Grupo Posadas, S.A. de C.V.

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Grupo Posadas, S.A. de C.V.

Paseo de la Reforma 155
Mexico, D.F. 11000
Mexico
Telephone: (52) (55) 5326-6700
Toll Free: (800) FIESTAl
Fax: (52) (55) 5326-6701
Web site: http://www.posadas.com

Public Company
Incorporated: 1967 as Promotora Mexicana de Hoteles
Employees: 11,164
Sales: 3.83 billion pesos ($366.02 million) (2002)
Stock Exchanges: Mexico City; OTC (ADRs)
Ticker Symbol: POSADAS; GRPALP; GRPYP
NAIC: 721110 Hotels (Except Casino Hotels) and Motels

Grupo Posadas, S.A. de C.V., based in Mexico and owned by Mexicans, is the largest Latin American operator of hotels in Latin America and is the biggest hotel operator in Mexico. The company owns and/or operates hotels in Mexico under the Fiesta Americana, Fiesta Inn, and Explorean brand names; in Brazil and Argentina under the Caesar Park and Caesar Business names; and in Texas chiefly under the Holiday Inn name. Grupo Posadas has survived and grown despite the mid-1990s economic crisis that sent its two biggest Mexican competitors into bankruptcy and the drop in foreign tourists that followed the terrorist attacks on September 11, 2001.

Building a Hotel Chain: 1967–92

The company was founded in 1967 as Promotora Mexicana de Hoteles by Gaston Azcarraga Tomayo, a cousin of Emilio Azcarraga Milmo, who developed Grupo Televisa, S.A. de C.V. into a giant Mexican media conglomerate. Azcarraga Tomayo entered the hotel business with the construction and operation of the Fiesta Palace (now the Fiesta Americana Reforma) in Mexico City, which opened in 1970. Soon after entering the business he sold his auto-assembly factories to Chrysler Corporation and invested the funds in 1969 in a partnership with Americana Hotels, a subsidiary of American Airlines. This partnership, Operadora Mexicana de Hoteles, began operating luxury hotels such as the Condesa del Mar (later Fiesta Americana Condesa Acapulco) and the El Presidente Acapulco. The change in operation marked a more businesslike approach to five-star lodging on the Mexican gold coast. The partnership added another tower of rooms to El Presidente, elevating its capacity by 400 rooms, but appalled one observer by soliciting group business, filling the lobby with stores, and covering the marble floor of the lobby with acrylic rugs. The luxury-class Fiesta Americana chain was founded in 1979 with the opening of a hotel by that name in Puerto Valletta. Two more Fiesta Americana hotels opened their doors in 1982, in Cancun and Guadalajara. The partnership was now called Hoteles Fiesta Americana.

In 1982 Hoteles Fiesta Americana merged with Posadas de Mexico, which had been established in 1969 by Pratt Hotel Corp., a U.S. company that was the exclusive operator of franchised Holiday Inn hotels in Mexico. The merged enterprise, which retained the Posadas de Mexico name, became the largest Mexican hotel company, operating 13 hotels. During the 1980s Azcarraga decided to focus on building the Fiesta Americana chain. Between 1984 and 1988 Posadas de Mexico built three more Fiesta Americana hotels in Cancun and nearby Cozumel Reef in partnership with Swiss and German banks and also consolidated its position as an operator of hotels. In 1989 the Azcarraga family bought Pratt’s half of the company. Gaston Azcarraga Andrade, son of the founder and a graduate of Harvard University’s business school, became general manager of the company that year. Posadas de Mexico now had 30 hotels and, under Azcarraga Andrade’s direction, had expanded its operations to Texas. He succeeded his father as the president of the group in 1993.

Expansion Amid Adversity: 1992–2002

Taking the name Grupo Posadas, the company went public in 1992, selling shares both in Mexico City and New York This enabled the company to open residential developments in the beach resorts of Ixtapa and Arcano and to change its focus for Fiesta Inn, a moderately priced hotel chain initially placed in four beach resorts. As revised, Fiesta Inns were placed in cities and its rooms priced at only one-quarter that of the Fiesta Americana chain because they limited services to those needed by the business traveler rather than the tourist. Fiesta Inns were laid out in such a way as to encourage guests to spend their money without leaving the hotel and featured such cost-control features as separate electric circuits for each floor so that areas unoccupied during slow periods could be cordoned off and shut down. The cities chosen as hotel sites—Aguascalientes, Chihuahua, Colima, Culiacan, Puebla, and Tepic—were seen as those most likely to benefit from the impending North American Free Trade Agreement. By this time Grupo Posadas, through Swancourt, a U.S. affiliate, also owned a Sheraton Fiesta in San Antonio, Texas; Holiday Inns in Me Allen and Laredo, Texas; and a Hampton Inn in Buena Park, California.

The sudden devaluation of the peso in late 1994 was damaging to Grupo Posadas, which suffered nearly $40 million in foreign-exchange losses because most of its debt was in dollars. This left the highly leveraged group with only $140 million in equity and $260 million in debt. However, Grupo Posadas found it could make a profit in the ensuing recession because it charged foreigners in dollars while covering its costs in devalued pesos. Gross operating profits rose 60 percent in 1995 (although the company still incurred a net loss that year as well as the previous one). In addition to 17 Fiesta Americana and 14 Fiesta Inn hotels, Grupo Posadas was managing Crowne Plaza hotels in major Mexican cities and Holiday Inns in smaller ones. Sixty percent of its rooms were located in cities and 40 percent in beach resorts. Grupo Posadas’ 40 hotel holdings in the summer of 1996 were a combination of company-owned units, joint ventures, and management contracts. The group was the majority shareholder in 20 hotels, a minority investor in ten more, and the operator only of the remaining ten. That year Fiesta Americana was cited by World & Travel News as Mexico’s best hotel chain.

In 1996 Grupo Posadas and Morgan Stanley & Co. announced plans to invest about $200 million over the next 18 months to buy a number of Mexican hotels. The group failed in its effort to buy the bankrupt Camino Real chain but continued to open new hotels. It entered the South American market in 1998 by purchasing three Caesar Park hotels in Buenos Aires, Rio de Janeiro, and Sao Paulo, and taking operation of a fourth in Fortaleza, Brazil, for $122.7 million from Grupo Aoki, a Japanese investment group. “Caesar Park is the most recognized luxury brand in Brazil,” Azcarraga told Megan Rowe of Lodging Hospitality the following year. “That’s one of the important reasons why we bought it.” He hoped to expand the chain to other Latin American capitals through a combination of joint ventures and management contracts. Soon after, Grupo Posadas introduced the Caesar Business brand for the mid-level business traveler. The first two were constructed in Sao Paulo as part of a joint venture with Brazilian real estate firm Inpar Construcoes e Empreendimientos Imobiliários. Because of economic woes in both Brazil and Argentina, the South American units were bringing in less than 10 percent of Grupo Posadas’ total revenue in 2002. Occupation of hotel rooms in the Caesar chains was running at only 45 percent nightly.

Grupo Posadas launched yet another brand, Explorean, in 1998. Aimed at the adventure traveler seeking luxury as well as exoticism, the first Explorean, a 40-room hotel in a densely tropical-forested area of Yucatan near the seldom-visited Mayan ruin of Kohunlich, offered a range of activities in addition to the usual swimming, snorkeling, and scuba diving that attracted visitors to the area. Guests were able to observe native wildlife such as pumas, jaguars, toucans, and spider monkeys, explore deep wells, and take jungle walks. A second, 80-room Explorean opened at Costa Maya in 2000. Grupo Posadas hoped to expand the chain to other Central American sites with significant historic or environmental features.

In 1999 Fiesta Americana introduced a new category of service called Fiesta Americana Grand. This class of hotel was designed especially for the traveler or tourist who, according to the company, was seeking luxury, comfort, and elegance combined in perfect harmony. Another 1999 innovation was the establishment of Club Vacacional (Vacation Club), a timesharing scheme being developed at Cancun and Los Cabos beach properties in alliance with Hilton Grand Vacation Club and Resort Condominiums International.

Immediately following the destruction of the twin towers of the World Trade Center in New York City in September 2001, the number of foreign guests in Grupo Posadas hotels fell by more than 65 percent. The company kept afloat with heavy promotions directed at the Mexican market. It closed the year with a 4 percent drop in revenues and a 38 percent fall in profits. The ensuing winter went well because, like foreigners, Mexicans were not much inclined to leave their country.

Grupo Posadas in 2002

At the end of 2002 Grupo Posadas was operating 71 hotels with 13,837 rooms, making it the fourth largest hotel operator in Latin America and the largest in Mexico, where there were 57. Thirty-four were owned by the company, either exclusively or in partnership with others; 26 were the property of others and administered by the company; and 11 were leased.

Company Perspectives

Develop valuable brands that speak to the consumer’s preference today, tomorrow and always, over other hotel chains. Consolidate a portfolio of clearly defined, consistent and well differentiated brands that are the best option for the investor in each market. Have a broad portfolio of flexible brands that enables us to consolidate our leadership in Latin America. Have the best team of collaborators in the industry for guaranteeing the fulfillment of each brand’s promise to the target market.

Grupo Posadas had 19 Fiesta Americana hotels (including three Grand Fiesta Americanas) and 35 Fiesta Inns in Mexico. Some Fiesta Americanas were in coastal resorts, while the remainder were urban properties. The resorts tended to draw about two-thirds of their business from the United States; the urban ones mainly served Mexican business travelers. All Fiesta Inns were of new (post-1992) construction. Competitive with such U.S.-based hotels chains as Courtyard and Hampton Inn, they were also aimed primarily at the Mexican business traveler. Those located in large metropolitan areas were placed in the suburbs rather than the center.

The five Caesar Park and two Caesar Business hotels were in Brazil, except for the Caesar Park Buenos Aires. In addition to the two Exploreans, Grupo Posadas owned and operated the Aeropuerto Plaza in Mexico City and administered a Holiday Inn in Merida. The group owned and operated four hotels in Texas and managed two others. Four of the six were under the Holiday Inn name; another was a Sheraton Fiesta, and the sixth was a Residence Inn.

Grupo Posadas was renting rooms through a web of links that included its own online sites and call centers and also through intermediaries such as travel agencies; wholesalers of hotel rooms; event organizers; global reservation systems such as Apollo, Galileo, and Sabre; and agreements with large enterprises. The company’s publicity efforts included television advertising and programs such as Fiesta Rewards for frequent guests. Intermediaries were taking some 30 percent to 40 percent of the retail cost as commissions. Dependence on wholesalers was particularly expensive, but in high season a beach-resort hotel might receive 60 to 80 percent of its guests by means of an all-expense package from Mexicana Airlines or Apple Vacations, giving them the leverage to make or break a hotel. Mexicana was flying 400,000 passengers a year—mainly Mexicans—to Grupo Posadas’ hotels.

In order to avoid its dependence on intermediaries, Grupo Posadas had introduced toll-free calls at reservation centers and was offering two vacation packages: Fiesta Break for the foreign market and Days of Fiesta for the Mexican market. Fiesta Rewards was a frequent-visitor program with more than 800,000 members qualifying for such benefits as preferential prices. These efforts accounted for about 30 percent of all Fiesta Americana and Fiesta Inn rooms sold. The company’s parallel effort in the United States was tied to the reservation systems of Holiday Inn and others.

Some 40 percent of the shares of Grupo Posadas were being quoted on Mexico City’s stock exchange in 2002, with Banco Nacional de Mexico (Banamex) the principal public stockholder. Banamex also had extended the company a $50 million credit line. But Grupo Posadas’ major source of growth had come from the investors who had bought 47 percent of the rooms in its hotels. This kind of investment had enabled Grupo Posadas to expand without incurring major debt. Of the 31 hotels under development in 2002 at a cost of $149 million, Grupo Posadas was putting up only $4 million. The company reported revenue of 3.83 billion pesos ($366.02 million) and operating profit of 72.1 million pesos ($6.89 million) in 2002.

Principal Subsidiaries

Fondo Inmobiliario Posadas, S.A. de C.V.; Inmobililaria Hotelera Posadas, S.A. de C.V.; Operadora Mexicana de Hoteles, S.A. de C.V.; Posadas USA, Inc. (U.S.A.); Sudamerica en Fiesta, S.A. de C.V.

Principal Operating Units

Developments; Franchises; Operations.

Principal Competitors

Accor S.A.; Best Western International Inc.; Real Turismo, S.A. de C.V.; Six Continents PLC; Sol Melia, S.A.; Starwood Hotel & Resorts Worldwide Inc.

Key Dates

1967:: Gaston Azcarraga Tamayo enters the hotel business.
1969:: Azcarraga’s company enters a partnership with Americana Hotels.
1979:: Fiesta Americana luxury chain is founded.
1982:: The company merges with the operator of Holiday Inn hotels in Mexico.
1992:: The Fiesta Inn chain is aimed at the Mexican business traveler.
1998:: Grupo Posadas enters the South American market by purchasing Caesar Park hotels.
2002:: The company opens six new hotels in Mexico and Brazil.