Special Report: The Hotelier 2015 Forecast

With just five years to go until 2020, the hotel landscape is diversifying and hoteliers are competing to ensnare the elusive millennial market with seamless digital processes and personalised experiences

2014 threw up some unexpected surprises for hoteliers across the Middle East, with Russia, one of the region’s key inbound markets suffering from the crash of the rouble, which went down by more than half its value against the US dollar within less than 12 months last year.

Countering this to some extent, however, was the return of the Egyptian market, and many hoteliers reported that occupancy began to improve across the country from almost the day after Abdel Fattah Saeed Hussein Khalil el-Sisi, the sixth President of Egypt took office in June.

Hoteliers have suggested, however, that Egypt has begun taking market share from the UAE, particularly with visitors from Russia and the CIS more inclined to choose a cheaper holiday destination during tough economic times.

Preliminary November results for Dubai released by STR Global indicated negative RevPAR performance, with a 9.2% decline to AED 835.72 (US $227.53). The data also revealed a 7.3% increase in accommodation supply, outweighing demand, which increased 4.6%. Additionally, a 2.5% decrease in occupancy to 85.5% was reported along with a 6.9% drop in average daily rate to AED 977.84 ($266.23).

Despite this, STR Global’s 2015 RevPAR outlook for Dubai remains positive, with occupancy expected to stay at around 77%, suggesting continued pricing power. On average a 0.9% increase in revenue per available room is expected over the course of the year.

Rotana chief executive officer Omer Kaddouri concedes that the year ahead is likely to be a positive one.
“We anticipate growth in metrics for all cities in 2015 and the top RevPAR growth stories will be in the GCC cities, especially in the UAE, and we are forecasting average occupancy growth of 2.5%,” he explains.

Kaddouri’s optimism stems from the current regional boom phase of infrastructure development. Capacity in terms of room numbers, must increase by 147% to achieve more than 273,000 rooms by 2018, and beyond that the World Expo 2020 is expected to attract 25 million visitors to Dubai.

However, the region’s hoteliers are expecting a slight slow down in performance in 2015 compared to the successes of 2013-2014, owing to the volume of supply that bombarded the market during that period.

Chris Hewett, senior consultant at TRI Consulting agrees that we may see “a softening of rates” across the board.
“I think it’s going to start occurring in the first half of the year and I think overall the competition is really heating up.”

Accor HotelServices Middle East chief operating officer Christophe Landais agrees with Hewett, saying: “If you look at Q1 2014, growth was more than 33% one year to another so it was really booming. What we will see is a period of slow down — it’s still growing, but maybe not to the same extent as in Q1 2013 to 2014.”

Landais expects to see 12% growth in revenue over the next 12 months, with a 6 – 7% increase in RevPAR.

Article continues on next page ...

The company recently announced that it is targeting 30,000 new rooms in the Middle East market by 2020, and Landais explains this will actually be a minimum.

Being well known for its midscale Ibis, upscale Novotel and long-stay Adagio brands, Accor is pushing ahead with development plans for these, capitalising on government incentives — such as Dubai’s municipal tax reprieve for the development of new midscale hotels — to help diversify the hotel landscape in the Middle East.

As well as Dubai, Accor has a strong focus on midscale and long-stay in Saudi Arabia, where 23 hotels are in the pipeline.

“We plan 15 – 20 Ibis hotels in the next few years in Saudi Arabia. Out of the 38 hotels we have under construction we have about 20 under construction in Saudi Arabia so it’s a huge market for us and it’s primarily for economy and midscale,” comments Landais.

Similarly, half of InterContinental Hotels Group’s (IHG) Saudi Arabia pipeline is comprised of midscale Holiday Inn hotels, and the company is putting a huge focus on developing its midscale and upscale brands over the next five years.

“It is our midscale brands that are really growing at pace, with over 35% of our pipeline by room numbers in the Middle East comprising Holiday Inn hotels, to open in the next three to five years,” comments Pascal Gauvin, chief operating officer, India, Middle East and Africa, IHG.

Similarly Rotana is working on expanding its midscale Centro brand by 2020 and Carlson Rezidor is focusing on growing the presence of its midscale Park Inn by Radisson brand across Oman, Bahrain, Saudi Arabia and Dubai.

According to Mark Willis, area vice president Middle East and Sub-Saharan Africa, The Rezidor Group, diversification is “transforming the market”, and another aspect of this is the increased provision of long-stay accommodation.

“The appetite for serviced apartments will continue to grow,” Willis explains.

“This product is extremely well positioned for corporate clientele because of the space it offers.

“Usually 40-50% of our guests will be long-stay residents who are here for a month; some will stay for a year and the majority will be with us for three to six months.

“Many of these people will be working on projects, but serviced apartments also appeal to families who prefer to stay five to seven nights during school holidays because of the convenience this type of accommodation offers.”
A trend Willis expects to see this year is the incorporation of serviced apartments into hotel operations, to some extent.

Article continues on next page ...

“We have a few developments where we are going to have part of the inventory as the hotel with the serviced apartments next door, and then we will start combining the two,” he explains.

Marriott International agrees that long-stay is an important segment to continue developing, and currently the firm operates 959 serviced apartments across the Middle East — three Residence Inn properties and five Marriott Executive apartments.

Alex Kyriakids, president, Middle East & Africa, Marriott International says these are designed for travellers looking for corporate apartments featuring hotel services.

“Over the next three years we will be adding another 10 properties within this segment in response to customer demand,” he says.

Another part of this diversification will be the trend toward independent and independent-style hotels.
Hospitality Management Holdings CEO Laurent Voivenel believes that Dubai in particular, being “a fertile ground for new developments and hotel concepts”, is the perfect location for independent properties.

“It’s part of the natural evolution of a destination,” adds TRI’s Hewett.

“You get more savvy investors and developers and you think ‘maybe I don’t need to have an international brand; maybe I can look at developing the property the way I want it to be and then get strong management teams involved to really shape and define the property’.”

More pragmatic, quicker to innovate due to fewer brand standards, and increased flexibility are just some of the benefits Hewett outlines with regards to independent developments. However, he warns that the main challenge for hoteliers looking to go down this route will be finding the right talent.

“I think it comes back to the point of having the right people in the property and getting people that are visionary, and can create a point of difference in a competitive market” he adds.

“Dubai has managed to continuously evolve as a tourism destination and independent hotels will add to its offering. We expect the trend for independent hotels to continue in 2015 and beyond.”

Willis agrees that the market has now reached a level of maturity for independent hotels to begin emerging, and Kyriakidis claims the trend “is here to stay”.

Marriott International recently introduced its Autograph Collection to the region, a collection of independent hotels that benefit from Marriott’s distribution channels and rewards programme. The first property to enter the collection will be Habtoor Grand, Dubai, followed by new Dubai theme park hotel, Lapita Hotel, to open in 2016.

Article continues on next page ...

Hilton Worldwide also announced the launch of its Curio brand last year, which will make its Middle East debut in 2016, with a 207-key hotel in Mall of Qatar. Created for travellers seeking local discovery and authentic experiences, Curio will be a carefully selected, global collection of distinctive four- to five-star hotels, the company said at the time of the brand launch.

While not independent, IHG’s Hotel Indigo brand, to enter the Middle East this year in Riyadh, has been designed to cater to customers seeking personalised experiences. The brand is aimed at reflecting the local culture and character of an area while delivering the consistencies travellers would expect from a global brand.

“Indepdendent style hotel brands are catering to a specific group of consumers who are looking for more from their travel. They trust brands with a heritage and they value the comfort and security which established global brands provide, however they don’t want ‘cookie cutter’ experiences,” explains Gauvin.

IHG last month also announced the acquisition of US boutique brand Kimpton Hotels & Restaurant, and has plans to expand it internationally.

The firm is to pay $430 million in cash for the operator, which manages 62 hotels in cities and resorts across the US, as well as 71 hotel-based restaurants and bars. It also has 16 hotels in the pipeline.

According to IHG, the acquisition of Kimpton, which it claims is the world’s largest independent boutique hotel operator, will establish the company as the “clear market leader” in the boutique sector, complementing its Hotel Indigo and Even Hotels brands.

While founder and CEO of Insignia and vice chairman of The Travel Attaché, Gaurav Sinha, believes independent hotels are going to be big in the region in the future, he warns that for international chains, it will be challenging to replicate the concept without savvy travellers seeing through it.

“It can’t be legacy hotels trying to be independent boutiques because the market is far too intelligent and will recognise that independent hotels play a very important role in how we evolve.”

On the other hand, for genuine independent start-ups, the cost of land would hold investors back from selecting a “green-seed” idea over a renowned brand name, he adds.

If international brands are to succeed in emulating independent hotels, Sinha believes that affordability will be key, and he exemplifies Vida Downtown as a good independent-style hotel concept that has succeeded in “capturing the imagination”.

“They have to first of all make it affordable, and boutique hotels are not only about being more affordable, but about being more intimate, not just being the tallest and widest,” he says.

Another element of successfully operating independent hotels, according to Sinha, is communicating with the correct target audience for the concept. Connecting with millennials is something that Sinha feels hoteliers haven’t quite mastered yet, and he believes it’s all about using the right channels.

Article continues on next page ...

“Whether it’s the Curio by Hilton, the Aloft, the W, everyone has tried to be the young hip ones, catering to the millennials. I think urbanisation and the youthful urbanisation of hotels is a journey — there’s no destination.”

“It’s quite straightforward to work with [millennials] if you can reach them through the right channels, so channel marketing is evolving quite rapidly. “I think relevant apps and mobile platforms will allow people to connect with their target audiences, and marketers will have to reshape their marketing strategies. Social media and bloggers are gaining momentum so how to connect with them is going to be a very important aspect.”

One of the most successful and well-known independent hotels in the region, Media One Hotel, last year hired a community manager who deals with all of the property’s social media activities, and many hotel chains have begun to restructure their marketing, ecommerce and revenue functions to keep up to speed with the constantly changing demands of ever more digitally aware guests.

Accor’s regional ecommerce team has grown from one person in 2013 to five people by the end of 2014, with someone in each hotel also dedicated to looking after social media and websites, as well as an outsourced digital team that works together with the in-house team.

“It’s not just digital, but social media. This is becoming even more important so we are well advanced and we have a dedicated team, and that is something we’re looking to reinforce in the years to come,” says Landais.
Accor recently launched a €225 million ($280.41) five-year programme to upgrade its websites and digital activities, highlighting the emphasis being placed on this aspect of operations.

“Like everyone else Accor is trying to update this over time and it’s very expensive but if we want to improve our market share we must do this,” Landais adds.

Similarly, Hospitality Management Holdings (HMH) last year invested 90% of its capital expenditures on an IT upgrade, implementing a new ecommerce friendly website and installing hardware and software at various levels of operations to increase efficiency and compliance of standards.

“Technology advancements are changing our industry at an unprecedented speed and those who tap it will take all,” says Voivenel.

At Hilton Worldwide, the company is targeting what it defines as the ‘3D customer’. Vice president of operations, KSA, Mahmoud Mokhtar explains this means “discerning, disciplined and digital”.

“Guests will become increasingly savvy to using technology for the likes of e-check-in, pre-arrival room selection and ultimately, straight-to-room mobile technology,” comments Mokhtar.

At the end of December, Hilton Worldwide’s digital check-in and room selection technology went live across more than 4100 hotels worldwide, including 53 hotels in the Middle East and Africa region.

Guests who are members of the group’s loyalty programme, Hilton HHonors, check in and choose their rooms from digital floor plans or lists on their desktops, tablets, or mobile devices. Members are also able to request upgrades or make special requests.

Article continues on next page ...

Marriott International introduced its mobile check-in and check-out feature last year and the service was made available to 4000 Marriott hotels globally by the end of 2014. Kyriakidis claims that, as well as making a customer’s experience more seamless, the technology provides greater data capture opportunities to Marriott.

“Technology is rapidly developing and apps play a huge part in our business because they enable hotels to get to know their customers outside of online bookings and travel agent one-to-ones,” says Kyriakidis.

“Ultimately they bring added value to the customer experience through the data we collect because we can then act on the information gathered.

“We can find out where guests have travelled from, thanks to GPS technology, as well as where they’ve stayed before.

“This is possible because guests have to register as Marriott Rewards members to use the technology.”

A higher volume of data capture, and more intelligent use of data collected, is something that hotel operators are looking to improve with their loyalty schemes, for reasons ranging from driving brand.com bookings, to providing more personalised experiences for guests.

“There are a number of trends expected to impact loyalty in the year ahead,” explains Rezidor’s Willis.

“The biggest one I believe is big data. Companies are looking for more customer engagement, which means a deeper emotional connection with the brand.

“So the data that allows us to understand customers better, will in turn allow us to provide more meaningful experiences.”

While Media One launched its own loyalty scheme last year, and local operator HMH is looking to debut its programme in the first half of 2015, many of the big international players are already becoming very sophisticated in their offerings for loyal guests.

Starwood Hotels & Resorts, for example, recently launched SPG Pro to consolidate the benefits of its corporate scheme and regular loyalty scheme under one umbrella, and the firm also teamed up with Emirates airline on the Your World Rewards programme to provide reciprocal benefits to both companies’ loyalty members.

Additionally, when Starwood's keyless room entry (using a smart phone) was introduced at the end of last year, it was extended exclusively to loyalty members.

Similarly, for Accor, the loyalty programme Le Club Accorhotels is one of the company’s key successes, and last year’s member recruitment target of 144, 000 was well surpassed before the end of 2014, with 176, 000 new loyal guests enrolled in the programme by October.

“The more members we have the more direct communication we have; the better we communicate with guests, the better we adapt to their needs,” comments Landais.

Ultimately, being more connected to guests will be the big topic for 2015, whether this means through improved data capture, better communication, more seamless digital processes, or if it is with regards to accessibility and affordability of accommodation, and more personal, localised experiences.

“Today’s zeitgeist situation is about approachability and inclusion; it’s not about exclusivity and elitism,” explains Sinha, who says that hoteliers need to become “lifestyle curators”, providing experiences to guests rather than just “the real estate and the body”.

“We are witnessing a chapter of hospitality that was never written before and will never be written again.

“It’s happening right now, so it’s a very exciting time to be in this industry and in this region,” he adds.