All-Inclusive Annihilating Puerto Vallarta Economy

Upon arrival, a sign welcomes guests with “The Friendliest City in the World,” but coming into the city it appears the center has run out of “friends” along the malecón and Morelos Street – abandoned store fronts, something unthinkable a few years ago.

One empty restaurant displays a sign, “this restaurant is closed because a lack of people”. Another reads, “No Sales, No People,” the image is repeated over several blocks in centro.

Some attribute the decline in centro tourism on the rerouted traffic along the malecón after a remodel several years ago, but people in the tourism industry say centro is losing its appeal because of the all-inclusive resorts.

“The all-inclusive is a much sought after vacation experience, but it’s also a predatory system in the economy. The attraction of Puerto Vallarta is its center, not the hotels, but walking around downtown is becoming less popular as now the economy is being locked in the all-inclusive resort, because travelers are paying one package for their entire experience with one company,” explains Gabriel Igartua, owner of Las Palmas, who was forced to enter all-inclusive due to market demand.

Igartua says the system is easy to handle, but it comes down to cost control, the first thing you sacrifice is quality and the largest profits are with the operators selling the packages.

“You are not looking to sell, just offset costs. In addition small hotels do not have much of a chance, as there are already 5-start hotels offering all-inclusive for nearly the same price of just a small hotel stay. It is a form of cannibalism,” Igartua added.

In late August, the city reported that compared to 2013 during the summer season tourism had increased 15% with the arrival of 400,000 tourists and hotels were at 90% occupancy.

“Those are deceptive numbers. It’s been a good year for hoteliers, but the money isn’t trickling down to other parts of the economy,” says Igartua, and many restaurateurs in the center seem to agree.

Othniel Espinoza knows the consequences of the system, he has owned crafts shops in centro for many years, he says eight years ago before the all-inclusive boom he had 60 employees, now only eight.

“Before, finding a retail spot in centro was nearly impossible, now empty storefronts are everywhere because there are no more tourists, and rents are very high. Stores are surviving only because of weekends and peak periods.”

In his view, the other factor of the crisis: “The cruise ships arrive and business are promoting to passengers but it costs thousand of dollars for permission to promote at the cruise ships, and it’s the all-inclusive and timeshare that can afford that promotion.”

To illustrate, he says, a decade ago when a cruise ship arrived his store would sell thousand of dollars of merchandise, today a cruise ship visited and he sold $15.

Michael Jacobson arrived in Puerto Vallarta 35 years ago, he has owned restaurants and bars, and says over the last 15 years there has been a decline of 75% in the tourism economy.

The issue is well-known to the Secretary of Tourism of Jalisco, Enrique Ramos, who says this is a market issue and it’s difficult for government authority to intervene. “We cannot prohibit companies from offering all-inclusive experiences.”

He adds that many operators of all-inclusive declare that only 20% of the cost is for housing to avoid paying the 3% tax on lodging.

“To avoid this, the Revenue Act for this year takes all-inclusive into consideration and sets a minimum 40% housing cost for the 3% taxes.”