Mexico Tourism Report Q1 2009

Tourist Arrivals Slow in Q1-Q309 According to the Ministry of Tourism (Sectur), tourist arrivals in the first nine months of the year totalled 16.8 million. This represented a minimal increase from the same period in 2007, when tourist arrivals reached 16.0 million. This bears out our view that tourist arrivals into Mexico are slowing, given that arrivals in H108 had grown by 4.6% y-o-y. Tourist arrivals during the year reached their highest figure in July, at 2.14 million arrivals, reflecting the peak of the summer holiday season. However, arrivals fell back sharply in September, to only 1.45 million, the lowest monthly arrivals figure in 2008.

This downturn in tourist arrivals reflects the ongoing impact of the global economic slowdown, with fewer tourists able to visit Mexico, especially given the increase in air ticket prices owing to the oil price spike in the first seven months of 2008. However, we are encouraged that border tourists (defined as those who cross the border for one night before returning) are remaining steady, totalling 6.77 million in the first nine months of 2008, up from 6.32 million in the same period in 2007, representing growth of 7% yo- y, far higher than overall tourist arrivals growth. This reflects visits from Mexican nationals living in the US to Mexico, which will remain steady despite the economic downturn. As such, we maintain our forecast for arrivals of 21.7 million in 2008, although the risks are to the downside.

Murders Surpass 5,000 By December 2008 the number of murders in Mexico had reached 5,031, a significant increase on the 2,700 recorded in 2007. The security situation has worsened sharply in 2008, with kidnappings as well as murders on the increase. The worst of the violence is situated in the border areas where the drug cartels are struggling for control of the transport routes into the US. We do not expect this violence to affect border tourism to a significant extent, given that cross-border flows are often Mexicans visiting their families and are therefore locked in. However, the general perception of Mexico as a tourist destination is worsening, with globally publicised violence increasingly deterring tourists from visiting the country owing to security considerations.

Budget Focuses On Tourism The 2009 federal budget, approved by Congress in November 2008, earmarks MXN4 billion for the tourism sector in 2009, nearly one billion more than President Felipe Calderon has originally requested.

Nearly 40% is directed towards new development projects, such as a planned MXN122 million resort on the Pacific near Mazatlan. Such an increase in tourism spending reflects the importance placed by the government on sustaining the industry, one of the most important to the Mexican economy. The government appears to be gambling that public investment in the industry will maintain levels of employment during the lagtime until demand picks up again.