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Suite Moment

June 2016

A slew of marquee hotel brands are queueing up to glitter in Dubai and across the gulf. Why are they so upbeat about resurgence in business? Finds out Sunil Kumar Singh

Is there really a slowdown in the gulf region’s hospitality sector? You’re most likely to get divergent, and often conflicting, views depending on whom you ask. There’s a lot of buzz around the pressure on RevPAR —the revenue per available room — but does it deserve to be the sole metric to gauge the overall performance of the region’s hospitality sector? Check this out! In the first quarter of 2016, Dubai’s hotels saw some of the highest global rates in occupancy, RevPar and average daily rates at 85%, AED 520 ($142) and AED 609 ($166) respectively, as per the figures by Dubai’s Department of Tourism and Commerce Marketing (Dubai Tourism).

Many hotels in the gulf are no doubt facing up to a unique situation, and that’s perfectly normal given low oil prices that are now back to the level they were years ago — maintaining the RevPAR as well as to keep a delicate balance between the occupancy rates and room rates – the two have become negatively correlated. As Boon Kwee Lim, COO, Dusit International, Bangkok, reasons, “If hotel operators want to push the one upward, the other will have to come down. The days of high occupancy along with high room rates have possibly gone out in the region”.

Despite that however marquee hotels brands have lined up a slew of projects in Dubai and across the UAE. And this is not without any reasons!

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Rooms in the Pipeline
The surprising thing is the pace and volume at which new hotels are coming up in the region. Some of the most notable hotel projects coming up in GCC over the next few years include: Bvlgari (located on reclaimed island along Jumeirah), St. Regis Palm Jumeirah, Langham Palm Jumeirah, Viceroy Palm Jumeirah (Dubai), Jumeirah and Edition (Abu Dhabi), Ritz Carlton (Jeddah), JW Marriott (Muscat), as per JLL.

One of the biggest reasons why hotels are expanding in the region is the tremendous growth opportunity for the hospitality industry the region presents. Take the case of the hospitality giant Millennium & Copthorne that is planning to open around 12 new hotels in the Middle East and Africa (MEA) region in the next 12 months, and 40 new hotels in the next 5 years. In Saudi Arabia alone, it plans to open over 20 hotels within the next 5 years. It is operating in all segments – budget, midscale, upscale and luxury and its expansion plans cover all of these market segments.

He says the slowdown in the regional hospitality sector is far from real when one looks at the occupancy levels across the sector.

“Generally, the occupancy level across all hotel segments in the region continues to be healthy. Although we see some pressure on the average rates, but rates alone cannot be the sole factor to gauge the overall performance of the entire hotel industry. At the end of the day these rates are the ‘average’ rates, and they vary depending on the hotels surveyed, markets and the segments covered.”

Also, the fact that Dubai continues to be a tourist hub makes every hotelier convinced.

“People still like to travel in their leisure time in this part of the world, and that’s the biggest growth driver for hotels in the region. Dubai is a tourist hub and there’s a lot of projects coming up that would further drive the inflow of more and more visitors,” says Michael Marshall, Chief Commercial Officer, Minor Hotels, Thailand. Minor Hotels is an international hotel owner, operator and investor currently with 146 hotels in operation and through our Anantara, AVANI, Elewana, Four Seasons, Marriott, Minor International, Oaks, Per AQUUM, St. Regis, and Tivoli properties, it operates in 22 countries.

The Middle East is an area of strategic focus for Minor Hotels, Marshall says.

“We have ambitious plans to expand our existing brands and to explore strategic acquisitions. Other Anantara resorts in the pipeline in the region include: Anantara Tozeur Resort which will open in the southwest of Tunisia in 2017; Anantara Dubai Creek Hotel which is under development in Culture Village in Dubai; Anantara Mina Al Arab Ras Al Khaimah Resort, Anantara’s first property in the emirate of Ras Al Khaimah and the brand’s first property in Bahrain, Anantara Durrat Al Bahrain Resort – all of which are slated to open in 2018.”

Another interesting trend is that while the hotel industry in the GCC region has traditionally been focused on luxury segment, many players are coming up with mid-tier and budget segments. Is this the new normal and the future of the region’s hospitality sector, and why it is happening?

“GCC markets have traditionally been led by developments in the top tier segments (Luxury & Upper Upscale). On average close to 50% of the existing supply accounts for top-tier products across the key cities in the region. Together with the upscale segment the contribution of the upper tier hotels to the overall supply amounts to around 70% in some of the markets,” says Marko Vucinic, Senior Vice President, Hotels & Hospitality Group – JLL – Middle East & Africa.

With the drive to increase the number of tourists across the region (especially in UAE), he adds, the need for mid-tier and budget hotel products is rising.

“While it is generally known that there is a gap in this segment, high land prices still do not support these developments in the core areas of the cities. In the future we anticipate an increase in mid-market products primarily in the secondary areas of the cities.”

Dealing with Sharing Economy
What hotels are doing to stay ahead of the latest disruptors such as Airbnb that are radically changing the global hotel and hospitality market, will be a key determinant of how hotels are going to evolve.

Last month, Dubai’s Department of Tourism & Commerce Marketing (Dubai Tourism) and Airbnb signed a Memorandum of Understanding (MoU) to help promote responsible hosting and help grow and diversify tourism in the emirate. It follows the introduction of enhanced regulations in April this year that make obtaining a ‘holiday home’ license more streamlined for individual tenants and homeowners who want to rent their homes to guests.

Airbnb is an increasingly popular way for guests from around the world to experience Dubai by staying with local hosts. There are almost 3,500 Airbnb listings in Dubai. This number and the number of guests choosing Airbnb when traveling to Dubai has doubled since last year.

So are hotels in Dubai concerned about Airbnb’s entry in the market?

“Disruptors are an essential part of any business, but the crucial question is how businesses embrace them to sustain themselves and evolve. I see Airbnb more as a transition than as a disruption, since it caters to a different market. Hotels on the other hand, provide a much greater level of security, comfort and convenience which other platforms may not. Sharing accommodation comes with risks as guests don’t know who they are sharing with,” says Lim of Dusit International.

Hoteliers add it’s more important to look at the Revenue Generation Index (RGI) metric rather than RevPAR (revenue per available room), which in general has slowed down for all hotels across different segments. RGI on a broader scale, measures how a hotel’s RevPar compares to the market RevPAR, and therefore measures a hotel’s performance versus the other operator’s performance in the market.

As Kassab of Millennium & Copthorne says, “RevPAR is created by two indicators: occupancy and average rates. While occupancy is steady, average rates are going down a little bit. We believe this will go on for the rest of 2016 and from 2017 onwards we’ll see rates stabilizing.”

The bottomline is while disruptors are going to continue, the question is how hotels embrace them to sustain their business.

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Blurring Lines
A related fact is at a time when hotels are increasingly focusing on direct booking and meta-search websites that allow instant booking, how is their links with OTAs (online travel agencies) unfolding, and how should hotels position themselves?

Price discounting is not healthy, hoteliers say. What is more important is creating value. While many bigwigs are trying to maintain their price points as far as possible, what they are also focusing on is giving more benefits and more value addition to create more attractive packages for their guests. This is markedly different than a few years back, when almost all hotels were focusing more on price than value addition.

As Axel Jarosch, GM, Banyan Tree Al Wadi & Banyan Tree Ras Al Khaimah Beach, reasons, “We can be a little bit more flexible in terms of the rates offered. We’re now paying more focus on how to tailor our offering and customize them as per the requirements of our guests. This is the strategy we’ve adopted to beat market slowdown.” In the GCC Banyan Tree has two resorts — Banyan Tree Al Wadi & Banyan Tree Ras Al Khaimah Beach, both in the UAE. “Ras Al Khaimah is one of the few emirates that’s still growing on volume, RevPAR and room rates. Our RevPAR is pretty much in line with where we were last year, though it fluctuates as per the seasonality,” adds Jarosch.

Agrees Haitham Mattar, CEO of Ras Al Khaimah Tourism Development Authority, who says while many hotels in the region are seeing a dip in the rates, Ras Al Khaimah hotels have seen a growth of 47% in average room rates, which presents a very promising opportunities for hotel investors. Ras Al Khaimah Tourism Development Authority has recently signed contracts with two major travel agencies, namely, Cox & Kings India and CTrip of China and is spending 85% more than what it spent in 2015 on marketing, strategic alliances and building infrastructure.

Mattar says, “These alliances are co-marketing partnerships which allow us to leverage their database to enhance awareness about Ras Al Khaimah’s tourism offering and allow hotels to have a platform through which they can package their hotels and tour offerings relevant to these platforms.”

In 2015, Ras Al Khaimah saw 6% growth in visitor numbers compared with 2014, which is higher than the global average. The growth continues with over 7% growth in tourist inflow in March 2016, compared to March 2015. March was a record month for RAK hotels with 80% occupancy across our destinations, clocking a yearly growth of about 17%, along with growth in average rates.

All in, taking a macro view, the growth in hotel room supply in the gulf has put pressure on ‘average’ room rates. But at the end of the day these are ‘average’ rates, and they vary across hotels surveyed, regions and the hotel segments. It’s perhaps still too early to paint the entire hospitality sector in the UAE with one brush. For hoteliers nevertheless this is hardly a time to ease up.

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