The Central Bank of Brazil reported last week that the nation’s economy contracted 0.81 percent in the first quarter of 2015, compared to Q4 2014 which, in turn, shrunk 0.2 percent when compared to Q3 2014. Thus, Brazil is technically in a recession, as two consecutive quarters of decreasing economic activity fit the textbook definition of a recession. The national economy’s performance numbers seem to validate predictions by some economists earlier this year that, after growing just 0.1 percent overall in 2014, Brazil’s economy would contract 1.2 percent this year. If that prediction plays out, it would mean the worst performance by Latin America’s largest economy since 1990. Already, Brazil’s economy has contracted 1.18 percent in the 12 months ending March 31, according to the Central Bank report.
Along with reports of a decline in the amount of credit card purchases—a staple in measuring middle-class spending in most categories of consumption, including travel—it begs the question: Will this have an impact on outbound travel from the No. 4 overseas source market for inbound travel to the USA?
The Good, The Bad and Jogo do Centura: While Inbound awaits the opportunity for in-person discussions with tour operators and trade journalists from Brazil to help answer the question, we were able to cover the presentation at NAJ’s recent RTO Summit East in Manhattan of Celyta Jackson, who has worked the Brazil market throughout her professional career, including five years during which she served as vice president of tourism for New York City & Co. She summed up why she believed that, despite a list of economic and political factors that seem discouraging at the moment to U.S. travel supplier, they will still be able to count on Brazilians: It’s because of “Jogo do Cintura.”
Literally translated as “game waist,” the expression suggests more an attitude that a player takes into a challenging game. For Brazilians, it means “having the dexterity and flexibility to overcome obstacles and situations” said Jackson. “Brazilians have this … tour operators have this, too.” They also have parcelizing, she emphasized at one point, a practice that takes away the pain of consumer payment for a product—including the travel product—by spreading payments out into smaller parcels for 10 to 24 months. Highlights from her presentation follow.
The Bad: One need not be an expert, Jackson suggested, to know that, during the past year, Brazil seems to have fallen from a perch it occupied as “the” hot market. “Brazilians were outspending everyone else,” said Jackson. And then, “something happened.” Within a short window of time, there were these realities:
- China—it seemed as if, suddenly, it became the market that drew everyone’s focus;
- Widespread protests against the amount the Brazilian government spent to host soccer’s 2014 World Cup;
- A contentious presidential election that revealed a sharply divided nation;
- Scandal over far reaching corruption involving Petrobras, the semi public Brazilian fuel and energy corporation that is the largest company in the Southern Hemisphere;
- Inflation that is running an annual rate of nine percent;
- Drought, power outages and mudslides that have plagued urban areas;
- Construction delays imperil the outlook for 2016 Olympic Games to be hosted by Brazil;
- Deficit spending by the government;
- An Increase in credit card interest rates burdens consumers;
- High consumer credit card interest rates; and
- A strong U.S. dollar that has resulted in the most unfavorable current exchange in a dozen years.
- Brazilians love to travel;
- Brazilians were born to travel;
- Travel is in their DNA; and
- They have the time and they have the opportunity … and visas to visit the USA are easier than ever to obtain.
- They especially have the time because “Brazil must have invented the concept of bridge holidays,” said Jackson.
Brazilians and Their Holidays—Official and De Facto:
Because of National Holidays (15), State Holidays and
School Holidays, and “Bridge” Holidays, the Brazilian Holiday Calendar
Looks like this …
The Competition: “Brazilians are still traveling, but they’re doing it differently” Jackson told Summit delegates. While the proclivities of Brazilians suggests that they will travel despite the factors that discourage them, these same factors are making some of them forego their long-haul travel (the USA is the favorite long-haul destination) in favor of domestic travel and travel within Latin America. Also, travel to Europe is competing with Visit USA travel. (“It’s because of Europe’s cultural appeal. Brazilians have a huge affinity for anything European,” explained Jackson. “They think it’s chic.”) A survey of tour operators indicated that bookings for upcoming travel have shifted, with 51 percent favoring domestic travel, with 48 percent booking international trips, with 47 percent of the latter going to the U.S.
Also … The change in the way Brazilians are traveling because of economic challenges also extends to those who do travel to the USA. For instance, Jackson noted, In Miami—it is the number two U.S. destination for Brazilians after Orlando and it is where Jackson is based–many are now staying in B&Bs, are eating in and are doing less shopping. “The exchange rate plus interest rate increase has put a dent into shopping,” she said, adding that the cost of living in Brazil runs about eight percent greater than it is in the U.S.
The Parceling of Payments for Everything: Parcel payment for purchase of a product is a uniquely Brazilian practice, Jackson told delegates. It goes back to 1968 when the Brazilian government, as way of stimulating the economy through increased consumer spending—including spending for travel—had businesses offer consumers the option to pay for their purchases in monthly installments. Usually, there are 10 to 12 monthly payments for a product, but some tour operators have extended the terms to 24 payments.
Asked by Dennis L. Swayne, business development manager for the Blue and Gold Fleet in San Francisco, how far out in advance consumers begin paying for their travel, Jackson surprised delegates when she explained that people travel first, then pay later, pointing out that Brazilian tour operators “have deep pockets; they finance the trip themselves.” As well, she noted, “Brazilians don’t book as far out as travelers from other markets. They’ll make their travel purchase as early as three months out … they’re very spontaneous.”
To illustrate just how deeply rooted parcelizing is in the Brazilian model of doing business, Jackson pointed to such items as iPhones and Nike athletic shoes as items that Brazilians purchase via parceled out payments.
The Tour Operators—What They are for: Not normally a point addressed in such a presentation, Jackson did so because “the principal goal of the Brazilian tour operator is almost more to serve as a financial tool than it is as a travel planner,” adding that “the line between tour operators and travel agent is almost imperceptible.” Many travel agencies, she explained, have an in-house tour operator, so that they can qualify immediately for a tour operator rate in buying the packages that they then re-sell to the consumer. They save a huge amount of money this way, noted Jackson, and the operator keeps volume levels high by paying 12 percent (not 10 percent) commissions, as well as incentivizing agencies through prize giveaways.
Types of operators run the gamut. Some specialize in tours for pets, for graduation travel, pub crawls, concert events, youth events, wine tours, favela tours (in which groups of people go in to the favelas and build houses and schools) and environmental and sustainable tours. As has been the case in other major markets, the tour operator community has experienced consolidation through acquisition and mergers in recent years.
The Online Factor: Jackson pointed out how important OTAs and social network channels are to travel and tourism by underscoring the fact that Brazil is second only to the U.S. in social media penetration, with 86 percent of its people belonging to some social network. As well, mobile broadband use is soon expected to reach an 85 percent level of use in the country.
The Shopping, with the Internet as a Value Added Purveyor: The notion that Brazilian travelers are world class shoppers is axiomatic. A challenge, Jackson told delegates, is how to blunt the impact of the higher 6.38 percent surcharge on credit card purchases abroad—a government measure implemented early last year in order to prevent capital flight from the nation.
In response, travelers have taken to shopping by Internet—many use Amazon—to pay for their purchases in advance, before they travel, and have the merchandise shipped to the U.S. hotels at which they’ll be staying. This tactic, Jackson said, decreases the amount of time that Brazilian travelers spend on shopping and “means is that they have more time to do other things—like going to … to a Broadway show.”
(Indeed: research conducted by the San Francisco Travel Association earlier this year confirmed that Brazilians coming to the city were shopping online before they visited the U.S. A slide during the San Francisco Travel’s annual meeting showed that Brazilians were visiting three times as many attractions as visitors from other countries.)
U.S. travel suppliers can help Brazilian travelers avoid surtaxes on purchases by bundling some value-add items in the product they sell tour operators—such as 100 gift cards for their hotel or attraction’s gift shop, vouchers for a gas purchase for fly-drive travelers or packs of gift cards good for purchases at more than one retailer in a shopping mall.
The Outlook: It depends to some extent on the Jogo de Cintura of the U.S. supplier, not only the Brazilian tour operator or travelers. Given the challenges that she outlined at the start of her presentation, Jogo de Cintura means: working with the right tour operator; if you don’t have a social media program, develop one immediately; packing everything; not allowing the media to take control of the story regarding Brazilian tourists—“They’re not just about shopping,” said Jackson in closing her remarks.