CORAL GABLES, Florida — There are a lot of opportunities for hotel companies looking to grow in the Caribbean and Latin America region, and all-inclusive resorts and third-party operations are two of the biggest.
During the "View from the Boardroom" session at the Americas Lodging Investment Summit Caribbean and Latin America conference, executives from IHG Hotels & Resorts and Aimbridge Hospitality shared how their respective companies are approaching the region.
IHG performed a strategy review last year to see where travel flows are coming from, identify demand drivers and determine growth opportunities, said Jolyon Bulley, CEO of the Americas. The Caribbean and Latin American region has had revenue per available room growth above the U.S. for several years now.
“One of the things we uncovered is the power of the U.S. customer coming into the region, no question about that,” he said. “Having strong brand representation and distribution there and awareness there is really important.”
What the team also learned was the amount of domestic and interregional travel in CALA, he said. Until taking that data snapshot, he didn’t realize 60% of the demand in Mexico comes from within Mexico and the surrounding area. That’s leading the company to strengthen its brand awareness and platforms in Mexico.
The company also looked for where it had gaps, he said. Mexico is its fifth-largest market globally, and it wanted to continue its distribution there from the midscale segment up through its upper-luxury segment. IHG likes the Dominican Republic and Puerto Rico, where the company is underrepresented currently.
“We've been active in looking at how we can distribute ourselves across the urban and resort locations in the Dominican Republic and Puerto Rico,” he said. “Then we've got the three C's. We've got Costa Rica, Chile, Colombia, where we see great, great opportunity for growth in those areas there.”
The Caribbean is critically important, and IHG is working to connect travel flows with where customers are coming from to drive demand into the region, he said.
“We're very focused on it, and my ambition is to double our pace of growth across the CALA region by 2028,” he said.
Aimbridge President and CEO Craig Smith said he’s bullish about Latin America overall. Mexico has great advantages, and it’s near the U.S., which will continue to drive leisure and business travel. In the Dominican Republic, Punta Cana has the third-strongest airport in the Caribbean after Cancun and San Juan, and it may pass San Juan in the future.
There is money to be made in the region by choosing the right spot with good airlift and a government that’s pro-travel and pro-leisure, he said. Central America overall is doing well, and it would be great to see more of South America, he added.
The all-inclusive space
Leisure travel is growing four times as fast as business travel, Smith said. Many of the world’s largest brand companies were built for business travelers, and they need to make sure they’re accounting for leisure. Baby boomers are retiring and taking vacations, and millennials are taking more vacations than previous generations.
“You’ve got folks that want to buy an experience over wanting to buy goods today,” he said. “You add that up, and it just means there’s a huge future for growth.”
The all-inclusive resort model is growing faster than European plan models because guests want to buy differently now, he said. A wake-up call for him years ago was when he was walking through an all-inclusive resort in Cancun and started talking to guests, only to learn they all were brand loyalty program members who chose to stay at an unaffiliated all-inclusive property.
After Hyatt Hotels Corp. bought Playa Hotels & Resorts, Smith said Aimbridge saw an opportunity because there weren’t other third-party managers operating in the all-inclusive space. The company took money out of its coffers to double down on the space and hired talent, including a new president for the region and all-inclusive resorts.
“We hired quite a few folks that have worked for Playa in the past, very talented operators and sales folks that are now working for us,” he said.
It’s a different world, and it requires people who know how to operate it to make money, he said. It also requires people who know how to sell it.
“I think it's going to be a great place, and I think you're going to see hotels continue not only to be built, but to be converted from [European plans] to all-inclusives,” he said.
IHG wanted to find an opportunity to unlock some growth in the all-inclusive space, and it found that by partnering with Spain-based Iberostar, Bulley said, referring to the 2022 deal. That afforded IHG distribution and locations with high barriers to entry in Southern Europe and CALA. That also opened up IHG’s reward program for booking Iberostar resort rooms.
“That's what the customers are looking for,” he said.
Beyond Iberostar, IHG is seeing a lot of demand for growth, particularly among its lifestyle brands in the upscale and luxury segments, Bulley said. That’s creating development leads, and the IHG team is working across the region on those.
“We're taking that approach very, very cautiously, but we'll start with Kimpton and InterContinental before we got into the upper-luxury brands,” he said. “We're feeling very confident about it, that we like the segment.”
It took some time to understand the space and make sure the company had the right proposition for owners, especially those who have owned and operated their resorts for many years, he said.
“For them to make that leap of faith, to bring a brand in to partner with them, is a journey that we've been on and working on,” he said.
A shift in operations
Decades ago, the brand companies owned and managed their hotels, Smith said. Then, during the 1980s, the brands started moving toward the asset-light model by selling off the real estate but keeping the management arm. Over time, the brands have moved away from management as well, opening up space for third-party operators.
These changes led to a split in which most of the branded hotels in the U.S. are franchised while international properties still had a lot of brand management, he said. The franchise model is growing in popularity internationally as expenses rise overall.
“That leaves this huge space for the third-party operator business, and it’s a fast-growing space,” Smith said. “It’s off-the-charts fast, and that’s why I said I welcome competitors because it’s going to continue to grow and we need as many people in that space to be as successful as possible.”
IHG has 4,300 hotels in the CALA region, Bulley said. Within its midscale offerings of Holiday Inn hotels and even into its upscale segment, 90% of its hotels there are franchised.
“A higher and increased portion of those are going now with a third-party management company,” he said. “It’s certainly a growing segment.”
The issue now is talent burden, Smith said. As a large company, Aimbridge has an advantage here. It used to be those who wanted to get into operations would work for Marriott International, Hilton, Hyatt or another of the large brands, but now they need to look for third-party operators.
“Our job now is to find these young gems of talent and grow them and teach them how to be superior operators so they can go on and become a general manager or regional vice president in these jobs,” he said. “That's what most owners are looking for, because at the end of the day, after you’ve got location, location, location, and your brand — you get those two right, the third-highest, best decision is who your [general manager] is.”