2016 Colombian Travel Market Forecast: Cheap Peso Attracts Millennials, Zika Impact Palpable

Lead Analyst: Luke Bujarski

Medellin, Colombia today vibes similar to Barcelona back in the early 1990s. Still under the radar, bohemian, international, with a forward-thinking local governance and energetic local pride. With the peso at bottom dollar, the city's popularity is trending even hotter with foreign millennials, backpackers, gap-year goers, and young adventure seekers. Travel incidence among Colombian travelers is also on the rise.

2015 was a rocky year economically; inflation at seven percent, cuts in government spending, and a cheap peso have altered Colombia's travel market dynamics. Other Latin American markets are worse off economically.

The zika virus scare is another wildcard with real potential to impact inbound travel. Initial survey results show that Americans will consider cancelling their travel plans due to the virus. Much of the impact will depend on how global governing bodies frame the issue; how the disease spreads; and more research on the linkages between the virus and other maladies.

Overall, demand for air travel to, from, and around Colombia continues to climb, despite some of the heavy economic blows the country has faced.

In total, 2.5 million foreign visitors will come to Colombia in 2016 - 34% of which will be North Americans or Europeans. At home, domestic air carriers transported over 40 million passengers in 2015. That same year, over three million Colombians traveled internationally.

Market Size: Value of Colombia's Air Travel Market - 2012, 2015 USD billions

Shifting Demand/Supply Dynamics

The Colombian economy took a beating through 2015, as did other oil producing markets. Crude oil sales generate a substantial share of government tax revenues. The tumbled price of crude has spurred budget cuts, tax hikes, increases in the costs of public services, and other drags on the Colombian consumer.

Colombians opt for domestic travel

Sliding oil prices also contributed to a 40% decline in the peso's value relative to the U.S. dollar (from January 2015 to January 2016). This negatively impacted Colombian purchasing power abroad, softening demand for outbound international air travel.

As of December 2015, Colombians no longer require a visa to travel to Europe (Schengen countries). Outbound trips to Europe have grown incrementally as a result, but Colombia's travel agencies reported a slowdown in international travel relative to domestic trips.

Inflation hits consumer spending

A weaker peso also spurred inflation as the cost of imports rose. Cost of living jumped 7% in 2015, impacting Colombia's poor most directly (Colombia imports much of its food products from the U.S.). The government responded by increasing the national minimum wage by 7%. This pumped additional cash and consumer spending into the economy, but otherwise did little to expand Colombia's middle class and travel base.

On the other hand. the weaker peso positively impacted inbound travel to Colombia. Foreign visitor numbers were up in the first half of 2015.  The number of inbound American and European travelers  increased, compared to the same period last year. Colombia has become a more attractive travel and shopping destination for neighboring Ecuadorians. Ecuador  U.S. dollar its official currency back in 2000.

While economic growth has slowed, GDP is expected to grow 2.8 percent this year. Overall, Colombia stands to outperform the Latin American region as a whole in 2016.

The following select figures were created from our 2016 Colombian Aviation Market Datasheet.

Colombia's inbound market has maintained a steady rate of growth of about 10% annually between 2008 and 2014. Expect foreign visitor volumes to grow between 8% and 11% in 2016. 

2016 Foreign Visitor Forecast (millions)

Note: Click on graphic for data.

The zika Virus scare will likely have a negative impact on inbound demand, although the extent of the impact will depend on how global health and travel authorities manage the event. A recent survey conducted by On Call International showed that Americans are changing their travel plans as a result of the viral outbreak. 

38% of the 1,934 Americans surveyed said that they would cancel travel plans because of zika. Women are more likely to cancel the trips. The actual correlation and causation between vika and microcephaly, the condition that causes birth defects, is inconclusive. But until further research is conducted, health organizations will likely err on the side of caution, doing little to calm traveler concerns. This interim period will be a difficult one for those travel markets impacted by zika.

Americans took second place in the top five most frequented visitors to Colombia list. 376,000 U.S. passport holders entered Colombia in 2014. In 2015 that figure jumped another 13%. 

Top Five Inbound Visitors of 2014, # of Vistors (1,000s)

Source: ANATO

Colombians spent more on domestic travel than international travel in 2015.

How much did Colombians spend on air travel? 2015

Note: Midpoint in airfare price spread

Avianca holds majority control over Colombia's domestic market. Expect low cost carriers to chip away at Avianca's dominant position.

2015 Domestic Market Share

Note: Measured by number of return trips

International flights in and out of Colombia are split. Economic woes in Brazil will likely soften demand for travel between these two markets.

2015 Volume Split of Total International Traffic

Note: Mexico included in Latin America