Finding the key to the Kingdom

Saudi Arabia is not known for embracing change, but the relaxation of travel restrictions and ongoing hotel and infrastructure development are slowly forcing the country to open up.

Saudi Arabia has a global reputation for being an affluent country and therefore ripe for hotel investment, but it has also been regarded as a society closed off to a certain extent from the non-Muslim world.

Hilton Hotels president - Middle East and Africa Jean-Paul Herzog says that despite this reputation "Saudi Arabia is doing very well and is enjoying the same growth as the rest of the GCC" in terms of the hotel industry.

 

"The issue of attracting guests has resolved itself, but our capacity is obviously limited. We can't force people to come to Saudi Arabia," he adds.

InterContinental Hotels Group vice president - development Middle East and Africa Phil Kasselis agrees that attracting tourism to Saudi Arabia is going to remain somewhat challenging unless visa restrictions are lifted and travel can be facilitated to the country.



"Even for business travel it's still sometimes challenging to travel to Saudi Arabia at very short notice and, whilst it may be a lot easier for pan-Arab travellers, for a lot of western companies to get to Saudi Arabia is not as easy as other destinations," he adds.

The key to success for Kasselis is forging close relationships with government, high net-worth individuals and the royal family within the country - as is the case for most parts of the Middle East.

"InterContinental Hotels Group has been in Saudi Arabia for many years and has built those close relationships. It's not what's in the management contract that counts, it's the relationship and the ability to provide the service required, and the protocol required," he says.

"I don't see any [major] challenges other than the fact it's very difficult for foreigners to invest in Saudi Arabia, or even for non-Saudis to invest. Most of our owners in Saudi Arabia are Saudis, high net worth individuals, large family businesses that have been around for many years and specialise in hotel. That's just how business is done over there."

The market is challenging, but both InterContinental Hotels Group (IHG) and Hilton Hotels have been present in the Saudi Arabian market for some time and share the same positive view of the hotel industry's future growth and development.

IHG has 20 properties in Saudi Arabia, with its InterContinental, Crowne Plaza and Holiday Inn brands "already established in the community" explains Kasselis.

"Tourism in Saudi Arabia is strengthening, there's no doubt about that. It's primarily driven by religious tourism [during the Haj pilgrimage], but also relaxation of visa restrictions, corporate activity and the infrastructure development that we see continuing," he adds.

The major future developments will be the economic cities, including the multi-million dollar King Abdullah Economic City on the Red Sea Coast just north of Jeddah, and five others in Tabuk, Ribigh, Hail, Madinah and Jizan due for completion by 2020.

"While they're still a long way off [completion] we see that they are going to generate not only supply-induced demand - where the activity of building generates demand from accommodation - but also commercial activity as a result of the building, as seen in Dubai and Abu Dhabi," says Kasselis.
 

Hilton Hotels has five properties in Saudi Arabia - the 357-room Madinah Hilton Hotel, Makkah Hilton and Towers Hotel (1400 rooms combined), the 288-room Jeddah Hilton and the 38-room Qasr Al Sharq - with the Makkah properties "strongly aimed at the religious market for Haj", while Jeddah is a business and convention hotel and Qasr Al Sharq caters to royal families.

"We are missing Riyadh and would like to expand along the East Coast and we have various discussions ongoing that I hope will get us there eventually," says Herzog.

And the occupancy levels in all the hotels suggest that the market is booming in Saudi Arabia, with Herzog revealing that the Makkah and Medinah properties are in the high 70s, Qasr Al Sharq the mid 50s and Jeddah the high 70s to low 80s.

 

Riyadh: a newcomer's perspective

Four Seasons Riyadh opened just five years ago in 2003 and general manager Rami Sayees explains that it wasn't easy getting a foothold in the market as a new property, especially one that was part of a hotel group that had only recently entered the Middle East and had just a handful of properties.



"Certainly we faced difficulties when the hotel first opened as we were bringing a new name to the market and it was only the second or third Four Seasons to open in the region," he says.

"But in 2005 things started picking up, 2007 was the best year and the first quarter of 2008 we saw amazing results. For the first quarter of 2008 occupancy is 84%."

Riyadh is traditionally a business destination, but Sayees says that things are starting to change.

"The country is starting to open up slowly, and recently there was a decree by the King allowing female travellers to check into hotels without their partners - something not allowed before - so all of a sudden you have an influx of ladies coming on the weekend, whether to visit friends or just to shop," he says.

"This has boosted our weekend business and we've had to come up with weekend packages - something that we didn't do before - and it's proving very successful."

The majority of this leisure business is coming from Saudi Arabia and the GCC region, but some international leisure business is beginning to come in according to Sayees.

"The Saudi tourism commission was created in the second half of last year and its objective is to start putting Riyadh or Saudi Arabia in general, on the tourism map and opening up, telling people what we have to offer in terms of sights and museums. And there are now 18 official tour operators who are allowed to obtain group visas," he says.

"We are going to work with them and try and target European destinations, especially where we have Four Seasons properties and there is that brand awareness. If every hotel does the same - and that's what hoteliers in Riyadh are now doing - then we can start trying to expand that international market."
 

Although a step in the right direction, this drive to attract leisure tourists is in its infancy.

Sayees says that in Riyadh hoteliers are trying to establish a committee to work directly with the tourism commission, but admits that there will always be "cultural challenges".

"Things are still pretty strict and we work closely with the relevant commissions in the city to try and coordinate efforts, mainly when you have somebody who has never been to Riyadh and they have to adapt to the culture - unmarried couples not mixing in public, women covering up. What we do is send a pre-arrival information pack to our guests, just so that they're aware of what to expect," he says.

"The tourism commission is still in a probabtion period really. Saudi Arabia has always been, and will remain, a religious centre. But now visas are easier to obtain - 18 tour operators are now able to get group visas - ladies are allowed to check into hotels and there's talk of ladies being allowed to drive, so there are initiatives that show that the country is opening up."

Market potential

Saudi Arabia's Supreme Commission for Tourism (SCT) was created in 2000 and charged with the responsibility of promoting the tourism industry, both within Saudi Arabia and internationally.



The body's secretary general HRH Prince Sultan Bin Salman bin Abdulaziz Al-Saud explains that SCT is restructuring the Kingdom's tourism sector so it can "go to the next level".

"The hotel sector reorganisation will be a challenge. Over the next 11 months we are going through the classification system in Saudi Arabia. We will also introduce new accommodation types. We are also going through a process of restructuring many historic villas. We are also taking on the travel sector," he adds.

The economy will be a "big driver for tourism in Saudi Arabia" according to HRH Abdulaziz Al-Saud and IHG's Kasselis says that hotel developers should take into consideration developments such as the new economic cities when choosing where to place their properties.

"For a hotel company it's important to know where you're going to put your hotels depending on what else is happening in that area," he says.

"For example, outside of Jeddah you've got King Abdullah Economic City and already quite a bit of work has begun there. It's a very long-term project but that in itself is driving demand. Travelling there from Jeddah you'll see a couple of hotels there that may be perceived as standard resorts but in fact they'll be resorts catering to commercial demand for contractors working in Economic City."

Kasselis goes on to outline the variety and depth of change taking place in Saudi Arabia, outside of the traditionally busy areas of Riyadh and Jeddah.

"What you're seeing at the moment is a lot of development activity in Al Khobar and Damman, and if you look at the geography of those areas you're talking about a very large space, very large distances and different types of economic activity, so what you're getting is a mix of leisure and business demand," he says.
 

The leisure tourism is being driven by Saudi locals wanting to holiday in Al Khobar, but also taking advantage of the King Fahd Causeway to Bahrain, which also allows Bahrainis to visit Saudi Arabia.

"There's leisure demand as well as corporate demand in these areas and we see several opportunities for us. In fact we've recently signed the Crowne Plaza Al Khobar, which is under construction and we're looking at other Holiday Inn opportunities in that area as well," says Kasselis.

"Other than that, you'll see in the longer term a lot of Red Sea resorts being developed. If I look at our strategy and the tourism potential of Saudi Arabia, you've got the mountains in the south near the Yemen boarder, you've got historical sights - by that I mean Madeim and Saleh - you've got a lot of religious sights but also the Red Sea beaches, diving and water sports."

Other lesser-known regions are also opening up and emerging as possible areas for hotel development, such as Hail - also the site of one of the economic cities.

"In Hail there are major highways and rail lines being built through Saudi Arabia, and as these urban centres develop more we know there'll be more demand for branded hotel accommodation. Saudis are very brand conscious, because a brand is a promise," says Kasselis.

Hilton Hotels' Herzog says that, given the size of Saudi Arabia, it could also be a very good opportunity for the introduction of mid-market hotels, such as Hilton's Doubletrees, Hampton Inns and Hilton Garden Inns brands "that would be ideal to cover secondary locations or to act as second hotels in major cities that we're in".



"As the market develops, the country grows and more things happen away from the traditional centres of Riyadh and Jeddah and spread into the country, the feasibility of having mid-market hotels in secondary cities will grow. And of course we have the massively-growing population that love to travel within the country and would be ideal guests for those properties if they go through those secondary cities," he adds.

IHG's Kasselis agrees that hotel owners in Saudi Arabia as in the rest of the GCC countries, have been focusing heavily on the five-star market and that the country is now ripe for the introduction of mid-market accommodation.

"We know from our global experience, particularly in the US and UK with Holiday Inn, that the slice of the pie in terms of mid-scale is far bigger than the luxury end of the market. When you have room rates in markets exceeding US $200 that's not for everybody," he says.

The fact that many Saudis travel with their families, drivers and housemaids means that apartment accommodation is very important, and Kasselis sees the "potential for extended stay in Saudi Arabia."

"We've recently announced the launch of Staybridge Suites in the Middle East and we're working on several projects in Saudi Arabia because we see a lot of potential for that extended stay apartment accommodation."