Nearly 80% of all-inclusive resorts have become 'luxury or upper upscale,' Bernstein analysts say, as the industry seeks higher-income travelers able to weather inflation
The resort entrance of Sandals Emerald Bay Golf Club in Great Exuma Island, Bahamas.
As higher costs and global turmoil leave consumers stressed, the fly-and-lie vacation is growing more appealing, even to travel snobs - boosting interest in all-inclusive resorts from higher-end customers and larger hotel operators.
Those resorts were once synonymous with the most generic budget vacations - packed buffets, weak drinks, brightly colored beachfront hotels that vacationers never leave - Bernstein analysts said in a note on Friday. But all-inclusive resorts have quietly transformed into luxury destinations, according to the note, with Michelin-star chefs and yoga and wellness retreats, as the travel industry increasingly chases wealthier consumers to offset potentially shrinking profits.
Nearly 80% of the all-inclusive resort industry has moved into the "luxury or upper upscale" segment over the past two decades, the analysts said. Meanwhile, the increase in Google searches for "all-inclusive" resorts has significantly outpaced searches for hotels and cruises, particularly this year, they noted.
The Bernstein analysts said all-inclusive resorts offer a sense of logistical and financial certainty - things that consumers have come back around to, as costs for gas and other essentials increase against the backdrop of the Iran and Russia-Ukraine wars.
"Consumers now face a deluge of choice when planning their trips - with hundreds of potential resultants, bars, activities and excursions to choose from," the analysts wrote of all-inclusive resorts' appeal.
By contrast, an all-inclusive, to a degree, helps do the planning for vacationers, the analysts suggested. Consumers can access a wide range of activities without some of the taxing planning that comes with a trip outside of an all-inclusive, they said.
Similar to the concert industry, the travel industry is increasingly relying on wealthier consumers who are less sensitive to price increases. Higher fuel costs have dinged industry profits and left many travelers frustrated with flight disruptions and higher fares. Both United Airlines $(UAL)$ and Southwest Airlines (LUV) this week cut their profit outlooks.
Meanwhile, bigger companies are turning to all-inclusive resorts to prop up growth. Royal Caribbean (RCL) last month announced it would take a 50% stake in all-inclusive resort chain Sandals in an effort to gain more access to wealthier customers - although some analysts questioned whether the move ultimately fit with the cruise line's family focus.
Elsewhere, Hotel chain Hyatt (H) last year bought Playa Hotels & Resorts, which runs all-inclusive resorts in Mexico, Jamaica and the Dominican Republic. In 2022, InterContinental Hotels $(IHG)$ and Iberostar Hotels & Resorts signed a partnership intended to expand access to all-inclusive resorts, noting "increasing traveler desire for high-quality experiences and stress-free holidays, particularly post-COVID."
The Bernstein analysts said that families were increasingly seeking out hassle-free trips, while younger shoppers were making spending decisions based on convenience.
"Brands have realized consumers are willing to pay for both quality and convenience rather than just the latter, and have started to deliver elevated concepts," they wrote.
The analysts said that all-inclusive resorts offer things that hotel developers like. Longer booking windows and longer stays offer steady, predictable business. They also usually cost less to build, the analysts noted, adding that construction in the Dominican Republic and Jamaica costs around 55% to 80% of what it would cost, per room, to build a hotel in the U.S. Labor outside the U.S., they added, is also generally cheaper.
Unlike hotels in cities, such resorts are also bigger - with sometimes thousands of rooms - allowing them to spread the cost of doing business around to more customers.
"The result is that every additional room tends to make the economics more attractive," the Bernstein analysts wrote. "Larger resorts create efficiencies that are difficult for smaller hotels to replicate."
-Bill Peters
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