A view from the boardroom
At the recent Caribbean Hotel and Resort Investment Summit, outgoing Sandals CEO Gebhard Rainer was part of a CEO panel that included representatives from the lifestyle boutique group Remington and the world-famous Club Med group as well as Playa Hotels & Resorts founder Bruce Wardinski, who was given an award at the summit.
The session was chaired by John Fareed, author of From Invisible to Icon: How to Become a Known Expert in Your Industry and global chairman of Horwath HTL, a world leader in tourism consulting.
Building on Wardinski’s comments about the ongoing global shift towards all-inclusives (particularly luxury) and the proliferation of brands (lots of formerly independent hotels are now under the umbrella of one of the major brands), Rainer noted that there was now a clear market segmentation in the all-inclusive space into luxury, upscale, and budget.
He observed that the key demographics now had more income and wanted to spend on experiences rather than goods, which now had to be both personalised and provide an emotional connection.
At the time of the summit, at the end of April, all the participants had agreed that there had been a shift in spend to Europe and Asia, and that while the fourth quarter of 2023 had seen strong regional demand, demand had slowed for the region in the past couple of months, a trend that seems to have continued in the subsequent two months to date.
Reasons include rising airline pricing; exhaustion of American consumers; pent-up, excess pandemic savings; and the fact that the US consumer dollar no longer stretches due to price increases so they are becoming more value-driven. In addition, the upper, upscale, and luxury segment can afford to travel globally. So to be competitive operators must deliver value as consumers again have choices.
The situation is now more similar to 2019, whereby the proximity to the United States’ doorstep no longer delivers the same advantage as during the COVID-19 pandemic, and the all-inclusive hotel product is now offered globally. There are new destinations, better and more product, and more local community interaction globally.
Rainer observed that as a privately held company, Sandals’ earnings before interest, taxation, depreciation, and amortisation go back into expanding the business. He noted that the company had very strong financial partners, including CIBC and a number of other indigenous banks.
He observed that a key change resulting directly from the shutdown of cruises during the pandemic was that Sandals had been able to tap into former cruise customers. Previously, this segment would have gone on cruises, but instead they went to Sandals and keep going back.
American tourists can’t drive to the islands, but they can drive to Miami where they can board the floating megacities operated by Royal Caribbean and Carnival, so land-based tourism required good airline connectivity. However, there was also still a big economy of scale difference between offshore and onshore tourism, namely the contrast between a ship of between 4,000-8,000 cruise passengers and a hotel with 400-800 land-based rooms. However, coming out of the crisis, one could now “talk to the cruise lines” in a way one couldn’t before.
Responding to a question on sustainability, Rainer noted that the issue of climate was critical to the Caribbean’s long-term survival. His key point was that progress on sustainability required the public and private sectors to work closely together. For example, there are no large recycling facilities in the Caribbean, and if hotels want to take this seriously, they will have to ship the waste back to the US.
Interestingly, Club Med noted they had introduced a buy now/pay later model to sell holidays as “people liked to pay in instalments”. Rainer observed, however, that Sandals doesn’t do instalment payments.
Commenting on how to go beyond the resort, Rainer and the other panellists noted the importance of partnerships in enhancing tourist experience, such as those with Sandals Foundation, as well as the quality of local facilities on an island and variety, for example, a jungle tour.
Finally, Rainer argued that with real estate booming, all-inclusives have taken advantage of the boom to expand; however, he believes “overtourism” in the Caribbean may eventually become an issue like in Europe; therefore, it would be a mistake to go for mass rather than quality in most of the islands, “as one can’t replicate a west-facing beach”.
As reported in UK publication Travel Weekly, Rainer has been appointed chief executive of Hurtigruten Expeditions, where, in his own words, he will contribute to “expedition travel that is mindful, responsibly low- impact, and considerate of our surroundings”.