All-Inclusive Resorts: Barbuda's Economy Booster?

All-inclusive resorts are a booming global business, with billions of dollars in revenue each year. While they are profitable for resorts, the effects on the local economy are more ambiguous. This paragraph will explore the economic impact of all-inclusive resorts in Barbuda, weighing the benefits and drawbacks for the country's economy. With a focus on the flow of money, we will examine whether the resorts bring financial gains or losses to the nation and its people.

All-inclusive resorts in Barbuda are profitable due to the hold-up problem

The hold-up problem can also refer to the problem of a customer's reluctance to enter into a contract when they don't know whether one party will subsequently change the terms of the deal. In the context of resorts, this could mean that a customer is reluctant to book a holiday if they are unsure about the price and quality of the services provided. The all-inclusive model eliminates this problem by offering a fixed price for a detailed list of consumption rights. This means the customer is more likely to sign up for the holiday.

The all-inclusive model also benefits resorts because they know in advance that the customer will be spending all their time on-site, so they can operate more efficiently in terms of cost. For example, they will know how much food to order for on-site restaurants and can figure out how to price facilities like spas so that they are cheap for the customer but still profitable.

While the all-inclusive model can be profitable for resorts, it can be detrimental to the local economy. This is because all-inclusive resorts are often owned by foreign multinationals, and only a small fraction of guests' expenditures stay in the local economy. In addition, all-inclusive guests tend to spend less at the destination because they have already paid for their food and drinks upfront. This can be harmful to local businesses such as bars and restaurants.

They receive a large lump payment upfront

All-inclusive resorts receive a large lump payment upfront, which has several benefits. Firstly, it creates goodwill with customers, who feel more positive about their purchase once they arrive at the resort. Secondly, it improves the resort's cash flow, allowing them to operate more efficiently. Knowing in advance that the customer will be spending all their time on-site, the resorts can more accurately predict how much food to order and when they will break even on facilities like a spa. This control over more variables of the economic equation allows all-inclusive resorts to be more cost-effective.

They can operate more efficiently in terms of cost

All-inclusive resorts can operate more efficiently in terms of cost in several ways. Firstly, they can negotiate and finalise all financial arrangements with guests in advance, as guests pay a fixed price for their entire stay upfront. This simplifies billing processes and reduces costs associated with hiring human resources and equipment for accounting purposes.

Additionally, resorts can more accurately predict the number of guests and their length of stay, allowing them to optimise their food orders and staffing levels. They can also take advantage of bulk purchasing discounts and established relationships with reliable suppliers, further reducing costs.

The all-inclusive model also benefits from the "low utilisers subsidising the high utilisers". For example, a guest who consumes minimal food and drinks during their stay subsidises the costs of another guest who utilises the all-inclusive amenities more extensively. Overall, this model encourages higher guest spending within the resort setting, as guests are more inclined to consume more of the resort's products and services during their stay.

They attract more business and activity

All-inclusive resorts attract more business and activity by addressing the "hold-up problem". This is a broader economic theory that refers to the reluctance of consumers to enter into a contract when there is uncertainty about the terms of the deal. In the context of resorts, the "hold-up problem" is resolved when the resort and the customer agree to a set cost for everything upfront, benefiting both parties. The customer doesn't have to worry about unexpected costs, and the resort receives a larger percentage of the guest's spending.

The all-inclusive model also attracts more business and activity by offering a simple and convenient option for guests. Guests can budget and limit their expenses by fixing the amounts they will spend at the destination beforehand. This often results in guests being less inclined to spend substantial amounts once they have purchased the all-inclusive package. Additionally, the package eliminates future uncertain factors such as pricing and quality, reducing the chances of unexpected spending. The controlled resort environment also appeals to guests over the age of 45 who prefer a safer and more secure experience.

The resorts themselves benefit from the all-inclusive model as it increases their profitability. While traditional resorts have average profit margins of 25%, all-inclusive resorts have been shown to have profit margins of 35-40%. This is because guests who spend more time in the resort setting are forced to consume more of its products and services. The resorts also benefit from having travel agents and operators negotiate and make financial arrangements with guests on their behalf, reducing the costs associated with human resources, equipment, and time.

Furthermore, the all-inclusive model can lead to the creation of more jobs and contribute to the growth of the local tourism industry. However, it is important to note that the benefits of this model may not always be evenly distributed, with critics arguing that all-inclusive resorts can have negative economic impacts on the local community.

They can be a detriment to the local tourism economy

All-inclusive resorts can be a detriment to the local tourism economy of Barbuda if they are located close to a town. This is because vacationers tend to stay on the resort property for the duration of their trip, spending all their money there.

The all-inclusive model attracts guests who are less inclined to spend money at the destination. This is due to the fact that they have already prepaid for their trip, including food and drinks. This means that local bars and restaurants are affected the hardest, as guests are discouraged from visiting them.

The resorts are also heavily criticised for the limited contact between the host and the guest, as they are not designed to promote economic integration within the local community. For example, in Jamaica, the all-inclusive concept is used as a way of protecting guests from violence and crime. This further discourages guests from venturing outside of the resort and spending money in the local economy.

The resorts are mostly operated by multinational companies, and only a fraction of the guests' expenditures stays in the local economy. This process is called 'leakage', where the majority of expenditures are retained by guest-generating countries or repatriated to them in the form of profits, income, and royalty remittances. It is estimated that 80% of guests' expenditures go to airlines, hotels, and other international companies.

The local community may also experience social tensions due to the fact that they do not benefit from tourism, while bearing the costs of hosting the resorts, such as environmental degradation and increased cost of living.

Frequently asked questions