MEXICO CITY (BLOOMBERG) - In the spring break capital of Cancun, Mexico, hotel occupancy has tumbled 10 per cent this year. As bad as that is, over in Los Cabos, on the tip of the Baja California peninsula, it's worse.
The airport serving Cabo San Lucas and its lesser-known sister city, San Jose del Cabo, is looking emptier these days. And hotel guests have cancelled 35,000 nights of bookings over the next year - collectively a decade's worth of visits for a single traveller.
At a time when the weaker peso should be luring American travellers in droves, many are staying away, spooked by a wave of violence that has come dangerously close to tourist hot spots.
Gunmen opened fire at a Cancun nightclub in November, and a cooler with two human heads was found on Cabo San Lucas's main hotel strip in June. But the biggest blow came on Aug 22, when the US State Department issued a travel warning advising tourists to steer clear altogether.
"Group tourism automatically went down the moment the warning hit," said Carlos Gosselin, head of the hotel association for Cancun and Puerto Morelos. Many insurance companies likely will not even consider offering coverage in areas under advisory, hurting conventions and events in the area, he said.
Mexico is reinforcing security in popular tourist spots to get the State Department to revise its views, and companies including Hilton Worldwide Holdings Inc. and Marriott International Inc. are spending millions to make guests feel safer.
Their motivation is clear: Barclays Plc estimates that a drop in tourism could wipe out as much as 0.5 percentage point from Mexico's gross domestic product growth this year.
"Lower tourism activity will definitely have an impact on growth," said Marco Oviedo, head of Latin America economic research at Barclays. "External tourism is one of the most important sources of income in the current account."
Mexico gets about US$20 billion a year from tourism. With murders quadrupling in Los Cabos and doubling in Cancun this year, a chunk of that revenue may be at stake. Quintana Roo, the state where Cancun is located, is the destination of a third of all the nation's international tourists.
In Los Cabos, local and federal authorities are teaming up with hotels, time-share companies and the airport operator to step up the area's security.
The group is spending US$50 million to increase surveillance cameras to cover the 20-mile main stretch that includes hotels, restaurants and public beaches. A new military facility, paid for in part by the private sector, will be built near a highway to respond to any activity spotted on the cameras. It is set to open in the second quarter of 2018.
"We understand and appreciate that travellers are more concerned than ever about their safety and security and we have rigorous security procedures in place at all of our hotels in Mexico," Marriott said in an e-mailed response to questions.
"Mexico continues to be a desirable destination for visitors from around the world and we've had very few cancellations for holiday season due to this matter."
But the slowdown in Los Cabos since the travel warning is starting to show in other areas. International passenger arrivals dropped 2 per cent in September, the first decline in three years, and compares with a 20 per cent average gain for most of this year, according to airport operator Grupo Aeroportuario del Pacifico SAB and the Los Cabos Tourism Board.
Other factors such as hurricanes and earthquakes in recent months contributed, said Rodrigo Esponda, managing director of the tourism board.
American Airlines Vacations LLC, which packages trips to beach destinations in Mexico, said business had been rising about 25 per cent from a year earlier-until the travel warning torpedoed demand.
Online-booking site Best Day Travel Group has also seen a slowdown in reservations for the end of the year, said director Julian Balbuena. Los Cabos is the hardest-hit destination with a 6 per cent drop, he said.
"We were having a good year for Mexico in particular," said Eduardo Marcos, president of American Airlines Vacations.
Gosselin, from the hotel association, said the travel warning went too far and may have been influenced by a shift in US policies towards Mexico following the election of President Donald Trump.
There are also signs the alert's effect on tourism is waning, he said, as the peso is still trading about 26 per cent below its 10-year average. Marcos also said he thinks bookings will pick back up.
Even so, the hotel association is putting up 10 million pesos (S$708,328) for a marketing campaign aimed at attracting more American tourists to Cancun hotels, Gosselin said. The move came after hotel occupancy growth fell from a clip of about 2 per cent last year to a drop of about 10 per cent, he said.
"Ninety per cent of the economic activity here is tied to tourism," Esponda said in a phone interview from Los Cabos. "That's why security has to improve. We need tourism to continue improving people's quality of life-and it's a shared responsibility."