BAYAHIBE, Dominican Republic — Caribbean hoteliers have long been known for their resiliency in the face of pandemics and hurricanes, and now they’re largely optimistic they can weather forthcoming storms wrought by high inflation, high interest rates and other economic challenges.
“We have learned to change and change fast — as an industry, as consumers, everyone,” said José Carlos Azcárraga, CEO of Mexico-based Grupo Posadas, which operates mostly in Mexico but has a growing pipeline in the Dominican Republic. “We have three or four more years of great numbers, but the question is, can we adapt to the speed the market is evolving? People aren’t buying products, they’re buying experiences, and can we cater to that?”
A combination of factors, including deeper brand penetration, product evolution and continued demand growth, have made the Caribbean a mature and attractive location for investments, despite the inevitable cooldowns resulting from current financing difficulties. Speakers on the "Hospitality Leaders Outlook" panel at HVS' Caribbean Hotel Investment Conference & Operations Summit said the region’s resilience underlies hotelier optimism.
“The next big thing will come, whether it be another pandemic, a terrorist attack, a war, whatever,” warned Bruce Wardinski, chairman and CEO of Playa Hotels & Resorts, which owns and operates its own brands and partners with global hotel brand companies in the Caribbean. “The biggest thing our industry has learned is how to adapt. People are more resilient and we as an industry have done a better job making people feel safe and protected from whatever it may be, and we can be flexible as an industry.”
As travel intensified in 2021 following the worst of the COVID-19 pandemic, travel behavior in the Caribbean changed a bit, said Laurent de Kousemaeker, chief development officer for Marriott International in the Caribbean and Latin America region. Marriott has 70 hotels open in the Caribbean, with 30 more under development.
“People are staying longer, guests are combining business and leisure, and the idea of working from anywhere is a trend that’s here to stay and we see it here in particular, especially in upper-upscale and luxury segments,” he said.
Azcárraga added that first-time travelers, particularly from the United States, to all Latin American locations including Mexico and the Caribbean have been growing in volume as people looked for new places to explore to satisfy pent-up travel demand.
More Brands, Different Products
Large global hotel brands have been taking advantage of that growing interest in the Caribbean by launching all-inclusive products in the region. That deeper brand penetration in the region brings more travel demand and also makes investors feel more secure, speakers said.
Marriott launched its all-inclusive products in the Caribbean in 2019. Wyndham Hotels & Resorts launched its Alltra brand in 2021. Hyatt has been partnering with Playa Hotels & Resorts since 2013 on all-inclusive resorts, and purchased Apple Leisure Group in 2021, while Hilton first partnered with Playa on all-inclusive resorts in 2018.
For Wardinski, brands make great business sense.
“I am 100% a believer in brands,” he said. “In 2013 we partnered with Hyatt. Now we have our first luxury collection with Marriott. We have great relationships with Hyatt, Wyndham, Marriott and we’re going to do a Kimpton hotel,” he said.
While the all-inclusive operating model has long been the Caribbean’s mainstay, the major players in the region have recognized that diverse product offerings are necessary to cater to demand from travelers not only from all income levels, but also from travelers looking for business hotels, places to hold events and even hotels to cover shoulder nights around cruises and larger vacations.
“Twenty years ago, the focus for all-inclusives was on cost control,” de Kousemaeker said. “Over time, that strategy led to a lower product; the tour operators were controlling rate. And now the product has evolved, and we as brands can maintain the relationship with the customer and engage with them directly.”
That ability to sell business directly has been a huge evolution, Wardinski said, largely driven by brands, and it’s resulted in a more efficient booking process, exposure to more types of travelers from different locations and better margins.
As product types evolve, Azcárraga said that opens up the ability for more business.
“For a long time we thought all-inclusive was a fad, but of course that has changed dramatically, and now luxury all-inclusive exists,” he said. “Plus, it’s not just about the rate you can get, but how you can increase your business from guests already at the resort. We are experts in all-inclusive and now we see people spending more on property because we can offer them a better bottle of wine, or a different experience that they pay for.”
Gustavo Viescas, president of LATAMC for Wyndham Hotels & Resorts, said that while leisure continues to drive recovery, group and business-transient travel, particularly incentive travel, is poised to take off “particularly in the second part of next year.”
Headwinds on the Horizon
And while high inflation and interest rates have cooled investment a bit, particularly debt financing, hoteliers take a long view.
“Even if you have a year of higher interest rates, that won’t diminish interest, because investors look long-term, and the long-term perspective here is really good,” Wardinski said.
Still, some investors are stepping back a bit, said Parris Jordan, HVS managing director and chairman of the CHICOS conference.
“2022 has been a tale of two halves; the first two quarters had tremendous interest from banks, equity investors, all excited to do deals,” he said. “We still see that excitement, but it’s taken a step back. Investment interest is going from positive to neutral because of volatility in the capital markets, uncertainty over high inflation and the looming recession. So for some investors, their deals will not pencil now.”
What the Numbers Say
Performance across the Caribbean, particularly in the region’s most popular locations of Dominican Republic, Jamaica, Puerto Rico and the Bahamas, has mirrored and in many cases surpassed leisure- and ADR-driven recovery in the United States, which makes the upcoming economic challenges more palatable.
“In Latin America, we’re seeing some of the highest inflationary growth, but we’re also seeing some of the highest ADR growth, close to offsetting that,” said Hannah Smith, senior consultant with STR, CoStar’s global hotel analytics firm.
Average daily rate in the Caribbean and Central America was 36% over 2019 levels as of September*, according to STR data, and its inflation rate for 2022 is estimated to be 18%.
“These are positive signs of the resiliency and recovery of the Caribbean markets,” Smith said.
Kristina D’Amico, HVS senior vice president, repeated those high performance numbers across the region and added that 2022 should see around 75% of 2019 visitor volume.
And while mixed messaging, varying requirements and major differences between islands and nations complicated the pandemic in the Caribbean, D’Amico said the outlook is bright because restrictions are largely gone and only some spots, including the Cayman Islands and Turks & Caicos, are still trying to gain ground after reopening later.
“GDP in the region is down slightly but recovering faster,” she said. “Travel and tourism is still below 2019 GDP levels, but growing really quickly.”
*Correction: An earlier version of this story stated the STR data was current as of July. The data referenced here is current as of September.