sunbeds at an all inclusive hotel

All-Inclusive (AI) resorts are a well-known concept on the global stage. With their primary footprint in Mexico and the Latin Americas, the largest players, such as Club Med, have continued to enjoy success. Historically recognised as suitable options for couple getaways, a paradigm shift led these resorts to modify their value proposition to attract families by designing special experiences for children.

NB: This is an article from Hotelivate

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Moreover, from their initial target segment of price sensitive customers, the AI model has rapidly evolved to include elaborate food and beverage offerings, unique experiences, and wellness treatments among others. Yet, AI resorts have not yet developed into a popular option within India.

Figure 1: Most Successful AI Hotel Companies Globally

The overall model of an AI resort is simple to grasp: the hotel provides the total cost for guests to enjoy a vacation inclusive of accommodation, meals, activities, select other facilities and experiences. Most resorts also offer upgrades at an additional cost. The key attractions of this model for customers are transparency (as there are no hidden charges or other costs to account for) and convenience (as payments are usually settled prior to check-in). Comparing these features with the characteristics of the typically price-sensitive, convenience-obsessed Indian customer makes it difficult to understand the dearth of AI resorts in India.

Why does All-Inclusive Work?

As mentioned above, under the AI model, hotels provide customers with a single price to cover most needs. The individual cost of accommodation, meal periods and other services is usually unnecessary to provide as these resorts tend to exclusively offer an AI option. While there may be tiered versions of the package with additional inclusions, other standard hotel packages, such as a Continental Plan or American Plan, are unlikely to be available. The concept of free-flowing food and alcohol, intuitively, might seem risky or profit-averse; however, there are certain key features of the AI model which allows these resorts to report impressive margins:

  • By mandating an AI experience at the resort, hotels increase the average value per guest by charging upfront for all meals and other inclusions, regardless of the eventual quantity consumed.
  • These resorts enjoy cost efficiencies as food, beverage and other requirements can be relatively accurately forecasted. Restaurants will typically feature buffet spreads or limited menus across meal periods which allows for a higher degree of predictability than an a la carte outlet. Moreover, having once paid the AI rate, guests are likely to opt for only the included beverages and items which further allows for inventory control.
  • Staff can focus on guest engagement and creating special experiences instead of time-consuming tasks such as order punching, invoice settlement and checking guest bookings to confirm package details. This not only improves the potential for memorable experiences to be created but also the staff’s ability to practice upselling. AI resorts enjoy strong revenues by charging separately for special inclusions, additional services and exclusive activities.
  • Most AI resorts rely on customers spending all their time within the property and act as destinations in and of themselves. The hassle-free check-in and check-out experience along with special attention that the staff is able to provide works to inspire repeat visits which reduces customer acquisition costs.

Nonetheless, it is important to qualify the primary risk associated with an All-Inclusive Resort. All inclusions, from activities to food and beverage, must remain always-on and available at an AI resort regardless of the occupancy level. For example, AI resorts developed with the anticipation of a high average length of stay will typically feature multiple restaurants to provide customers with variety. While a low occupancy may see the buffets replaced with fixed menus to control costs and wastage, the hotels will be required to operate all restaurants which are part of any guest’s package. While forecasting, revenue management, study of seasonality and intelligent package design can all be leveraged to tackle this risk, it is important to acknowledge it. Moreover, as mentioned above, should these resorts have a captive getaway audience, repeat customers are likely to notice and question any severe package modifications made on account of low occupancies. The comfort of price transparency goes hand in hand with the expectation of a consistent experience at an AI resort and this may limit the hotel’s ability to aggressively modify the nature of inclusions.

The Cruise Version

Apart from hotels, cruise liners rely on the All-Inclusive model to maximise their probability for success. In terms of destinations, ‘somewhere in the middle of the ocean’ is as ideal as it gets for this model to succeed. Guests, for the most part, have no option but to stay and dine on their cruise and these companies create a variety of packages which are intended to represent a good deal. From a consumer point of view, these packages eradicate the ambiguity around how much they will spend on food and beverage whereas from the operators’ perspective, they get to maximise the value per guest by charging upfront and enjoying further benefits from customers who only consume a fraction of what the package includes.

Read the full article at Hotelivate