Impact of all-inclusive packages on hotel efficiency

In the last decade, all-inclusive packages have had an extraordinary boom in one of the most popular sun and beach tourism destinations in Europe, the Canary Islands. This fact reinvigorated the debate on potential benefits and negative effects on the local economy. However, there is no empirical evidence of the impact that all-inclusive packages may have on the efficiency in the hotel industry. This study assessed the effects of all-inclusive packages on cost and profit efficiency using the stochastic frontier approach and the model proposed by Battese and Coelli (1995). A model for technical inefficiency effects in a stochastic frontier production function for panel data. Empirical Economics, 20(2), 325–332] in a sample composed of 102 hotels of the Canary Islands from 2008 to 2014. The empirical results revealed that the hotels that offered all-inclusive packages exhibited lower efficiency levels than those hotels that did not provide this service. These results have important implications for both public policies and hotel management.