by Marília Borges, Research Associate, Euromonitor International

Brazil is currently undergoing a strong recessionary cycle, with soaring inflation rates, volatile exchanges rates and retraction in Gross Domestic Product (GDP) – in 2015, Brazil’s economy shrunk by 3.8%, the worst performance in a quarter of a century. Such a negative economic scenario, associated with political instabilities, has filled Brazilians with uncertainties regarding the near future. Despite devaluation of the Brazilian real recasting the country as a less expensive – and therefore more attractive – destination for international tourists, we see tourism in Brazil experiencing a hard time from both the domestic and the outbound viewpoints. Hence, the tourism industry in the country is struggling to deal not only with unfavourable macroeconomic conditions, but also with more price-sensitive consumers, who are revising their travel choices in order to cope with constrained disposable incomes.

Embracing digital options for better deals

In pursuit of less expensive deals, Brazilians are putting their miles to good use and even taking shorter trips. Not only that, consumers are seeking lower-priced lodging options, by engaging more intensely in peer-to-peer platforms like Airbnb and HomeAway Alugue Temporada when traveling for leisure. The country has great potential for such privately-owned rentals, given the size of its young population and the continuous rise in the numbers using the internet, which reached 60% of the population in 2015. The economic turmoil supports this potential, as it sees advertisements on those platforms increase, as people seek alternative ways to earn money.

Still in the digital field, it is worth noting that Brazil is the leading Latin American country in mobile and online travel sales. Internet retail transactions, for instance, reached R$17 billion in 2015, and, despite the relatively large base, will still post an 8% value CAGR (at 2015 prices) through 2020, the fifth highest CAGR in Latin America. The rise in the percentage of households with smartphones and access to the internet, as well as Brazilians’ strong engagement with social media, will be key drivers for this performance. However, consumers in the country feel distrustful of safety conditions for closing deals online, which still prevents online travel sales from gaining even more space in Brazil.

Car rental may witness some consolidation

While specific segments still manage to find their way, even during difficult economic conditions, that may not be true for certain players. In that sense, the adverse macroeconomic scenario typically makes the indebtedness of small, independent car rental companies more expensive. Thus, major players manage to gain market share at the expense of small ones, which occasionally reduce their fleet or even leave the business.

This is particularly noteworthy in Brazil, where the car rental industry is highly fragmented and small, independent players account for a large share (43%). In addition to benefiting from possible acquisitions of smaller companies, large players may see a boost in sales in Rio de Janeiro on the occasion of the Olympic Games – for instance, Localiza Rent A Car, the largest car rental company in Brazil, is an official sponsor of the event.

Will Brazilians give up on traveling?

Overall, as for the manner in which Brazilians consume tourism, it is safe to say that they have already put it in their consumer basket. However, as budgets are now tighter, some important shifts took place, like changes in where to travel and how long to go for. Another important shift – that is believed to have come to stay – is the increased engagement with less expensive alternatives for services like lodging, through peer-to-peer platforms. In that sense, despite the challenging economic backdrop, consumers in Brazil are not expected to refrain from traveling.

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