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These Beaches Have Taken A Beating...But The Peso May Come To The Rescue (Int'l Edition)


Business Week International Spotlight on Cancun

THESE BEACHES HAVE TAKEN A BEATING...BUT THE PESO MAY COME TO THE RESCUE (int'l edition)

For two decades, Cancun has been the sparkling jewel of Mexico's tourist developments. The 17-kilometer-long peninsula of white sand, turquoise water, and five-star hotels has attracted millions of foreign tourists and spurred development in the region. Envisioned in the late 1960s by a group of Mexican bankers as an ideal way to generate foreign currency, the resort on Mexico's Caribbean coast for years looked as if it could do no wrong. Tourists, especially from the U.S. and Canada, flocked to the development, drawn by the resort's claim of 243 sunny days a year.

Then came the ferocious winds and waves of Hurricane Gilbert in September, 1988. The storm smashed windows and drenched hotel rooms. But worse, the waves destroyed coral reefs and eroded Cancun's beach in many places, leaving many luxury hotels without a sandy expanse to offer their guests. Hotel occupancy, which had averaged 80% before the big blow, plummeted to 56%.

Even though Cancun's hotels were completely repaired within months and some beaches began the natural process of recovering their sand, tourists stayed away, convinced that the resort was still in ruins. Although Mexico itself remained a favorite destination of American tourists, only through massive promotions and supercheap packages were Cancun's hoteliers able to boost occupancy to 73% by 1993.

But Cancun no longer was a bargain vacation. As Wall Street investors parked their money in Mexico's stock market, the peso rose in value, and Mexico began to lose its reputation for bargain-basement vacation deals. With hotel rooms costing $185 a night and meals running $30 and up per person, vacationers started shunning Cancun for cheaper venues, even Hawaii.

A growing taste among travelers for eco-tourism and adventure tourism also hurt Cancun. In its heyday, American tourists liked Cancun because the U.S.-style resort offered them a home-away-from-home atmosphere, an experience insulated from Mexican poverty and language differences. Today, an increasing number of tourists prefer to experience Mexico's culture, climb pyramids, and explore the country's caves and white-water rivers.

The uprising by Zapatista guerrillas in Chiapas that began in January, 1994, made matters worse. Even though the clashes with government forces were in the jungle and villages 650 km southwest ef Cancun, plenty of skittish tourists decided to stay clear of Mexico altogether. "We were beginning to think we just couldn't win," says Mara Esther Namur Jurez, the state tourism director in Cancun.

Finally, however, there is some good news: Mexico's 40% devaluation of the peso is an unexpected boon for Cancun and for the rest of the country's tourism areas. Practically overnight, Mexico has become much cheaper for foreign tourists.

Because the peak U.S. tourist travel to Mexico occurs in the first quarter, it's impossible to pinpoint the impact of the devaluation of the peso. Most travelers have already booked and paid for their passage weeks, even months, ago.

But according to one of the biggest travel agencies, inquiries from potential vacationers about Mexico are up by at least a third since the Dec. 20 devaluation of the peso. At Minneapolis-based Carlson Wagonlit Travel, with 4,000 agency affiliates worldwide, Director of Leisure Marketing Marcie M. McCarthy notes that most vacation packages to Mexico--Carlson booked 125,000 of them in 1994 at an average package price of $720--are prepaid in dollars and cover air fare and hotel.

McCarthy says savings will occur where the visitors will be paying in pesos--restaurants or retail purchases, for example, either in cash or on a credit card. The big question is whether, as seems likely, hotels will lower their dollar-based rates in order to attract more business, allowing tour operators to reduce package prices.

Mexico starts with an advantage, anyway. A poll conducted in December by Carlson found Mexico to be the favorite winter destination of U.S. vacationers.EDITED BY JOHN E. PLUENNEKE By Geri Smith in Cancun


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