COUNTRY FOCUS: Kuwait

With a stagnating clientele and little sign of growth, why exactly are hotel groups entering the country? Hotelier Middle East discovers the gaps in the market and how companies can turn a profit

In a region that has been divided by unrest and uprisings over the past few years, there have been two very different narratives. On one hand, there are the hard-hit resorts of Lebanon and Egypt, while on the other, you have the success stories, such as Dubai and Doha, each benefiting from an increase in both business and leisure traffic.

However, Kuwait is a distinctly different story. Yes, it saw a little trouble, but the largely wealthy citizens seem to have little to complain about. Nonetheless, even with a large amount of money floating around, the hotel and tourism industry hasn’t seen much of a pick-up since back in 2008 when the financial crisis first hit.

The latest figures released by hotel consultancy firm TRI Hospitality Consulting show that from January to July, inclusive, occupancies in the country have dropped by around 5.5% to an average of 56.5% compared to the same period last year.

Rashid Aboobacker, senior consultant at TRI Hospitality, says: “The interesting thing in Kuwait is that you don’t expect rates to drop heavily on average days, because there is a party of hotel owners who have a rate agreement – they’ve fixed minimum room rates for five-star and four-star hotels, so hoteliers don’t sell below that rate. The occupancy rate is nowhere close to other big cities, but room rates haven’t dropped much.”

New Properties
With comparatively low occupancies, and no major tourism infrastructure projects in the immediate pipeline, it may come as a surprise that many operators are expanding − or even entering − the market.

The next planned opening for the country will be Hilton’s second property there − the 218-room Hilton Olympia, due to open in Q4. Following this will be Jumeirah’s Kuwait debut in Q1 2013 − the 399-key Messilah Beach Hotel and Spa, and already planned for 2014 are the 240-key Staybridge Suites and the 350-room Monarch Hotel.

The upcoming Jumeirah property will be the group’s first in the Middle East outside of the UAE. “Kuwait is an important feeder market for many Jumeirah properties and it makes sense to bring our brand to this market,” explains Jumeirah Messilah Beach Resort and Spa general manager Mark Griffiths. “We are managing the hotel on behalf of the developers who came to us with the opportunity due to our long-term relationship with them.”

Michael Koth, director of operations in the Northern Gulf for IHG, explains that in many instances in the country, it is not market research or operator knowledge that drives the choice of new builds, but the wants of local investors instead.

“We’ve seen it in other countries in the GCC – there was first a saturation of five -star properties, before people saw it was a wise investment to go with branded, limited service hotels. In general, it’s a question between commercial ownership and emotional ownership.”

Within Koth’s jurisdiction, there is one new hotel coming online – Kuwait’s first InterContinental hotel, in 2013. This will join two Holiday Inns and a Crowne Plaza, which is currently undergoing a 200-room extension.

“[The Holiday Inns] are doing fabulously well. They are performing above Kuwait’s market average. I think the segment of four-star hotels with a little bit more of a limited service is a very strong sector. Probably the extension in supply is coming more from the five star sector, so it will be a little bit more competitive on top of the mountain.”

Christopher Hewett, consultant at TRI Hospitality Consulting, explains: “These [new properties] were looked at before the financial crisis kicked in, when people saw Kuwait as an original corporate centre. Things have changed and government issues are compounding that and reducing the amount of demand coming into the city.”

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Governmental Issues
As much as some hotels are performing well in comparison, it is still the owners pushing forward with new builds, rather than operators. The main reason for this, say Hewett and Aboobacker, is that the government is doing little to ensure that any of its pre-crisis tourism masterplans are realised. However, this would be difficult under the circumstances – the country has had eight governments in the last six years.

“There’s a lot of distrust within the government, so as soon as someone puts a project on the table, people say that person is getting a backhander, so people are throwing out what they should approve,” Hewett says.

“The airport has been delayed three to four years just because of ongoing issues on the amount of money that’s being approved, and now that government has been disbanded again, political issues are the main concern that’s facing Kuwait as a financial centre as well as a tourism market.”

“The plan which was communicated by the Kuwait government was to have around 20 million passenger traffic by 2016 and that is just around the corner, in the grand scheme of things,” explains Koth. In 2011, that figure stood at just under 8.5 million, with only a 2% rise year-on-year. “So, surely, there will be a certain push back on the realisation on those projects,” he adds.

Private Investment
With government confidence at a worrying low, and officials moving in and out of office at an alarming rate, can any new developments in the country be brought online without the governmental backbone seen in places such as Dubai and Abu Dhabi?

“You have the same municipalities and authorities, and once you have things approved, it should be uneventful to get a project up and running,” says Hewett.

Joe Sita, president of Kuwait-based IFA Hotel Investments, has a much more pessimistic view, however: “We are not currently seeing an increase in investment in the country; in fact, we are seeing the opposite, which is unfortunate. The trends show an increase in Kuwaiti money flowing into investments abroad instead of at home”.

Hewett agrees that while it would be possible to get projects off the ground, nothing is likely to happen without the government mega-projects, such as “multi-billion dollar” oil pipelines and transportation systems, looking likely.

“Once you start getting those in, then people will start to see stability and operate in Kuwait. At the end of the day, a lot of corporate activity is hinged upon government projects, so if those government projects don’t come through, you won’t have as much corporate demand.”

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Saudi Market
Kuwait has never been a hotspot in terms of inbound tourism, but the domestic market continues to support the hotels which are operational in the country. “The main focus of any new [hotel] arrival will be on the local market,” says Hotel Missoni Kuwait general manager Alfio Bernardini.

Aboobacker agrees, but says that still more can be done to capitalise on this domestic sector. “Kuwait has a young population, wealthy population and mobile population – they spend a lot on travelling.

Capturing at least a part of that market for the hotels in Kuwait is important, but people need something to attract them. Some changes are happening – [malls such as] The Avenues are doing well, attracting a lot of people and people are talking about new destinations coming up in the city, which is a good thing, because these are the kinds of things they need to pull people into Kuwait and let them spend.”

The Avenues is currently expanding further due to this increase in interest – its phase three is to open at the end of October, housing 545 retail units, including 52 food and beverage outlets.

It is this large-scale shopping experience that draws tourists from Saudi Arabia’s Eastern Province, with Kuwait being seen as a comparatively liberal destination, explains Hewett.
“The location has very limited leisure facilities in that area of Saudi, so a lot of people tend to travel across the border into Kuwait and use those facilities. So the more they develop this kind of base tourism infrastructure, you’ll probably see more people come in from Saudi.”

Of course, leisure is still a relatively small piece of the pie, with the bulk of tourism – domestic or otherwise – being business.

“The largest degree of stimulus is government and non-government organisations – there is an enormous amount of business that is training and educating the Kuwaiti population in sectors where they are employing – finance, health, administrative – and that does bring a lot of consultants and coaches into the country,” explains Koth.

“Probably 20% [of business] will be from the KSA – trading is strong between the common border, and it is just so convenient to drive into Kuwait.”

Where to enter
While Sita’s IFA hasn’t yet entered its base-country of Kuwait, he says that this is because it “simply hasn’t come across the right opportunity yet”. He adds, however, that if it were to be entering the market, it would be in the resort segment.

Jumeirah’s Griffiths adds: “Very little change is expected over the coming years in terms of inbound business. The supply, however is growing and we need to ensure that we remain competitive and offer a value for money proposition to our guests together with unparalleled levels of service to maintain our goal of being market leaders.”

Bernardini agrees that it’s doubtful that the country will see much change in terms of inbound tourism, and, in the face of this, Hotel Missoni Kuwait has “implemented a new strategy” to focus more on attracting the domestic market, who see it “as a resort type property”.

Identity
Until there is a major shift within the country’s tourism market, everyone agrees that there is unlikely to be a pickup in numbers filling the extra hotels. “The pie will remain the same, and what will happen is people will get different variations of the pie – some will get higher, some will get smaller,” Aboobacker says. “But I don’t see the demand increasing substantially.”

Both Hewett and Aboobacker at TRI offer up an idea which has worked well for Dubai, Abu Dhabi and Doha – forge an identity which hasn’t already been taken in the region and fill the void.
“Dubai has always set a benchmark, Abu Dhabi is more cultural with the museums on Saadiyat and with Yas Island. Doha is setting itself as a regional and international convention area, with big MICE demand,” Hewett says. “So what is Kuwait? It needs to define itself for the future.” They suggest the most appropriate route to go down would be cultural tourism, although that could be fairly niche.

So, should any brands be entering the country before any signals of growth start to appear? “Having the opportunity to enter the market is a positive regardless,” says Bernardini. “The occupancy levels are lower than other Gulf countries but the average rate is one of the highest and that’s what attracts companies to operate in Kuwait.”

Koth agrees that it is good to have a presence: “It is good to be there and ready for when the business does start to come, but everyone is well advised to not expect skyrocketing performances – there will be a plateauing for a while before acceleration can take place.”

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Jumeirah Messilah Hotel & Resort
Location: The hotel is situated along the shores of the Arabian Gulf, close to Kuwait City’s business and financial centre and only 10 minutes drive from Kuwait International Airport.

Structure and design: Architects Skidmore, Owings and Merrill, from New York, are developing the 55,000m² resort. The main hotel building will be five stories – approximately 22m in height, and a series of villas with private plunge pools and residential suites will run along the northern side of the hotel.

Rooms and suites: The luxurious beachfront development will feature 253 rooms and 63 suites, 80 residential suites and 12 villas. Hotel rooms will range from 40 to 60m² and suites from 80 to 360m². Residential suites will range from 80 to 250m² and villas from 350 to 450m².

Restaurants and lounges: The resort will feature six restaurants as well as additional cafes and lounges. These include Salt, a fine dining seafood restaurant; Pepper, a steakhouse; Olio, an Italian restaurant; Garden Cafe, an all-day dining restaurant and Arabesque, featuring food from the Middle East with an emphasis on Kuwaiti fare, and Aqua focusing on healthy cuisine.

Conference and banqueting: A key feature will be the extensive purpose-built wedding hall with a 2050m² ballroom and private bridal suite. Two meeting halls of 410m² each and five break-out rooms of 75m² each will also be available for events.

Sports and leisure: The 3500m² Talise Spa will have 19 treatment rooms, including two private suites. It also has dedicated ladies and men's areas, complete with a gym, sauna, snow room and hydrotherapy area.

Sinbad’s kids club will have a wide variety of supervised activities for younger guests while the teen room features a private cinema. In addition, there will be a floodlit tennis court, two swimming pools and a wide array of sports and leisure facilities with a private 200m beach for guests.