Mexico is Reshaping Tourism and the Battle to Pay for It
This is a story of the Mexican government, the largest cruise ship companies in the world, and the impact on local communities. This is an in depth look at how tourism is shaping how Mexico develops and, in the process, affecting everything around it. The past five years has been especially transformative for Mexico. Huge investments, infrastructure projects and competition between companies is shaping how Mexico looks in the future. The story begins in the middle, when Mexico approved a new ($42 USD) tax on passengers arriving by cruises.
New Taxes to be Charged to Cruise Ship Passengers
Mexico’s government has approved a $42 USD per person tax that would apply to everyone visiting the country on a cruise ship, whether a passengers got off the ship or not. This has been delayed being implemented to July 1, 2025. The FCCA (the association that represents the cruise ship industry) is opposed to the $42 USD fee but is open to negations. They claim that the increased fees would reduce cruises to Mexico and if there were a 15% reduction of arrivals, it would negate the fee charged from the Mexican government. The Mexican Association of Shipping Agents (AMANAC) has stated “If this measure is implemented, it would make Mexican ports of call among the most expensive in the world, severely affecting their competitiveness with other Caribbean destinations,” the association said in a statement.
Currently there are differing opinions of how this tax will affect the cruise ship industry working with Mexican ports of call. Is this a chance for Mexico to position itself to elevate services for ports? Can Mexico afford to possibly loose a portion of tourists that arrive by cruises? Does Mexico really want more cruises or is there an alternative for tourism to Mexico? We will discuss all of this below.
Why This New Tax is Being Added
December 4, 2024, the Mexican government approved a $42 USD tax on all cruise ship passenger arrivals. The $42 tax will help fund military expenses since Mexico’s military manages the ports that service cruise lines. It is said that only 1/3 of the revenue will go directly to the ports.
Mexico has been on a spending spree lately with enormous infrastructure projects. There is the new “Panama Canal” or the Interoceanic Railway that connects cargo between the Pacific and the Gulf of Mexico, the Tren Maya, new airports like Tulum, and many other projects. In addition to these, Mexican President Claudia Sheinbaum announced in October 2024 an ambitious expansion project for the Port of Progreso. This initiative aims to transform Progreso into a deep-sea port capable of accommodating larger vessels, including cruise ships. The project involves widening the port’s channel to over 500 feet and deepening it to 47 feet. The expansion is expected to take approximately three years to complete.
New Spending Needs New Revenue
Public debt and the percentage of debt to GDP is rising in Mexico. It still is manageable and still less than many other countries, but the fact is, there needs to be a way to pay for all the infrastructure development in Mexico. Across the board Mexico is tweaking fees and adding more tax, mostly targeted at tourism. This new $42 USD tax on cruise ship passengers has the potential to bring in about $400 million USD a year.
Does Mexico Need the Cruise Ship Business?
If you have looked at booking a cruise from North America, Mexico probably showed up a lot as a destination that was available. Even if you are on the beaches of Playa Del Carmen, you can look out toward Cozumel and see big cruise ships arriving daily. Based on recent years, cruise passengers accounted for approximately 23.8% of international tourist arrivals in Mexico. This means that almost a quarter of tourists coming to Mexico arrive by cruises. In 2024, projections are that 3,122 cruise ships are scheduled to dock at Mexican ports. This is an 8% increase from 2023, bringing over 9.3 million passengers. But there is a battle brewing between the cruise industry and Mexican authorities. These statistics highlight the cruise industry’s significant role in Mexico’s tourism sector, contributing to economic growth and development in port cities.
It should be noted that even though about 1/4 of tourists arrive by cruises, the economic impact is much less. Since people arriving on cruise ships spend on average of $81 USD per person, this is much less an impact than those who arrive and stay within Mexico for their vacations. The latest numbers available are $424 USD per person that vacation in Mexico.
Does this mean less cruises will be coming to Mexico?
After this new tax was passed for cruise ship passengers, the number one response from cruise companies and people working in tourism was that this could have a negative impact on arrivals. The higher fees to visit Mexico could influence the cost conscience cruise lines to select other ports of call. However, these warnings and threats have to be met with some realities that might be hard to overcome.
Who is in a better position to negotiate? Mexico or the Cruise Industry?
Cruise lines are still saying they are open to negotiation, but of course Mexico has already passed the new fees and are poised to go into effect July 1, 2025. What appears to be a standoff, leaving the cruise shop industry and the government of Mexico at odds. But idle threats and assumptions of results are not as solid as facts. Mexico is in a much better position to negotiate than you might expect. Here is why.
The number one negotiating point of cruises is the money it brings to Mexico. The average passenger spends $81 USD per stop. With an estimated 8-10 million people arriving yearly on cruises to Mexico that is about $600,000,000 to $800,000,000 USD a year in just passenger spending. This is in addition to port fees and other taxes. So that is what cruise lines offer to Mexico.
What Mexico Offers to Cruise Lines and its Best Bargaining Chips
Here is why Mexico is in a good place to implement taxes and even negotiate if it needs to.
- Mexico offers some of the closest destinations to major US ports of departure. Why is this important? Cruise lines offer 3-day, 5-day and longer cruises. With limited time and ability to get to destinations, cruises need options to take passengers. Leaving from the west coast of the United States, Texas, Lousanna, and Florida all are closest to Mexican ports. Without Mexican ports, some cruises would be canceled, and others would not be possible because it means to much time at sea.
- Passenger Vessel Services Act of 1886 is an old law protecting United States shipping. The law was created before the cruise ship industry started, but it applies and makes Mexico even more important. The law states that foreign owned ships cannot transport cargo/passengers between two US ports without a stop at foreign port. Since most cruise ships are registered in the Bahamas, Bermuda or Panama, they cannot sail between US ports without a foreign stop. This is the reason the port of Ensenada, Mexico is a stop on many cruises to Hawaii from the west coast of the US and why there are no cruises on foreign flagged ships that only visit US ports. This old law makes many cruises only possible with a stop in Mexico and at the same time protects American shipping.
- There is already a lot of investment in Mexico that is happening now. Royal Caribbean is investing in a private beach club on Cozumel (opening 2026) and has paid $292 million USD to buy the Mahahual pier and surrounding land to make an all-inclusive park for passengers (opening 2027). Royal Caribbean will then invest $600 million USD to expand the dock and build amenities for passengers. (See video below from Royal Caribbean Group). These are just some examples of cruise companies’ investments in Mexico of late.
- Cruise lines are also limited to ports that can accommodate large ships. Mexico has the infrastructure to support the arrival of these new 1000 ft (or greater) long ships and the ability to handle 3000-7000 people getting off a ship. The second largest cruise company is the Royal Caribbean Group. They have 7 of the largest 10 cruise ships in the world. This seems to be the trend for these larger ships and this means there are even fewer options to dock them. Mexico has some of the busiest passenger ports in the world. Just as an example, Cozumel is the third biggest in the world by passenger volume.
- Mexico is expanding its ports and infrastructure. On example is Mexican President Claudia Sheinbaum recently announced a project to expand the Port of Progreso in the state of Yucatan by the end of the year. This would make it a deep-sea port that could see larger cargo and cruise ships visiting. Currently Progresso can dock cruises up to 2500 people onboard. There are also plans to extend the Tren Maya to Progresso. This could potentially connect thousands of cruise ship passengers to Chichen Itza.
- Cruises for 2025 and 2026 are already set and being sold. It is possible to change destinations, but it is hard to do, and cruises face a lot of criticism from passengers when destinations are changed.
- Mexico offers culture and a popular destination that is globally recognized. Cruise companies are buying islands and building self-contained pool party stops as part of the route. Of course, these places offer very little in regard to the local culture and could be anywhere. Cruises need “real” places to go to, so passengers feel like they have real destinations to visit.
- Cruises are profitable. Cruise lines make on average $291 USD profit off each passenger. So, there is profit that can be taxed.
So, in conclusion, Mexico has a lot to offer and holds a very important geographic position. In addition to the investment that is already taking place, it is nearly impossible for cruises to make cuts or leave Mexico all together. It is a mutually beneficial relationship that is a delicate balance between the forces at play. But there are other factors to consider besides just the money that comes into Mexico. We will talk about this next.
Why is There a Love/Hate Relationship with the Cruise Industry
With about 1/4 of tourist arriving to Mexico by cruises and lots of tourism dollars going into different local communities, what could be so bad about that? Let’s take a dive into a deeper look at how the cruise ship industry affects local communities and tourism development. We can take a look at the east coast of Mexico where we have three main cruise ports, Progresso, Cozumel, and Mahahual.
In these three areas you can find many locals happy about the revenue it brings to the area and the jobs it creates. You also hear about the overcrowding when a cruise or two is in town, price increases, and the effect when cruise ship tourism is down. There certainly is a love/hate relationship with cruises. It is a bit more “love” because the benefits of economic opportunities offered, but when you look at the long-term effect, it is important to think about alternatives as well.
Yes, cruises help provide a lot of jobs, but what is the long-term effect?
One of the talking points of those that oppose this new tax is the effect it will have on local jobs and the economy. Many of the jobs around ports are created by passengers that are getting off of cruises. We see this in the three areas there are ports here in the Yucatan Peninsula. But what type of jobs are they? For the most part, jobs created offer average wages, and the pay is the same as other places that have no cruise ships. The few winners that benefit from cruise ship business are business owners of souvenir shops, restaurants, tours and other services cruise ship passengers use. The majority of locals do not see great benefits. Let’s look at one local example.
Let’s Look at Mahahual and the Costa Maya Cruise Port
The Costa Maya is a name given to the area along the southern end of Quintana Roo State. The main town is Mahahual. It is a good place to look at because when the cruise pier was built, Mahahual was just a small fishing village of 191 people. In 2001 the Costa Maya Cruise Pier opened. Cruises would dock here for the beach access, day trips to Bacalar or the nearby ruins of Chacchoben. A boardwalk was built so passengers disembarking in Mahahual could walk from the pier into town or at least the length of the town. The town slowly added more restaurants, rentals, beach clubs and shops for the newly arriving tourists. (It is important to note that in 2007 Hurrican Dean devastated the area destroying about 80% of the structures).
If you visit Mahahual today you will find that the town has grown somewhat. There are on average 122 new residents in Mahahual each year since the cruise port was built. There is a new residential area of Mahahual where locals have constructed homes and opened a few small businesses. The residential area is lower middle class to middle class. By no means are locals prospering to the point of doing better than average. Tourism by cruise ships is the main industry in town and it has allowed 2636 people to live there.
For the majority of locals, there is no great benefit to local infrastructure or higher paying jobs. Mahahual has also suffered from lack of other types of investment to the area because of the cruise ship business. Some traveling to the area purposely avoid days when cruise ships arrive because of the number of people or avoid it all together and go to nearby Bacalar. Visitors to Mahahual that arrive by land notice that prices and attractions are geared toward cruise ship passengers and the area offers less for those looking for a nice beach town with a Mexican feel. Real estate development and other tourism-based businesses have not taken off in this area. Most things tend to be focused on the cruise passengers that arrive.
It has been nearly 24 years since cruises started arriving in Mahahual. Now there are second generation waiters, taxi drivers and tour guides working with cruise passengers. The cruise industry has been the dominate decider of what happens in Mahahual. This is why it is so interesting to see what has happened to this community over time. In general, it has been an average experience for residents.
Cruise Ship Ports vs Tourist Destinations
A local look at towns that mainly are cruise ship ports compared to other towns that get land-based tourism shows a contrast. For example, Cozumel compared to Holbox (two islands off the Yucatan Peninsula) shows the same level of hotels are nearly two to three times more expensive in Holbox. Cozumel compared to Playa Del Carmen, the same thing (3-star hotel average on Cozumel is $55 USD and in Playa Del Carmen ($132 USD). This is mainly because there are more things that tourists want in these places that often places that receive cruises cannot offer. Just because you create a revenue stream does not mean that there is nothing better, it just means it is something.
Land based tourism brings in nearly 5x the amount of money per person. It also creates a need for more infrastructure that locals can benefit from like supermarkets, roads and other service. There is also evidence that education levels, literacy rates, size of homes, population growth and the reason people move to an area are all better in non-cruise ship port areas. In general, cruise ships bring more budget minded tourism and most of the things offered to these tourists reflects this.
Conclusion
The cruise ship industry is growing and a very profitable one at that. Cruises bring a lot of money to Mexico, but Mexico also offers cruise ship companies a lot. It is a symbiotic relationship that both sides benefit and need to foster the relationship to make it grow. Mexico is adding a lot of infrastructure and adding attractions that will be a draw for cruise passengers. These improvements do need to be financed, and Mexico is looking at taxes and fees to help pay.
The new tax has been delayed until July 1, 2025. If anything gets negotiated before then, we will see. If there is any negotiation, Mexico is in a good position to negotiate. Mexico is one whole side of the equation, but the cruise industry appears to be fractured or at least have divided interest. There appears to be a battle between the two largest cruise ship companies in the world (Carnival Corporation and the Royal Caribbean Group), Royal Caribbean is poised to take control of one of the 3 ports on the east coast of Mexico and is investing heavily in Mexico. Royal Caribbean also looks like it will benefit the most from an expansion of the Progresso Pier. So even though Royal Caribbean Group is the second largest cruise company, it appears to be edging out the competition in Mexico.
Cruises are not the favorite type of tourism that more destinations want but are intwined into the fiber of tourism in Mexico. Striking a balance between economic growth, supporting local communities, environmental protection, and preserving the cultural heritage of Mexico is a very delicate balancing act. With so much at play, that is why we say there is an epic battle over tourism, money and what tourism will look like in Mexico in the coming years.
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