More developers are changing their approach as they look to improve their returns on investment and add strength to their distribution formulas, according to industry leaders speaking at the Caribbean Hotel Investment Conference & Operations Summit.
HAMILTON, Bermuda—Long revered for its posh resorts and high-end beach club hotels, the Caribbean region is making way for select-service and soft-branded hotels as owners search for more lucrative returns on their investments, according to speakers at last week’s Caribbean Hotel Investment Conference & Operations Summit.
“Since the recession there hasn’t been a lot of development in the Caribbean,” Bill Stadler, CIO for Aimbridge Hospitality, said during the “Hospitality Leaders Outlook” panel. “We’re starting to see some select service.”
David Pepper, chief development officer for Choice Hotels International, said on the “Leaders” panel that developers are beginning to gravitate more toward select service in the Caribbean because that’s what more consumers are seeking.
The numbers back up the trend.
Jan Freitag, SVP of lodging insights at STR (the parent company of Hotel News Now), said during his “Global & regional hotel performance” presentation that there’s a lot of construction in the Caribbean with more than 17,500 guestrooms under construction. That’s a year-over-year increase of 25%. The region’s current inventory comprises 1,931 hotels with 248,768 rooms, according to STR.
- View Freitag’s presentation here (free registration/sign-in required)
Forty-three percent of the rooms under construction are in upper upscale or luxury developments, according to Freitag. That leaves approximately 10,000 rooms in the other segments.
“(The upper end) is where the opportunity is, but so is the opportunity to not be there,” Freitag said.
Pepper said soft brands also are gaining a foothold in the region through a plethora of conversions and repositionings.
“There’s a growth of (soft) brands here because (owners) are looking for access (to more distribution platforms),” Pepper said, adding that soft brands affiliated with large branding companies can lower the cost of distribution. “Soft brands open a lot of opportunities here in the Caribbean just like it’s done in Europe,” Pepper said.
Geoff Ballotti, president & CEO of Wyndham Hotel Group, called the Caribbean and Central America Wyndham’s fastest growing region. Wyndham has five of its 20 brands represented in the Caribbean, according to Ballotti. The majority of the company’s brands fall in the economy, midscale and upper midscale segments.
“For far too long the Caribbean has been looked at from inside the United States as a destination only the wealthy could afford,” Ballotti said. “There is tremendous opportunity … it is all about distribution, but we need airlift.”
Loyalty programs attract all parties
One of the incentives for developers to add more branded properties to the Caribbean mix is the appeal of the region for consumers looking to use points earned in hotel loyalty programs, speakers said. Hotel owners and operators embrace the additional business these create.
“On any given night in any of our hotels 50% of our guests are members of loyalty (programs),” Stadler said. “We love the room nights. We’re putting heads in beds.”
Pepper said the advantage for hotel owners and operators is that loyalty guests tend to stay multiple nights—and not all of them are paid for by points.
“They burn one night here and are going to spend four nights,” Pepper said.
All-inclusives rule the roost
Another business model that continues to prosper throughout the Caribbean is the all-inclusive resort concept, according to Alex Zozaya, CEO of Apple Leisure Group. He jokingly said he tells global brands that there’s no money to be made in the all-inclusive model and they should forget trying to break into the segment. Among Apple’s holdings includes AMResorts, which manages nearly 40 all-inclusive properties—most of them in the Caribbean region.
“You have to go where the consumer goes. Where’s the growth going? Cruise ships and all-inclusives,” Zozaya said.
The impact of cruise ships on a local economy pales in comparison with the impact of an all-inclusive resort, which typically has twice as many employees as a hotel that operates under the traditional European Plan model, Zozaya said. The average stay at an all-inclusive resort is 30% longer than a standard hotel.
Zozaya said the popularity of all-inclusive resorts continues to grow in large part because consumers are learning that the business model offers freedom beyond the resort’s grounds.
“Every hour the guest spends outside the hotel, we make more money,” he said. “We want the guest to experience destinations. You increase the likelihood of the guest coming back if they experience the destination.”
Zozaya did offer one bit of advice for hoteliers looking to break into the all-inclusive space: “The only thing that is important to know is in the all-inclusive world scale matters because the break-even point is higher.”
Final thoughts: Optimism rules
Encouraged by moderator David Larone to offer their big takeaway from the session, the panelists responded quickly:
- Pepper: “The Caribbean is open. Demand is very strong right now. This is a really great opportunity for this area. We see our customer wanting to come here. We have a tremendous opportunity for branding down here to lower distribution costs.”
- Ballotti: “Size matters, scale matters, distribution matters. The hundreds of millions of loyalty program members (the hotel industry has) want to vacation in this part of the world. It’s our job to tell those hundreds of millions of members that the Caribbean is open.”
- Stadler: “Caribbean fundamentals are very strong and will be for the foreseeable future. … The lodging industry is getting a lot of attention from a lot of capital sources. It’s important (to understand) what I call the three L’s: you have to understand lift, you have to understand labor and you have to understand leverage. With leverage, brands do make a difference. Sponsorship also makes a difference. It’s important to keep those three things in mind.”
- Diego Lowenstein, CEO of Lionstone Development: “It’s time to show the market what it’s all about. Less cookie-cutter type of approach. The brands can proliferate but their product has to stay unique.”
- Zozaya: “Educate, educate, educate. There are 7.5 million new passports in the U.S. every year. Capture some of the market share of the new traveler coming out of the United States each year.”