost of land in urban centers is very high. This is an impediment to investors because hotels do not generate enough returns to meet investors' expectations. Developers are often faced with the challenge of lack of suitable land for hotel development. This drives up urban the price of land parcels (Selvanayagam R., 2013). The situation is likely to persist with the growth in occupancy rate or continued increase of the ADR rate (Mignonac, 2012). The hotel stock in Brazil is getting old. In fact, the average age of any hotel in Brazil is 30 years. This calls for upgrading. There is a lodging shortfall of approximately 62000 rooms in Brazil for the 2014 World Cup (Mignonac, 2012). The hotel industry in Brazil therefore requires repositioning and redevelopment. Generally, the hotel industry shows good prospects and a long-term investor in the hotel sector stands to reap a lot from the 2014 World Cup. However, some pertinent issues that have to be first of all addressed are lack of transparency, weak brand recognition of hotel brands, and low marketing initiatives from hotel brands. With regard to infrastructure development, the government has to ensure that it addresses the underinvestment rate in their infrastructure especially in the road and railway sector. Brazil invests a paltry 0.1% of its GDP in improving their transportation. The World Bank Growth Commission has recommended that the Brazilian government invest 7% of its GDP in infrastructural development in order to reach its potential economic growth.

The upcoming World Cup and opening of new hotels in major cities is likely to cause fluctuation in occupancy rates. Seasonal peaks protract demand pressures and allow new rounds of price increases above inflation. Occupancy rates in midscale and upscale categories are always lower compared to the economy category. This is likely to increase in the run up to the 2014 FIFA World Cup. There will be accentuated increase in room rates (Hotel Invest, 2012). This will widen the gap between the prices of midscale and upscale categories and those of economy hotels. The number of developments planned is on the rise considering the recent activities of investors and incorporators in the recent past. The volume of investments forecast in the hospitality industry has markedly increased. Projects are being considered from the north to the south. To allay fears of shoddy work, Manual of Hotel Best-Practice that consolidates recommendations on how to structure hospitality ventures in a professional manner has been launched (Hotel Invest, 2012). The manual is an input of relevant professionals in the tourism and real estate and the main players in hospitality. The increase in upscale markets demand after the opening of the Windsor Atlantica Hotel shows that the economy is heating up in the City of Rio de Janeiro. There are instances when those interested in visiting certain cities and staying in upscale hotels end up cancelling their visits to such cities due to lack of availability during the period in which they wish to travel (Hotel Invest, 2012).

As the reality of a surge in tourists expected to grace the 2014 World Cup sinks in home owners have started renting out their houses for accommodation purposes. Meanwhile organizers from FIFA and tournament sponsors have started making mass hotel bookings for next summer (Cha, 2013). Private home owners have also taken the cue and are renting out apartments for the World Cup period. This has been prompted by a perception that a large number of travelers will have to look for alternative accommodations like private… [END OF PREVIEW]

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APA Format

Brazil Hospitality and the 2014.  (2013, September 6).  Retrieved May 20, 2019, from https://www.essaytown.com/subjects/paper/brazil-hospitality-2014/5446681

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"Brazil Hospitality and the 2014."  6 September 2013.  Web.  20 May 2019. <https://www.essaytown.com/subjects/paper/brazil-hospitality-2014/5446681>.

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"Brazil Hospitality and the 2014."  Essaytown.com.  September 6, 2013.  Accessed May 20, 2019.
https://www.essaytown.com/subjects/paper/brazil-hospitality-2014/5446681.