Market update: Abu Dhabi

For hoteliers in Abu Dhabi, a hospitality market heavily reliant on business from the oil and gas, corporate and government sectors, the first half of 2016 has been a challenging operating period. As oil prices have declined, so too have spending levels. The international leisure segment has been impacted as well, with the stronger dollar meaning visitors have less spending power. As demand has softened, so have rates, with pressure to keep prices down likely to continue even as the season picks up in October.

At TRI Consulting, associate director Christopher Hewett says Abu Dhabi has seen a three percentage-point decline in occupancy in the first half of 2016 to 72.4%.

“When coupled with the 9% drop in average room rates, this has resulted in RevPAR falling 12.6% to US $110.23,” he says. “Softening top line performance has directly impacted profit margins with GOPPAR falling 13.7% to $68.37.”
The situation is compounded by the addition of new inventory, with consultant JLL forecasting that 2,400 new rooms will be added to the market in 2016.

As far as Hewett is concerned, “the hotel market in Abu Dhabi will continue to soften in the second half of 2016 as the continued low oil prices and subdued government and corporate spending impacts demand for the capital’s hotels”.

But what do the hoteliers think? In this report, Hotelier Middle East asks the operators at the coalface to weigh up the current situation and analyse the trends that could have a vital impact on future growth.

First half performance

At one of Abu Dhabi’s most established hotels, Le Royal Méridien Abu Dhabi general manager Max Wiegerinck acknowledges that it has been “a challenging first six months of 2016”. “Many of the hotels in Abu Dhabi are depending on the oil and gas sector for daily business, both in terms of accommodation as well as meetings and events. We’re experiencing significant pressure on rate, as companies are asked to keep tight controls on their spending. By them reducing their spending on hospitality-related services, most hotels have surely felt the impact,” he says.

Wiegerinck expects this scenario to continue into the second half of the year: “We’re expecting relatively stable numbers in terms of occupancy, even though the next two quarters will likely see a number of new hotel openings. Rates will continue to be under significant pressure, with customers shopping around for the best possible offers.” He says he’s “cautiously optimistic” for the “slow recovery” of oil and gas companies, but admits “this is pure speculation”.

Tarek Madanat, director of sales and marketing at Jumeirah at Etihad Towers, which celebrates its fifth anniversary in November 2016, says the hotel business is one of those impacted by the reduced liquidity of oil and gas companies, which are spending less across the board.

To counter this, the hotel has been focused on increasing business from the GCC market overall, with GCC and Middle East guests increasing from 46% to 51% in 2016 so far.

“Of our guests, 74% are business travellers and the rest are here for leisure,” says Madanat. “As for the remaining period of 2016, we anticipate flat growth versus last year, yet the market is declining overall and our focus is to increase market share,” he forecasts.

At Southern Sun Abu Dhabi, general manager Pierre Delfau says that “over 60% of guests” are from the GCC, while at The St. Regis Abu Dhabi, director of marketing Katie Malone says that on average, GCC guests contribute 30-40% of business, but that the percentage “fluctuates significantly throughout the year”.

Delfau adds: “We also enjoy strong support from European countries such as Germany, UK and France. Our group Tsogo Sun is well known on the African continent and the UAE is an attractive destination due to flight connectivity and proximity. We see this as a growing market, but we are always looking for new opportunities wherever they might be, either in the GCC or worldwide.”

Wiegerinck says the guest base at Le Royal Méridien Abu Dhabi varies depending on the seasonality. “In general, our number one source of business is the UAE, followed by the US, UK. For 2016 we’re seeing encouraging numbers from the GCC, with Saudi travellers growing significantly year over year. Most hotels are looking towards China and India, as we know these markets represent significant opportunities going forward.

“We’re spending a lot of time and money trying to make sure our product offering is in line with their expectations — both in terms of F&B and in-room amenities — but also by ensuring our social media and websites are available in various languages,” Wiegerinck reveals.

Future development

As the operators plan their second half forecasts, one factor playing a key role in the business outlook is the addition of new inventory. Wiegerinck says: “2017 should see an additional 11% increase in supply, with many of the world’s leading hotel companies adding properties to their Abu Dhabi portfolio. In short, the hotel market is under significant pressure — both in terms of companies looking to minimise their spending, as well as new supply being added to the market.”

The Abu Dhabi Hotel Market Summary report from JLL revealed that 200 rooms opened in Q2 2016 with an additional 2,200 rooms forecast to be added to the market by the end of the year. The Q2 report also predicts hotel room supply in Abu Dhabi is expected to reach almost 26,000 rooms by the end of 2019.

New openings anticipated by the close of 2016 include: Grand Hyatt Abu Dhabi Hotel and Residences Emirates Pearl, Gloria Downtown Hotel and the 677-room Bab Al Qasr, operated under Millennium & Copthorne Middle East and Africa’s Biltmore Collection brand and due to open in Q3. In 2017, Hard Rock Hotel Abu Dhabi is also due to come online.

Demand is there, with a year-on-year growth in tourism arrivals continuing, according to JLL, which reported an 11% increase in hotel guests for year to May 2016, compared to the same period to May 2015. Abu Dhabi Airports has also reported an increase in arrivals, with the total traffic for January to June reaching 11,848,359 million passengers — a 6.6% increase from the 11,111,577 passengers in the first six months of 2015.

Traffic to and from Doha and Jeddah both grew by 12% in June, with passengers increasing from 53,912 to 60,395, and 52,342 to 58,816, respectively.

The MICE segment has also performed well, with Abu Dhabi National Exhibitions Company (ADNEC) reporting AED 1.32 billion ($359.3 million) in direct and indirect economic impact. The company said it drew more than 812,000 visitors to its 124 conferences and 34 exhibitions at Abu Dhabi National Exhibition Centre and Al Ain Convention Centre in the first six months of 2016. It is this sort of supporting infrastructure that will be critical to the growth of the hotel business.

With regards to the airport, TRI’s Hewett says: “The completion and opening of Abu Dhabi International Airport’s new midfield terminal will have a significant impact on the hospitality and tourism market in the city. With the existing airport facilities operating at near full capacity, the opening of the new terminal will add desperately needed extra capacity in the number of flights and passengers the airport can accommodate.”

At Le Royal Méridien Abu Dhabi, meanwhile, Wiegerinck is relying on the continued growth of the city’s MICE business and the completion of several major tourism developments.

“We’re hoping for some of the reoccurring Abu Dhabi events such as ADIPEC and F1, in combination with the continued expansion of Yas Island, to attract a lot of visitors this year,” says Wiegerinck. “Also, we’re all anxiously anticipating the completion of Abu Dhabi landmarks — primarily Le Louvre — to open. The completion of Saadiyat Island has the potential of being a game changer and we’re expecting the entire city to benefit from this.”

Trend watch

While the forthcoming infrastructure will be beneficial, existing hotels need to focus on internal strategy to keep up with the new inventory.

One area of focus should be distribution and marketing, says Madanat at Jumeirah at Etihad Towers, with the switch from print to online/digital critical. “Partially it has already taken place, but still many industries, and especially ours, have not yet paid enough attention to this rising demand,” he observes. “As a hotel we realise that our customers and guests are less and less interested in printed advertisements and brochures, leaflets or letters placed in the room or in the food and beverage outlets.

“Having spotted this quite early, Jumeirah at Etihad Towers has almost completely switched to online and digital information spread.

“All information can be found a click away on our in-room TV screens, iPads, elevator screens, applications and on our website. Here, offering good connectivity everywhere, and yes, even on the beach is most important,” he asserts.
The St. Regis Abu Dhabi’s Malone says that development in the online arena has been “the biggest growth area”.

“Understandably, more and more customers are going online to book and we have enjoyed huge growth as a result of this burgeoning market. It’s very powerful for us as it allows us to communicate directly with the end user in real time,” says Malone.

Ensuring the product suits the staycation market in the UAE is also important, according to Wiegerinck.

He explains: “UAE visitors are up YOY, with many people turning to staycations, over travelling by air to international destinations, looking for shorter and more intense breaks in their own city. It’s all about value for money and experiences — our guests are very much into special offers and packages, both in terms of F&B inclusions as well as leisure activities. They want their weekend away from home to be served on a silver platter — we’re a one stop shop!”

Wiegerinck adds that a similar principle is also true when it comes to visitors from the GCC.

He explains: “As of result of recent activities in places such as Egypt and Turkey, we’re seeing opportunities in terms of trying to attract travellers looking for alternative destinations.

“We’re seeing an upswing in GCC visitors — both for business as well as pleasure — and it would seem many people prefer to spend their holiday not too far away from home.”

Ultimately, Abu Dhabi is still perceived as an expensive market and Wiegerinck says there is now a trend for “operators expanding in the mid-market segment, offering select service products at very attractive rates”.

Delfau says this premise is behind the success of Southern Sun Abu Dhabi, which has also achieved growth in the long-term market thanks to its apartment offering.

“Travellers very often expect the same level of service in mid-market properties as they would see in luxury hotels,” he says. “The service style of a property is not always dictated by its grading, rather by its essence or philosophy,” he says.

With increased inventory, such diversification will be expected and it will likely be the luxury end of the market that remains under most pressure — at least until the long-awaited cultural and tourism attractions come online and compete with the leisure appeal of neighbouring Dubai.