Once favored by budget-minded couples and swinging singles, all-inclusives are now going upscale. Christian L. Wright investigates how much luxury a fixed price can buy

As I was packing to leave my handsome sea-view room in a pink villa at Mexico's Royal Hideaway Playacar, on the Yucatán Peninsula's Riviera Maya, I found that a luggage tag had been stealthily attached to my duffel. Under the name of the hotel, it read: A NEW BREED OF WORLD-CLASS RESORT. New breed. World-class. There was no mention of the fact that the Royal Hideaway is an all-inclusive.

Like any luxury beach resort, the Royal Hideaway offers cosseting surroundings, 24-hour room service, attentive staff (each villa has its own concierge), and fine dining (the only buffet is at breakfast). Where it stands apart from most resorts is that instead of billing guests for every cup of coffee, bottle of beer, and plate of food they order, the Royal Hideaway charges a fixed price that includes accommodations and all meals, drinks, and activities. Earlier this year, it and the Grand Velas, in Nuevo Vallarta, Mexico, became the first two all-inclusives to earn the AAA Five Diamond Award, putting them in the company of The Breakers in Palm Beach and New York's St. Regis.

That achievement is the most recent signal of a new trend: The all-inclusive hotel is growing up and growing out of a long awkward phase as many companies upgrade their properties—and their images—to distance themselves from the babes, bargain booze, and buffets stigma they have carried for decades.

The appeal of all-inclusives will be obvious to anyone who's ever choked upon discovering that meals, activities, drinks, taxes, and service charges have brought their total hotel bill to two, three, or even four times the room rate. "One thing we learned a long time ago is that the consumer prefers not to have to keep reaching into his wallet during his stay, and not to get a bill that's five pages long when he checks out," says Scott D. Berman, of PricewaterhouseCoopers in Miami. "Psychologically, all-inclusives have an advantage."

Until recently, however, even the term all-inclusive conjured up images of drunken limbo parties, accommodations as utilitarian as college dorm rooms, and mess-hall buffets with vats of pasta congealing under heat lamps. But now, driven largely by a boom in intergenerational travel and by increased consumer demand for luxury, Club Med is launching upscale resorts; Sandals Resorts International founder Gordon "Butch" Stewart is busy "re-imaging" his brands into "ultra all-inclusives"; and AMResorts, the company that operates the Secrets, Dreams, and Sunscape properties, is, as its new slogan says, "redefining the all-inclusive vacation experience." And there's the new ad campaign for Couples Resorts, with four properties in Jamaica: "The all-inclusive refined. Redefined."

The all-inclusive concept can be traced to the eighteenth-century innovation of the "American plan" hotel rate, which included three meals in the price of the room. But the modern all-inclusive resort didn't get its start until the early twentieth century, when hotel owners in resort areas popular with Jewish immigrants—most notably the Catskills, in New York State—began charging a nightly rate that included all meals, entertainment, and activities. In 1985, a whole new all-inclusive resort culture was born when Butch Stewart invented the swim-up bar and "party pool"—all one shallow depth, the better for drinking and talking—at his couples-only Sandals resort in Montego Bay, Jamaica. By 2006, Stewart had built Sandals Resorts into a fun-in-the-sun colossus, with 12 couples-only Sandals and 4 family-focused Beaches properties sprinkled around the Caribbean. "We started off at a level of luxury that never existed at all-inclusives at the time," says Stewart, on the phone from Beaches Turks & Caicos, which is currently undergoing a $100 million renovation. "But the world has changed. People want bathrooms that are bigger than bedrooms, and spas are considered standard."