Casa del Sol closes in Colonia, reigniting debate over hotel profitability

The closure of the Casa del Sol hotel, located on Route 1 in the department of Colonia, has once again brought the economic situation of the hotel industry and the extent of closures recorded in recent years into question. The decision affects 25 workers, whom the company informed that it would be unable to pay their employment-related claims in full because, according to what it told them, it does not have sufficient funds.

The employees, who were not members of the Uruguayan Gastronomic and Hotel Workers’ Union, organized and submitted their claims to the offices of the Ministry of Labor and Social Security in Colonia del Sacramento. The available information does not detail the outcome of those efforts or the amount of the outstanding obligations.

The Hotel Chamber warns about profitability

Miguel Slimovich, president of the Colonia Hotel Chamber, argued that the closure should not be analyzed as an isolated case. The number of establishments that have ceased operating since the pandemic varies according to the statements and criteria used: Slimovich spoke of 30 closures to El Observador, 31 in statements reported by la diaria, and 32 in interviews broadcast by Canal 3 de Colonia, according to Carmelo Portal. The figures are therefore estimates attributed to the sector, not an agreed-upon count.

Slimovich links the difficulties to a combination of inflation, exchange-rate trends, and costs that are mostly in pesos, while hotel rates are usually quoted in dollars. He also points to pressure from booking platforms and accommodations that, in his view, do not face the same tax, regulatory, and licensing requirements as formal establishments. On this last point, the Chamber is calling for the 2024 law on tourist accommodation to be regulated; as the industry leader explained, its proposal is to regulate the activity and create equal conditions, not to prohibit other forms of accommodation.

A study prepared by the Center for the Study of Economic and Social Reality together with the Uruguayan Chamber of Tourism estimated that, to reverse the loss of profitability in the sector analyzed, revenues would need to increase by 42% or costs would need to fall by 30%. These figures come from the study cited by El Observador and do not, on their own, describe the financial situation of every hotel in Colonia.

Disagreements over what the closures show

The Intendencia’s Director of Tourism, Martín Álvarez, rejected the characterization of a “silent death” of tourism. According to the account reported by Carmelo Portal, Álvarez said that, of the 32 establishments identified by Slimovich, 16 closed during the pandemic or earlier, and 16 after 2020. He also argued that the growth in accommodation offered on platforms had expanded the supply: he estimated that these listings had risen from around 1,400 in 2020 to approximately 2,400, and that the new beds, together with openings and a planned reopening, would offset some of the hotel capacity lost.

The two positions focus on different dimensions. The Chamber focuses on hotel activity and profitability; the Intendencia focuses on the total amount of accommodation available to visitors. An increase in overall supply does not, by itself, show that formal hotels have regained profitability. At the same time, hotel closures alone are not enough to measure the development of the entire tourism sector.

Proposed measures and possible responses

The sector’s proposals include reviewing property tax contributions for establishments that remain open year-round, applying a zero VAT rate for tourists throughout the year, and promoting events and initiatives that increase demand during periods of lower occupancy. The Chamber also proposes strengthening promotion to increase visitor numbers, length of stay, and occupancy. These are business-sector demands; the sources consulted do not report that these measures have been approved.

The Casa del Sol case thus brings together two distinct issues for businesses: the immediate impact of a closure on workers and a broader discussion about costs, demand, and competition in the destination. On the labor front, the workers have already submitted claims to the Ministry; the available material does not make it possible to determine their outcome or establish the final extent of the company’s obligations. On the tourism front, figures on closures and capacity should be read with caution, taking into account who provides them and what type of accommodation is being counted.