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The Start of a New Beginning?

June 2016

With downward pressure on hotel rates, increased supply in the market and growing operational costs, how can hotel owners and operators protect their profits in the Gulf region? What are the implications of low oil prices? Four leading hotel experts discuss the changing hospitality landscape to figure out ways to maintain returns and increase efficiency

The GCC hospitality industry is changing rapidly and traveler trends with it. Digging into the patterns of hotel occupancy and RevPAR, what’s the future of hotels in the region looking like? What source markets are or will be feeding the UAE’s and gulf’s hotels? Where are the opportunities and what hoteliers need to know?
Wealth Monitor asked hotel operators and owners what makes them optimistic regarding hospitality sector in Dubai, UAE and the GCC region. The industry leaders also debate on the current state and the outlook of the UAE’s hospitality sector and try to find answers to queries such as the changing relations between hotel owners and operators; how many guests they are targeting; how are they negotiating with travel agencies, airlines, tour operators to attract guests to their hotels; how are they strategizing their brand positioning and differentiate from others and do they plan to reduce rates to attract visitors?
And here’s what they had to say….

Boon Kwee Lim, COO, Dusit International, Bangkok

Boon Kwee Lim - COO Dusit International BangkokBusiness travel has gone down in GCC
There isn’t much of a difference in terms of the number of leisure travelers in the GCC region, which has remained buoyant, though business travel has gone down a bit more compared with other parts of the world. The drop in business travel largely reflects the downward trend in the crude oil prices, shrinking of the Meetings, Incentives, Conferences, and Events (MICE) market and the fallout of China’s slowdown. Business travel is more susceptible to the economic circumstances than leisure travel, which has been on an upward trend in the region. This is because leisure travel will continue to grow as people get more affluent. Also, whether it’s a good time or bad time people need to travel and relax.

Hotels need to offer attractive staycation packages
Hotels operating in the Gulf need to look for new growth markets, and new geographies rather than concentrating on a single market or geography to attract tourists. Additionally, in order to offset foreign tourist inflows, hotels in the Gulf need to come out with attractive staycation packages to attract domestic travelers from within the city who like to spend weekends in a resort or hotels.

Price discounting not healthy
In Dubai, we’ve three operating properties and planning to open soon. We’re constantly trying to reinforce the healthy relationship with our travel agents. Whilst we try to maintain our price points as far as possible, our focus has been on giving more benefits and more value addition to our guests by offering them attractive packages. We believe that price discounting is not healthy, but creating value is. This is quite different from a few years back when almost all hotels in the region remained focused more on price than value addition. In current times when the business environment is not that much strong, hotels have to dole out more value to their customers.

Mikael Svensson, GM, Viceroy Palm Jumeirah

Mikael Svensson GM Viceroy Palm JumeirahDemand in Dubai still outstrips supply
Viceroy Palm Jumeirah is scheduled for opening at the end of Q1 next year. Although there are a number of new hotel openings coming up, when you look at the number of tourists visiting Dubai, the demand still outstrips supply. Viceroy is currently operating the Yas Viceroy Abu Dhabi and construction is underway on the 60-storey Viceroy Jumeirah Village Dubai which is due to open in 2018.

Hospitality not immune to economic challenges
As a manager and operator of hotels around the world, we believe the hospitality sector is not immune to the greater economic challenges. Generally, the hospitality sector is at the forefront of when an economy starts getting a bit soft. This is largely because people and companies cut down on their travel expenses in order to save. Having said that, when things don’t move as they should be, it’s also the time for the players in the industry to be more creative with the offerings. Fortunately, Dubai as destination provides hotel operators a platform to think outside the box, allowing us to creatively exceed the travellers expectation, be it business or leisure. The DNA of the city is to continue to evolve. That makes it special and also our industry a lot more resilient to downturn.

Haitham Mattar, CEO of Ras Al Khaimah Tourism Development Authority

Haitham Mattar - CEO of RAK Tourism Development AuthorityFocus on destination awareness and accessibility
The factors behind the growth of Ras Al Khaimah’s hotels lie in our efforts, strategy and our vision to attract 1 million tourists by the end of 2018. We are also making big strides in increasing destination awareness and accessibility, a prime growth driver for the emirate, through the execution of a dynamic marketing plan and strategic alliances with the likes of Qatar Airways (which started landing in Ras Al Khaimah in February this year), Air India Express (from March this year) and marketing and promotions through Air Arabia, and Emirates via Dubai airport. In the last 2 months we have also signed strategic alliances with tour operators and travel agencies such as Ctrip – the largest online travel agency in China, Cox & Kings – the leading Indian tour operator, and Thomas Cook for our distribution in Europe.

Doubled our growth target
We’ve set twin targets for ourselves. The first one is to grow our visitors to 1 million by the end of 2018, from 740,000 visitors as of now. We’ve doubled our growth target for 2016 compared to 2015, from 6% to 12%. By 2025, we aim to welcome 3 million visitors. Having said that, we believe in order to achieve this, new hotel supply should also come in to meet the demands. Ras Al Khaimah has over 3,500 hotel rooms in the pipeline from now until end of 2019. However, in order to play host to 3 million tourists, we need to have 20,000 total rooms by 2025. This is a big opportunity for investors scouting for opportunities in Ras Al Khaimah’s hospitality sector.

Aim to complement Dubai and Abu Dhabi
The key word is differentiation. Our objective is to complement what Dubai and Abu Dhabi have to offer and that’s why we work hand-in-hand with Dubai and Abu Dhabi tourism authorities to ensure that we’re able to sell Ras Al Khaimah in parallel with both of these destinations.

James Hewitson, GM, Al Baleed Resort Salalah by Anantara

James Hewitson - GM Al Baleed Resort Salalah by AnantaraLuxury hotels still have room to grow
In the GCC Anantara has presence in the UAE, Qatar and Oman, and we’ve signed further management agreements in Bahrain as well as other projects in our existing countries. Within the GCC, Anantara manages 9 hotels at the moment which we plan to take to 19 by the end of 2018. We’ve seen good growth in the region as the luxury hotel segment still has room to grow. There’s a little bit of saturation emerging in the luxury leisure resort segment, but we believe it’s the distinct offering and service that would draw guests again and again.

Changing relations between owners and operators
Unlike in the past, hotel owners now want to understand more closely and learn more about the details of the hotel business, they want to feel confident that the fees they are paying are worthwhile and maximizing returns. Likewise, operators also feel the need to share more information with their owners and to share the business strategy with their Owners. Owners and operators now want to work in a synergy and understand more closely why they’re spending money on a particular area and what the return on investment is both long term and short term.

Owners now look at every line of business
Earlier, a few years ago, Owners were only concerned with the bottom-line at the end of the year and wouldn’t look too deeply into hotel operations. Today, on the contrary, they want to look at every line of business, and understand what’s going well and what’s not, and the challenges. They ask what we as operators need to do to grow the business further and take greater market share from the competition. Today communication is key to the relationship between them than earlier as both understand each other’s objectives well.

Wrapping Up

As the Gulf region enters into one of its most challenging times for many years, meeting changing guest expectations and increasing need for guest satisfaction will be the key factors shaping the strategic decisions of hotel developers, owners and operators over the next few years. Hotel industry should also need to respond to the collaborative economy effectively as innovations and disruptions are changing the playing field of the hospitality industry. New business models need to come up to stay ahead of the disruptors and prepare for the ones to come.

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