Brazil Hospitality and the 2014 World Cup dissertation

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Brazil Hospitality and the 2014 World Cup

Brazil is in 2014 expected to host an estimated 50,000 soccer fans from all over the globe. The event is to last for four weeks. The fans are expected to stay in the hotels, eat in restaurants, shop and visit Brazil's many attractions. Hosting an event of this magnitude is a challenge especially for a developing economy like Brazil. However, with careful planning the opportunities accrued from hosting such events may outweigh the challenges it presents (PWC, 2010).

Tourism has traditionally been neglected in Brazil with the Ministry of Tourism established only in 2003. International tourism picked up only quite recently. There are 5.2 million international tourists going to Brazil every year. This is still below its potential capacity considering the number of tourist attraction sites it has (Embassy of Denmark, 2010). The tourism sector in Brazil focuses more on domestic tourism which the government deems more important. The hotel industry in Brazil is becoming increasingly attractive. Despite of all these, Brazil still lacks a more consolidated hotel industry. There are also highly attractive markets for entrepreneurial ventures in underdeveloped regions particularly in the northeast. There are well established hotel industries in the south (Embassy of Denmark, 2010).

Investments in the hotel industry are primarily done through the hotels, condo hotels, and mixed use properties where hotels and condominiums are developed together with residential, corporate towers, and shopping malls. Lack of infrastructure stifles Brazil's hospitality industry. Most of the Brazilian cities that have been earmarked to host the World Cuplack the bed space for the visitors like Sao Paulo, Aparecida and so on as depicted by Portal Brazil (2010). Cities like the Natal and Fortaleza found in the North East are the perfect examples here. Brazil is experiencing investment in the hotel industry in the North, North East, North West, South, and South East (Embassy of Denmark, 2010). However, the future of hotel investment in Brazil primarily focuses on the North Eastern part as the region accounts for 48.2% of new investment projects and 83.3% of investment capital. Most businesses in these regions are investing in establishing new resorts. The cities that will host the FIFA 2013 World Cupare Manaus, Cuiaba, Porto Alegre, Curitiba, Sao Paolo, Rio de Janeiro, Belo Horizonte, Brasilia, Salvador, Recife, Natal, and Fortaleza will see a rise in the demand for the hospitality which will be supported by the favorable pricing as 37% of hotels are noted to be priced about right and another 37% high but still reasonable by Ernst & Young (2013).

Brazil is considered one of Latin America's fastest growing Travel and Tourism economies. Its travel and tourism sector contributes directly to its GDP. The Travel and Tourism sector contributed a staggering U.S.$79 billion to GDP in 2011 as noted by Olivia R., (2012). This kind of contribution is way much higher than Chile's and Colombia's that are considered its contemporary in the region. Chile and Columbia contributed a paltry 4.7% to the GDP while Argentina and Peru's Travel and Tourism sector contributed 3.7% and 3.6% to the GDP respectively (World Travel and Tourism Council, 2012). When the wider indirect and induced impacts of tourism on the Brazilian economy are brought into perspective, the industry's contribution is nearly three times greater, accounting to an equivalent of 8.65 of Brazil's total GDP. Over 7.7 million jobs in Brazil are supported by Travel and Tourism and its wider impacts (World Travel and Tourism Council, 2012). This accounts for nearly 8% of all employment in the entire Brazilian economy. Despite the fact that international tourism is doing well elevating visitor exports to U.S.$7 billion in 2011, it is the domestic business that is driving growth. In 2011, domestic tourism grew by 6.5% to U.S.$130 million (World Travel and Tourism Council, 2012).

The Brazilian tourism sector is set for positive growth figures if the government and the stakeholders agree to a number of open skies agreements. Brazil hospitality industry, nevertheless, faces a major challenge with two major sporting events coming up and more specifically the FIFA World Cup slated for the year 2014. First of all, the infrastructure has to be improved. Its major airports are operating at overcapacity, it has inadequate port infrastructure, and mostly importantly, it lacks adequate hotel rooms in major cities (United States Department of Transportation, 2010). The government has indeed initiated construction to ensure that such facilities are in place before the World Cup commences. The question is, will the firms in charge of these constructions adhere to the strict deadlines and timetables considering that the time is drawing near and near.

To be precise, there are 114.6 million passengers using the Brazilian airports. By 2014, this figure is projected to rise to a staggering 167 million (Federal Aviation Administration, 2013). This high flow of visitors in Brazil will generate the highly needed revenue and spur growth in the Brazilian economy. The revenue generated by the visitors is expected to increase from the current figures of U.S.$6.58 billion to U.S.$8.73 billion in 2014. The 2014 World Cup will therefore generate 3.63 million jobs per year and R$63.48 billion income for the population over the period of 2010-2014. The government will raise R$18.13 billion in tax collections.

The hotel industry in Brazil faces a mammoth preparation task (Hawkes, 2012). This challenge informed the government's decision to launch a flagship investment program aimed at stimulating economic growth and developing infrastructure. This program will help in putting up infrastructure to be used during the 2014 World Cup. The first phase of the program was allocated $208 billion while the second was allocated $125 billion. The challenge is overwhelming considering that Brazil is now ranked alongside Russia, India, and China as the powerful BRIC emerging economies (Mignonac, 2012).

Because of the number of visitors who are expected to grace the 2014 World Cup, the hotel sector is in a race against time. The industry is literally under spotlight considering that it has never had to deal with an event the size of the FIFA World Cup. The sector is showing the prospects of managing the situation considering the interest the large international corporations have shown with regard to investing in the hotel industry (Jones L., 2012). The biggest headache for the local hospitality industry professionals is trying to ensure that the media attention of the games does not only benefit tourism in Rio, but also the surrounding areas as noted by the Danish Consulate General, (2010). The hospitality sector has to come up with a strong tourism brand that wholly reflects the tourism industry in Brazil as a whole. Brazil has very many big and attractive cities with very small hotel provisions. Brazilian government has made a commitment to make more than 48,000 rooms available for Olympics. This calls for a great deal of investment given the present hotel infrastructure. The Ministry of tourism is expected to invest more than $140 million in the hospitality industry.

The government has since acknowledged its infrastructural inadequacy and has since initiated gap analysis to make a more comprehensive approach to mass transit. The government is soliciting bids to erect monorail that is expected to be of great benefit to fans attending soccer tournaments and businessmen since it has realized that infrastructural inadequacy could be a terrible bottleneck to the achievement of the aims of the government hosting the world cup (Morgan Stanley Research, 2010).

Seven Brazilian harbors have been identified for expansion to accommodate cruise ships turned into hotels. The Manaus harbor's capacity is expected to be doubled and fitted with two floating piers that can house six cruise ships. Having such vessels in place will increase the city's bed space to 12,000 in the run up to the World Cup. Specific projects have been presented for authorities at Salvador, Recife, Natal, Mucuripe, Santos, and Rio de Janeiro (Embassy of Denmark, 2010).

A total of USD 375 million will be sunk into expansion of harbors (Embassy of Denmark, 2010). However, at current valuation, the Brazilian Real is considered expensive for overseas travelers. To spur growth in investment in the hospitality industry, the Brazilian Development Bank BNDES has opened a line of credit with attractive interest rates and terms to Brazilian firms in the hospitality sector (Embassy of Denmark, 2010). The monies are to be used in renovation and expansion of the hotel supply. The funds are also to be used in financing construction, reform, expansion, and modernization of hotels in order to increase the capacity and equality of accommodation for the 2014 World Cup. The program funds tourism projects in the whole country to support the 12 host cities (Embassy of Denmark, 2010). They have special financing conditions for hotel projects certified for sustainability.

Some of the operators in the Brazilian hospitality industry include Accor, Atlantica, and Sol Melia. Accor is the main international operator and is also the second largest hotel chain globally. It operates in 144 outlets throughout Brazil with 22, 809 rooms. The brands under Accor are Ibis, Sofitel,…[continue]

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