COMPANY FOCUS: Starwood Hotels & Resorts

With nine brands, Starwood Hotels & Resorts has a strong hand to tempt developers. Kathi Everden shows how the group is seeking to reinforce its dominant position in the Middle East.

Vice president and regional director for Starwood Hotels & Resorts in the Middle East, Guido de Wilde is fluent in eight languages — seven European tongues and Starwood speak, a dialect he has perfected over 28 years with the group spent in destinations as diverse as Bahrain, Morocco, Germany, Belgium and Portugal.

Now in to his sixth year heading up Starwood operations in the Middle East from Dubai, de Wilde clearly relishes his role spearheading the roll-out of new brands across the region as well as consolidating the group’s dominance in his home territory — the UAE alone accounts for nearly half of Starwood inventory in the region.

And, despite the yelps of pain from most hoteliers in the region during the dark days of 2009/2010, de Wilde is sanguine about the effects of the past two years on the hospitality sector, attributing much of the revPAR loss to new stock coming to market.

“Occupancies for us in the Middle East in 2010 have been in line with 2009 and never far off the peaks of 2008,” he said.

“Where everyone has struggled is with rate, specifically in 2009 and to a lesser extent in 2010 with rates dropping particularly for Dubai and Abu Dhabi — but these declines were driven by increases in supply to a great degree.”

This situation is one that did not affect other markets such as North America and Europe, he argues: “There is not much growth in capacity coming on line (in these regions), but here, even during the financial crisis, new hotels were being constructed and we will see further growth in 2011 with 7500 rooms in the four- and five-star category opening in Dubai for instance as well as a 49% increase in inventory in Abu Dhabi — this has to have an impact on the market.”

What is spurring confidence in the Starwood camp is the upturn seen beginning in December that has carried through to 2011.

“We have seen a turn round especially in the UAE markets, with beach revPAR showing an increase over 2009 — this has continued with January and February figures and clearly December marked a curve shift that makes me cautiously optimistic,” said de Wilde, adding that revPAR and occupancies for the rest of the region for 2010 performed in line with 2009.

“For us, Q1 has been good across the region and looking at current trends, I believe the momentum of growth is positive.”

In addition, two other factors are contributing to Starwood’s feel-good factor: new names in the portfolio and an overall revenue upturn.

“We are pleased with our operations in cities such as Doha and Abu Dhabi, where we have introduced new brands (W and Aloft) in declining markets and seen a great performance,” said de Wilde.

“Another good indicator is that total revenues were up in 2010 over the previous year — we don’t always have to talk about revPAR as many of our hotels are strong on F&B and these revenues were up and in some cases even exceeded room revenues, which is quite a unique situation.”

Global synergies
Certainly Starwood as a group is claiming brighter days ahead, with recent full year results for 2010 showing occupancy up in all regions and positive rises in average daily rate across the board, with CEO Frits van Paasschen reporting robust revPAR growth translating higher revenues in to higher profits.

He said that Starwood was well-positioned to capitalise on the rapid growth in emerging markets, a trend that is set to propel business through the doors of many of its Middle East properties too.

With more than 1040 hotels, the group now operates just under half of these in North America (551) and the focus for immediate growth is firmly set on Asia and, to a lesser extent, the Middle East.

Around 80 new hotels are expected to join Starwood in 2011 following the launch of 72 new properties last year plus a further 96 signed management contracts — more than two-thirds of openings are expected to be outside of North America with 60% in the luxury and upper upscale segment.

“India and China are booming — we have 65 hotels in China and 85 planned to give us around 150 by 2015, while we are doubling our presence in India,” said de Wilde.

“In both these markets, there is a rise in the middle classes that will impact on the travel industry with 400 million people having the means to travel soon.

“While not all these are coming to the Middle East, a large proportion will travel via the region, either through Dubai or Doha, Abu Dhabi or even other destinations and the expansion of airlines here is helping to make this region one of the fastest expanding markets globally.”

Confident that the current trend is just the tip of the iceberg, de Wilde extrapolated on the benefits: “Travellers that are familiar with our brands are much more likely to make that choice here in the region, and as we roll out brands in China, for instance, it is obviously beneficial to us that they come and stay here with Starwood.”

Adding a fifth dimension, he emphasised the role of the Starwood Preferred Guest (SPG) loyalty scheme that already drives around half of occupancy across the group’s network: “More than 60% of customers in the Middle East are SPG members and in growing our SPG footprint internationally, it will be a major driver of business in future,” claimed de Wilde.

For the moment, a major concern for the Starwood regional office is future development, and here de Wilde rates the Middle East as one of the prime growth areas for Starwood: “It has always been important to us since Sheraton opened its first hotel outside the US in Kuwait in 1966, and in many cities here, we were first movers with Sheraton and later with Le Méridien, when we took over that brand in 2004.

“We see great opportunities for expansion building on our presence and are committed to developing across the region, with five new hotel openings alone within a year,” he said.

As well as the long-awaited reopening of the Sheraton Oman in Q3, Westin will make its brand debut in Abu Dhabi this year, while St Regis will flood the market with three launches — in Sa’adiyat Island, Doha and Abu Dhabi city early in 2012.

“In addition, we will open the residence tower of the Grosvenor House in Dubai with 300 additional units, and have another 25 hotels in the pipeline which adds up to nearly 50% growth on our current 47 properties,” said de Wilde.

“We believe that over the next four to five years, we will operate more than 75 hotels here and will be the first region outside of the US to offer all nine Starwood brands — but our focus will be on growing the brand footprint,” he added. “While we are strong with Sheraton and Le Méridien, there are lots of areas where we can introduce other Starwood brands.”

Key to this development has been the identifying of new trends in travel and travellers, an arena in which Starwood has demonstrated its on-note credentials with the roll-out of new brands to address new customer demands.

“Technology linked with the hotel experience will be key given the increased connectivity of most people,” said de Wilde. “In addition, the rise of the middle classes cannot be understated in the global context since 70% of population growth is in less developed markets and the Gulf is an ideal hub as mentioned.

“The other major trends are the advent of the Generation Y traveller, and CSR and sustainability, with the latter driven by initiatives that make money and do not compromise the guest experience.”

For Generation Y, expected to take over from baby boomers as the dominant force in travel, Starwood has developed new brands such as Aloft and W, which promise innovative design, up-to-date technology and something different.

“We also see consumers increasingly choosing brands that fulfil their sense of purpose, and it is no longer an option to toy with CSR,” said de Wilde. “At Starwood, we have a commitment to reduce energy consumption by 30% and water usage by 20% by 2020, plus a lot of on-property initiatives enabling us to leverage best practices around the globe.”

With Element acting as a laboratory for green practices as well as offering an extended-stay option, potential for this brand is strong, he said: “Element could go in practically every city here — we had many developers interested in the past two years offering projects with a residential component that they wanted to place under a Starwood brand.

“However, it is difficult to implement brand standards in existing properties and we prefer to look for new developments.”

More core brand properties; growth potential for Four Points and Aloft; expansion of the luxury and extended stay segments, and the sexy option of W Hotel all adds up to a royal flush for Starwood in the Middle East with its extensive brand portfolio.

And, for de Wilde, it’s very much a case of the right time and right place to shape future expansion.

“The dynamics of the Middle East have not changed much since I arrived six years’ ago — it is fast moving, challenging often but becoming a benchmark region for our industry,” he said. “This forward thinking means it is a good place to be with new supply and new F&B concepts, as well as a multi-cultural dimension.”

More cost conscious and leaner in operations following the crisis, the region’s hospitality sector demonstrates the qualifications for continued growth, but de Wilde sounded one note of caution in the area of HR — particularly given moves to mandate up to 85% local employment in countries such as Oman.

“While the region is attractive for (expatriate) staff, we have to take responsibility for attracting more locals to the sector — as hoteliers, we need to show them how powerful the industry is and the potential for development.”

Room for more
Relocated from EMEA Brussels HQ two years’ ago, Neil George has only marginally cut down on his air miles in his role as VP, acquisitions and development for Starwood in Africa and Middle East.

The fruits of his team’s labours are apparent with a tsunami of new deals flooding the markets recently — including a St Regis and Residences property in Amman; the conversion of Al Maha Desert Resort & Spa in Dubai to a Starwood-managed Luxury Collection; a first step into the emirate of Sharjah with a new-build Sheraton, followed up with a contract for a Four Points by Sheraton, and the coup of taking out the InterContinental Muscat under an agreement with Omran to replace the hotel with new brands, the W, Westin and Element.

In addition, an agreement was inked with the Emirates group and wasl Asset Management to extend the operation and management agreement for Le Méridien Al Aqah Beach in Fujairah and for four other Le Méridien and Westin properties in Dubai until 2025.

Other activities include a new 200-room wing at Le Méridien Dubai and a second 200-room tower at the Four Points by Sheraton Kuwait, although a minor hiccup involved the recent termination of the management contract for Le Méridien Kuwait and postponement of a proposed Element hotel at ADNEC in Abu Dhabi.

In addition, the W Festival City deal in Dubai is being re-worked while the St Regis Dubai project is on hold.

Overall, George stressed that 2010 had been a good year, and that 2011 was set to follow suit.

“We are seeing a couple of interesting trends in the Middle East,” he said. “Following the downturn, some owners who have signed with brands that are not as well established (as we are) are now appreciating the importance of a global sales network, system and branding.

“They have reached out to us saying they have a hotel with a name on it, but could they convert in to a Starwood brand.”

Encouragingly, the second trend has been for projects that were halfway through with semi-built hotels that are being picked up and continued: “It makes no sense to leave them in that state,” said George.

All of which is contributing to the steady expansion of Starwood through the Middle East where George is close to sealing deals for at least three new-build Sheratons as well as a possible agreement to roll-out more Aloft hotels in KSA.

“It is difficult to assess the Middle East with a broadbrush but there is enormous interest in Saudi Arabia as a market and this is justified,” he said. “We see huge potential for Aloft and we are in preliminary talks with an organisation that should have the wherewithal to realise this.”

Another market of interest is Lebanon, where George acknowledges Starwood is under-represented: “Beirut can take pretty much all of our brands, and there are not many markets that can do this — and we are in advanced discussions on a couple of things there.”

Over in the UAE, given the luxury content entering the Abu Dhabi market, it is select service hotel brands that could be the next step in this city, he said: “There is a market for Four Points by Sheraton, Aloft and Element here, and in fact, we also see scope for these brands throughout the Middle East as markets mature.

“We currently have our focus in the upper upscale but we are seeing opportunities and are starting to move in to the lower star bracket.”

But, while select service and budget brands are the flavour of the month, George is also nurturing the ongoing demand for icon hotels and trophy properties that still have a role to play in the regional hospitality sector.

“We have a legacy of having been first in a large number of cities, but our assets here have aged, city centres may have moved and locations might not be so good now — this is true of other markets as well as the Middle East.”

As a result, two years ago, Starwood budgeted a US $6 billion spend on renovating and reprogramming the Sheraton brand, results from which are beginning to come through ... and this energising of the brand has resulted in the agreement to open in Sharjah: “We are actively working on at least three other Sheratons and will make an announcement within weeks,” promised George, adding that the new-look Sheraton Oman will also showcase some of the signature elements of the revitalised brand.

Meanwhile, as secondary destinations seek to expand in the wake of their fast-moving neighbours, Starwood has also captured a market for trophy assets, a term less indicative of vainglorious over-spending these days but more a message that these emirates mean business.

“It’s all part of the bigger picture with Luxury Collection brands in places such as Ajman and Ras Al Khaimah for instance,” he explained.

“These destinations are looking to have a beacon of worldwide excellence that can serve as a magnet in attracting tourism, creating a market and providing awareness and standards.”

And, a bonus from the Starwood point of view, financing in these smaller destinations is not dependent on the still cautious markets.

“There is no real evidence of banks loosening up on financing, particularly for projects in Dubai,” said George. “The whole sector has been tarred by the same brush — while there are some developments that should never have got started, there are sound business cases for niche projects.”

But one that has yet to feature on the Starwood radar is The Palm Jumeirah, where George is cautious about proceeding: “The stars have not yet aligned on that piece of land...,” he concluded.

Upcoming properties
Jordan: W (2012) and St Regis in Amman (2013) and Westin and Luxury
Collection in Aqaba (2013).
Oman: W Muscat (2014); Westin and Element Muscat (2016).
Pakistan: Sheraton Islamabad Golf City Resort (2013); Sheraton Islamabad
lakeview Hotel (2014).
Qatar: St Regis Doha (2011); Le Méridien Doha (2013); Four Points by Sheraton
Doha (2014).

Saudi Arabia: Four Points by Sheraton Mall of Arabia, Jeddah (2012); Aloft Riyadh (2013); Four Points by Sheraton Dhahran (2013).
Syria: Four Points by Sheraton Tartous (2013).
UAE: Westin Hotels & Spa Abu Dhabi (2011); St Regis Sa’adiyat Island (2011);
St Regis Abu Dhabi (2012); Luxury Collection Ajman (2013); Sheraton Sharjah
and Four Points by Sheraton Sharjah (2013); W Abu Dhabi (2014); Al Amir
Luxury Collection, RAK (2014); W Festival City and St Regis Dubai (date TBA).

Expansion by brand
W Hotels – 4
Westin Hotels & Resorts – 3
Luxury Collection – 3
St Regis – 5
Element – 1
Sheraton – 3
Four Points by Sheraton – 5
Le Méridien – 1
Aloft – 1