Over the years, the image of the all-inclusive resort model has evolved to attract more affluent guests who demand quality and are willing to buy into upsell programs. Apple Leisure Group (ALG)’s AMResorts brand was at the vanguard of this shift, defining what has become today’s standard for luxury all-inclusive resorts that resonate with high-spend travelers.

Owners and investors, in turn, reap the greater profitability that comes with higher ADRs, higher occupancies and ancillary revenue (i.e., tours, spa services, weddings, etc.) There are several key factors behind ALG’s success; most notably, powerful distribution channels, next generation loyalty program and keen focus on delivering ROI for owners.

Big Brands Are Not Vertically Integrated

Despite the all-inclusive segment’s proven success in attracting upscale guests and delivering on the economics for its owners and investors, it is one of few segments in the travel business that up until now has eluded the entry of the legacy hotel brands. A few of these brands are testing the waters today.

Historically, the legacy brands’ attempts to enter the all-inclusive market have been foiled by a number of factors detailed in my GlobalHotelNetwork.com article, “Will Other Brands Jump on the ‘All-Inclusive Bandwagon?” (visit my LinkedIn to read)

Among the myriad reasons that big brands have yet to carve out a well-defined territory in this sector, the chief weakness continues to be the lack of a vertically integrated business model. Vertical integration is a core component of ALG’s growth and value to each of its hotel owners. A portfolio of nine vacation brands after a merger earlier this year makes ALG the US’ largest distribution vacation network to Mexico and the Caribbean.

Vertical Integration Has Demonstrable Success Metrics

To put that into perspective, the U.S. market – which has one of the world’s highest discretionary travel spends—represents more than 50% of total air arrivals to Mexico and approximately 50% to the Caribbean.

ALG sends more than 2.3 million passengers annually to Mexico and the Caribbean. On average, ALG will typically generate approximately 30% of total room night demand at the property level and its committed to a future target of 50% of room night generation.

In the meantime, the room inventory sold by ALG’s channels maximizes net room revenues, compared with the elevated costs associated with outside distribution channels like Online Travel Agencies (OTAs).

The legacy brands’ reliance on OTAs has long been a sore subject for owners. In turn, these global hotel companies have invested heavily in marketing their brand websites in an effort to bolster direct bookings. Dependence on the legacy brands’ reservations systems really brings into question their ability to deliver the room night volumes necessary to driving the occupancy rates fundamental to all-inclusive economics.

Rethinking the Archetypal Loyalty Program

Doubt has also been cast upon the typical loyalty programs that continue to serve as the primary vehicle by which hospitality’s marquee names claim a greater share of bookings via direct channels.

A 2014 Cornell Hospitality Report, Assessing the Benefits of Reward Programs found that “the current reimbursement structure for redeemed nights is unfavorable to hotel owners. Owners are reimbursed significantly less for redeemed nights, which shows that guest redeemed nights are not favorable to owners.”

For example, earlier this year we analyzed the potential conversion of a branded resort in the Caribbean where the brand’s loyalty program accounted for approximately 20% of the resort’s total occupied room nights, representing a strong room production channel. However, when digging deeper into the numbers, these room nights represented the third lowest average room rate for the resort.

This was a primary consideration for ALG when it launched the Unlimited Vacation Club (UVC), our version of a loyalty program. Unlike the typical, complimentary hotel rewards structure where members reap real benefits only after demonstrating brand loyalty through continuous spend, UVC members pay an upfront fee. Members can then access all of the benefits of the program for the duration of their membership. Rather than serve as a potential cost center to owners, UVC is structured as an additional revenue stream.

Why Leisure-Focused Loyalty Works

UVC is also a testament to a finding of the Deloitte study, A Restoration in Hotel Loyalty: “leisure travelers tend to be more loyal to their preferred brand.” Yet, that doesn’t account for the membership numbers of the brands’ loyalty programs. However, the UVC program is another distribution channel that must also deliver profitability to our owners – from the onset.

According to the Skift report, Perspectives on Hospitality Loyalty Programs 2018: A Challenging Road for Real Customer Loyalty, “loyalty programs may have particular appeal for road warriors, or people who travel primarily for business.” In essence, the legacy brands’ loyalty programs generate increased demand at non-resort properties because members are focused on earning points for business travel in order to redeem them later for leisure trips.

This is also why most travelers are enrolled in multiple loyalty programs. There’s little likelihood that these programs are creating true loyalty among members or that they are or ever will be real revenue sources for owners. However, owners are required to participate if their property flies a brand flag and so there is no room for discussion.

As the travel landscape evolves, it is no longer enough for hotels to simply fly a brand above their entrances. Creating real profitability for the long-term requires a partner that has a multitude of revenue-generating strategies in place, including both vertical integration and a next generation loyalty program, if the property is going to deliver a return on investment.

Find out how the ALG advantage can benefit your resort by contacting our team of experts at info@algdevelopment.com.