Resilience In Paradise: Caribbean Tourism Thrives Amid U.S. Travel Headwinds
Global leisure travel patterns are undergoing a notable realignment as economic and political headwinds emanating from the United States redirect international tourists toward more accessible and stable destinations.
The Caribbean, in particular, has emerged as a prime beneficiary of this shift. Factors such as U.S. trade tariffs, policy uncertainty, and geopolitical tensions have dampened the appeal of U.S. travel for many overseas visitors, resulting in a 'travel diversion' effect in which sun-seeking travelers opt for Caribbean getaways over U.S. holidays.
At the same time, the Caribbean region's robust tourism recovery and relative political stability have positioned its islands as attractive havens for both vacationers and investors.
Introduction
This whitepaper examines the confluence of trends behind this redirection of travel demand and capital flows. Drawing on recent industry data and insights from hospitality leaders, we analyze how the Caribbean is capitalizing on diverted travel demand. We assess the implications for hotel investment and consider the challenges that fund managers and developers face in raising capital for Caribbean ventures. The findings underscore a central narrative: the Caribbean's long-term viability as a tourism market remains strong, even as global economic uncertainty persists.
U.S. Economic Headwinds and The 'Travel Diversion' Effect
International tourism to the United States has been challenged in recent years by a combination of economic headwinds and policy-induced friction. Trade disputes, stricter immigration and visa policies, and geopolitical frictions have dampened the U.S.'s allure for global travelers. The United States is now running an annual $50 billion travel trade deficit, a stark reversal from the $3.5 billion surplus recorded as recently as 2022.
A sentiment shift is also at play. Analysts note a perception among some global travelers that the U.S. has become a less welcoming or more uncertain destination. Negative sentiment and travel barriers have led to a redirection of international tourism away from the U.S., setting the stage for alternatives.
Diversion To 'Stable And Accessible' Alternatives
Many of these alternatives lie in the sunny Caribbean. The region's proximity to major source markets, widespread use of English, and tourism-friendly policies make it a convenient and attractive substitute. Caribbean tourism has rebounded robustly, capturing a larger slice of global travel demand. In 2024, the region welcomed over 34 million international visitors, surpassing pre-pandemic volumes. Spending has also increased, with visitor expenditures expected to rise by approximately 9% year-over-year.
Hospitality executives confirm the boon, with travel to the Caribbean and Latin America rising between 5% and 10% in 2024. Major hotel companies are actively expanding, driven by optimism in the region's stability and growth potential.
Caribbean Tourism Fundamentals: Growth and Resilience
The Caribbean's ability to capture redirected demand is bolstered by excellent tourism fundamentals:
Hotel Occupancy and RevPAR at Record Highs : STR data reveals that Caribbean hotels have exceeded pre-pandemic performance metrics. In January 2025, the region recorded 72.9% occupancy and an ADR of $404, translating to a robust $294 RevPAR.
: STR data reveals that Caribbean hotels have exceeded pre-pandemic performance metrics. In January 2025, the region recorded 72.9% occupancy and an ADR of $404, translating to a robust $294 RevPAR. Tourist Arrivals Climbing and Diversifying : The Caribbean has seen broad-based growth in arrivals. Countries like the Dominican Republic, Curacao, and Turks & Caicos have logged record-breaking tourism growth.
: The Caribbean has seen broad-based growth in arrivals. Countries like the Dominican Republic, Curacao, and Turks & Caicos have logged record-breaking tourism growth. Resilient Demand Through Challenges : Despite events such as hurricanes or travel advisories, leisure demand in the Caribbean has remained resilient. Travelers prioritize experiences, and all-inclusive resorts continue to attract guests willing to spend.
: Despite events such as hurricanes or travel advisories, leisure demand in the Caribbean has remained resilient. Travelers prioritize experiences, and all-inclusive resorts continue to attract guests willing to spend. Positive Outlook from Industry Leaders: Sentiment from executives at the 2025 ALIS CALA conference was upbeat. Major hotel brands continue to grow their Caribbean footprints, reflecting sustained confidence.
Investment Trends: From U.S. Dry Powder to Caribbean Deals
Investment capital is increasingly flowing toward Caribbean hospitality, given U.S. market challenges and the Caribbean's performance:
Dry Powder Searching for Yield : With U.S. hotel deal volume down, investors are looking to deploy capital in higher-growth markets like the Caribbean. Cross-border hotel investment rose significantly last year.
: With U.S. hotel deal volume down, investors are looking to deploy capital in higher-growth markets like the Caribbean. Cross-border hotel investment rose significantly last year. Compelling Resort Value : Caribbean resorts offer strong yields, especially where luxury properties are priced below comparable U.S. markets. The environment is described as 'frothy,' with demand outpacing available assets.
: Caribbean resorts offer strong yields, especially where luxury properties are priced below comparable U.S. markets. The environment is described as 'frothy,' with demand outpacing available assets. Big Moves by Brands and Funds : The acquisition of Playa Hotels & Resorts by Hyatt for $2.6 billion exemplifies growing strategic interest. Private equity firms are also exploring partnerships and acquisitions in the region.
: The acquisition of Playa Hotels & Resorts by Hyatt for $2.6 billion exemplifies growing strategic interest. Private equity firms are also exploring partnerships and acquisitions in the region. Branded Residences and Mixed-Use Resorts: These models are rising in popularity, helping developers raise capital and investors diversify revenue streams. Projects like Marriott's developments with branded villas are drawing premium pricing.
These models are rising in popularity, helping developers raise capital and investors diversify revenue streams. Projects like Marriott's developments with branded villas are drawing premium pricing. Investment Challenges: Financing remains complex. Bid-ask spreads, hurricane risks, and regulatory hurdles make execution challenging. Still, long-term players see opportunity.
Capital Raising Hurdles: Layered Financing and High Barriers
Capital raising remains a key barrier to Caribbean hospitality development:
Conservative Lending Practices : Hotel loans in the region typically max out at 55% loan-to-cost and carry high interest rates, necessitating large equity contributions.
: Hotel loans in the region typically max out at 55% loan-to-cost and carry high interest rates, necessitating large equity contributions. Multi-Layered Capital Stacks : Developers often rely on creative structures, including presales of branded residences, joint ventures, and alternative funding.
: Developers often rely on creative structures, including presales of branded residences, joint ventures, and alternative funding. Barriers for New Entrants : Execution complexity, low liquidity, and lack of conventional financing options favor seasoned players.
: Execution complexity, low liquidity, and lack of conventional financing options favor seasoned players. Climate Risks and Insurance Costs: Insurance premiums are rising due to climate-related risks, increasing the cost of operations and capital.
Despite these barriers, well-capitalized and experienced investors can succeed with innovation and patience. Portfolio diversification and careful structuring are key.
The All-Inclusive Advantage
Drawing on Horwath HTL's insights, the all-inclusive model remains a powerful driver in the Caribbean. Historically concentrated in the Dominican Republic, Jamaica, and Mexico, the model has evolved to attract luxury travelers through enhanced experiences, off-site excursions, and higher service standards.
Definition and Guest Benefits : All-inclusive properties offer bundled rates covering room, F&B, and entertainment. This promotes longer stays, high guest satisfaction, and stronger loyalty.
: All-inclusive properties offer bundled rates covering room, F&B, and entertainment. This promotes longer stays, high guest satisfaction, and stronger loyalty. Financial Performance : Properly managed, all-inclusive resorts can achieve strong contribution margins. The inclusion of all-inclusive metrics in the latest USALI edition reflects their growing global importance.
: Properly managed, all-inclusive resorts can achieve strong contribution margins. The inclusion of all-inclusive metrics in the latest USALI edition reflects their growing global importance. Regional Success Factors : Markets benefit from efficient cost structures, airlift, and consumer preference for simplicity. Luxury brands have entered the space, narrowing the quality gap with European Plan hotels.
: Markets benefit from efficient cost structures, airlift, and consumer preference for simplicity. Luxury brands have entered the space, narrowing the quality gap with European Plan hotels. Emerging Opportunities: Destinations like Miches, Pedernales, and parts of Costa Rica and Belize show promise for future all-inclusive developments. Adults-only all-inclusives are gaining traction due to higher ADRs and curated experiences.
Destinations like Miches, Pedernales, and parts of Costa Rica and Belize show promise for future all-inclusive developments. Adults-only all-inclusives are gaining traction due to higher ADRs and curated experiences. Brand Expansion: Major global brands are actively growing in the all-inclusive space, helping drive loyalty, diversify portfolios, and capture higher total property revenues.
Outlook: Sustained Caribbean Strength Amid Global Uncertainty
The Caribbean is well-positioned to retain its momentum amid global uncertainty. Diverted demand, solid fundamentals, and investor interest support its long-term appeal. As interest rates gradually ease, capital is likely to become more available for projects with strong fundamentals.
Caution remains necessary due to execution hurdles and capital constraints. Still, experienced players with strategic partnerships can unlock significant value. Horwath HTL's analysis underscores that the Caribbean offers an attractive blend of high growth and resilience, making it a smart bet for hospitality investment.
Bibliography
Horwath HTL (Apr 2025). 'The all-inclusive edge: a smart bet for Caribbean and Central America investors.' Quartz (C. Arnst, Apr 2025). 'America's travel industry is in sharp decline.' HotelBusiness (A. Perkowsky, Apr 2025). 'Report: Federal policy turbulence impacts U.S. hotel demand.' U.S. Travel Association – Travel Snapshot (Apr 2025). WTTC Economic Impact Report (May 2024). 'Caribbean tourism sector to reach USD 91 billion by 2024.' Caribbean Journal (Feb 2025). 'STR: Caribbean Hotels Gaining Momentum.' LinkedIn post by F. Robert (CHICOS summary, Nov 2024). 'Lots of Factors Slow Hotel Transactions.' AG&T Caribbean Capital Markets Outlook (Dec 2023). Hotel Investment Today – ALIS CALA (May 2025). 'Can CALA teach the US how to deal with instability?' CoStar/Hotel News Now (Feb 2025). 'Hyatt to buy Playa Hotels & Resorts for $2.6B.' Lodging Magazine (Jan 2025). 'C-Level Execs Express Optimism During ALIS.'
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A new kind of traveller is emerging, one who may never visit your website, click an ad, or speak to a human. Instead, they rely on their personal AI agent to plan, compare, negotiate, and book every aspect of their trip. This shift marks a seismic change in how travel is discovered and transacted, demanding a fundamental rethink of hotel technology stacks. Are hoteliers ready for this new class of guests and their digital representatives? Consider how AI-driven website traffic is already having a dramatic impact: According to Ahrefs, 63% of websites receive AI traffic , with smaller sites experiencing the highest proportion. , with smaller sites experiencing the highest proportion. A survey by Adobe reveals that traffic from generative AI sources (chatbots or AI-powered search assistants) on U.S. travel websites rose 1,700% from Jul 2024 to Feb same survey shows that visitors arriving via generative AI tools show 8% higher engagement, view 12% more pages, and have a 23% lower bounce rate than non-AI traffic sources. reveals that traffic from generative AI sources (chatbots or AI-powered search assistants) on U.S. travel websites rose 1,700% from Jul 2024 to Feb same survey shows that visitors arriving via generative AI tools show 8% higher engagement, view 12% more pages, and have a 23% lower bounce rate than non-AI traffic sources. Cloudflare found that monthly traffic to generative AI services grew by 251%between February 2024 and March 2025. So, what does this all mean for the hospitality industry? Most hospitality tech stacks weren't built for AI; they were designed for humans, not machines. Legacy systems are slow, fragmented, and incapable of speaking the language of autonomous AI. To stay visible and bookable in an AI-agent-first ecosystem, hotels must rethink their infrastructure from the data layer up, embracing real-time interoperability, AI-native protocols, and machine-readable data formats. Is your data AI-ready? The rise of AI agents demands a fundamental shift in how hotels manage and present their data. Traditional website designs optimised for visual appeal and manual navigation are insufficient for engaging with AI-driven tools. Hotels must evaluate their systems against the following criteria: Structured data formats: Implement markup to make room availability, pricing, and amenities accessible to AI crawlers. Implement markup to make room availability, pricing, and amenities accessible to AI crawlers. Real-time accessibility: Ensure APIs deliver fast, accurate responses to queries from AI agents, with latency ideally under 100ms and definitely under 200ms. The 95th percentile for API response times should always be under 3 seconds. Ensure APIs deliver fast, accurate responses to queries from AI agents, with latency ideally under 100ms and definitely under 200ms. The 95th percentile for API response times should always be under 3 seconds. Interoperability: Adopt protocols like Model Context Protocol (MCP) to enable seamless interaction between hotel systems and external AI platforms. Adopt protocols like Model Context Protocol (MCP) to enable seamless interaction between hotel systems and external AI platforms. Dynamic content updates: Automate inventory and pricing updates to reflect real-time changes, ensuring AI agents always access the latest information. Hotels that fail to meet these standards risk becoming invisible to AI agents, which prioritise systems capable of delivering clean, actionable data. By preparing their data for this new user class, hoteliers can ensure they remain competitive in an increasingly automated travel ecosystem. Building the foundation: A focused, AI-ready architecture Modern hospitality stacks begin with unified data ecosystems that aggregate guest profiles, operational metrics, and market signals into cloud-based repositories. This eliminates silos between PMS, CRM, and revenue management systems, creating a single source of truth. Unifying data overlaid with semantic meaning is the prerequisite for AI innovation, enabling real-time analysis of guest preferences, occupancy trends, and competitive pricing. With clean data pipelines, hotels can deploy AI co-pilots that: Adjust room rates dynamically using market demand signals Predict guest preferences (room, meal selection, room settings, etc) Handle customer inquiries through conversational AI Optimise housekeeping routes and inventory orders. These systems learn continuously, improving efficiency and personalisation over time. Agentic integration: MCP and the rise of the A2A Economy The emergence of AI agents opens a new paradigm for hotels: active participation in the agentic economy. Hotels can no longer passively rely on traditional distribution channels. To thrive, they must embrace strategies that enable seamless interaction with AI agents, creating new avenues for booking, personalisation, and revenue generation. This starts with understanding and implementing key protocols such as the Model Context Protocol (MCP), which paves the way for the Agent-to-Agent (A2A) economy. MCP is a new and evolving protocol that transforms hotels into active participants in the A2A economy. It standardises how AI agents interface with hotel systems, expanding the capabilities of individual agents by enabling them to connect and interact with other specialised agents, leading to richer and more versatile functionalities. This benefits hotels as it allows their systems to: Offer more comprehensive travel solutions : By connecting with external AI agents, hotels can offer bundled packages that include flights, transportation, and local experiences, all coordinated seamlessly. : By connecting with external AI agents, hotels can offer bundled packages that include flights, transportation, and local experiences, all coordinated seamlessly. Reach a wider audience : Integration with diverse AI travel platforms expands the hotel's reach beyond traditional channels, tapping into new customer segments. : Integration with diverse AI travel platforms expands the hotel's reach beyond traditional channels, tapping into new customer segments. Improve efficiency and reduce costs: Automating interactions with AI agents minimises the need for human intervention in routine tasks, freeing up staff to focus on higher-value activities. MCP is a rapidly evolving landscape that can potentially eliminate fragile API integrations, allowing properties to connect with numerous services through a single MCP gateway. Imagine a guest's travel agent AI seamlessly booking rooms, spa services, and dinner reservations by interfacing directly with your hotel's agent. Optimising the agent experience 8Traditionally, websites have focused on the user experience (UX). However, the rise of AI demands a focus on the agent experience (AX) that must consider a different set of technical priorities: AI-accessible inventory: Expose rooms, amenities, and add-ons through GraphQL APIs and enable multi-property package bookings in a single transaction. Expose rooms, amenities, and add-ons through GraphQL APIs and enable multi-property package bookings in a single transaction. Machine-readable content: Replace visual call to actions (CTAs) with annotations, reconsider SEO in the context of how LLMs view your brand visibility, and implement tags for preferential crawling. Replace visual call to actions (CTAs) with annotations, reconsider SEO in the context of how LLMs view your brand visibility, and implement tags for preferential crawling. Agent Experience (AX) design: Develop parallel website versions optimized for API interactions. Semantic consistency and support for multiple data sources, including social and query graphs, are all key. Develop parallel website versions optimized for API interactions. Semantic consistency and support for multiple data sources, including social and query graphs, are all key. Dynamic commission structures: Create lower AI-specific affiliate tiers and offer bulk booking discounts for high-intent agent queries. Transitioning from legacy systems to seize the AI opportunity The transition to an agent-mediated hospitality landscape is not a distant possibility but an accelerating reality. Hotels that delay implementing MCP capabilities and an agent-friendly infrastructure risk significant market share erosion within 12-18 months as AI travel planning becomes mainstream. Forward-thinking properties are already capturing early-adopter advantages through strategic partnerships with emerging AI travel platforms. The challenge now is how quickly hoteliers can transform their digital infrastructure to become preferred partners in the A2A economy, where AI agents will increasingly mediate guest relationships. The journey to an AI-first architecture means hotels must adopt a modern technology stack by: Phasing out on-premise systems with cloud-native platforms offering open API access. Adopting composable data and platform architecture using microservices for easy MCP integration. Considering website SEO and agentic presentation pathways. Retraining staff on AI-assisted workflows, reducing manual data entry. Revamped stacks for the Agentic AI era will drive operational efficiency and real-time channel optimisation by automatically redistributing inventory across the most profitable channels and guest profiles. First-mover hoteliers will help shape the new distribution paradigm and have greater control over their digital destiny in the age of AI.
