Hotelier Express roundtable speakers, discussing the trends, opportunities and challenges facing the industry.
How will the upcoming supply affect rates?
Mark Allaf: In my opinion, the increase in supply will gradually start to force a reduction in ADR across the board. Hilton is responding to the call from the government to add more mid-market hotels, by introducing our focused service brands, but we know this step is going to affect the ADR growth in the city. I do believe however, this influx will eventually influence and affect the ADR of the full service segment, which at some point will then reflect back on us. We must make a choice whether to maintain our rate strategies, or consider a different approach in order to remain competitive.
Marloes Knippenberg: I think the question regarding ADR and supply, from a hotelier’s perspective, needs to include what are the next steps being taken by the airlines, because it’s a great conversation that we haven’t had on this level. We’re having a discussion about ADR that goes further than merely competing hotels, but how is the UAE going to increase that volume of arrivals? Diversifying the portfolio is not just about the leisure activities on offer, it’s also what are the business opportunities? It becomes a question of what can we do, working together, that supports the industry. It’s not just about the ADR for that small volume, because that’s not enough to fill all the rooms.
Tarek Daouk: If we look back 30 to 40 years ago, it was very luxury focused and upper scale and less economy and mid-scale – clearly they are seeing that the global economic shift will impact this city so they’re working on setting an equilibrium by launching more affordable products. So yes, in the short term ADR is going to be affected, but people need to keep focused on the medium to long term. This is in line with the government vision. The government is post-2020 focused, we’re yet to see how this maturing will play out. It is new, we don’t know if Dubai will succeed in bringing in the mid-market – but it is definitely putting pressure on the five-star luxury sector already.
Will alternative accommodation impact the mid-market?
Mark: It has created some impact in certain markets already, but others have not even heard of them yet. I don’t think Airbnb can compete with brands that have been in the market a long time. Hilton Garden Inn has a different service guarantee that Airbnb can’t compete with. While the market still gives global brands an opportunity to outperform others, there is space for everyone, and it depends on the guest’s requirements. The tech-savvy consumer, such as the millennial traveller, will be looking for digital experiences, where I feel small brands can’t offer what they need.
Tarek: I’m not against Airbnb – it’s a pure evolution of consumer behaviour. What’s interesting is that Airbnb is allowing hotels to post inventory on their platform with the indication that it is a hotel. However, Airbnb won’t be able to deliver a family vacation on the beachfront. We need to address the guest’s needs, by providing the services and price points they are demanding, and even competing with Airbnb. Also, the real estate market is flooded by new supply, and pressure on this market to rent accommodation is leading to a rise in more Airbnb units coming online. That is something to keep in mind, but you can’t foresee or control this change.
Mark: I always wonder what happens after 2020. Is the UAE going to be able to fly in enough guests to meet the coming supply? What incentives are we giving our owners to keep on this track? If ADR is decreasing, we need to consider the fact that the industry can’t be expanded without vision, investments like family attractions, including Dubai World will certainly help.
Marloes: With the likes of Airbnb, it was the traveller who allowed this to happen. Airbnb has no inventory – it’s just a platform, this is what the people wanted. They asked for something different – they now want experiences. The lifestyle photoshoots of big chain hotels still have the same similar look and feel, instead of this, Airbnb is doing something great and the market should not fight it, but instead ask how to integrate it.
Do you anticipate source markets and guest profiles changing?
Mark: Many of the Middle East source markets may not have considered Dubai due to pre-existing cost perceptions. However, more mid-market growth is changing this, resulting in more business diverted to the economy sector, so we are looking to drive new business from new markets in the future too. Certain markets will remain dominant in my opinion, for example India, Europe and the Americas.
Marloes: Dubai has been way ahead of the market for a long time, but I think there is little education around the mid-market here – we see this in the promotional activity which is still projecting the luxury image. For example, we have hammered into the UK market and told them what is on offer in Dubai, to now go back there and re-educated that market on what mid-market is and what is available, can we revisit them? And can we give that message in a different way to highlight what is offered by the mid-market? There are requirements that change across star ratings, it’s a complex situation, and people need to know what they are booking.
Tarek: These are all signs of maturing market. Look at ADR in the last 15 years, Dubai has been a top 10 destination – that’s predominantly driven by luxury, but there’s a correction that’s coming – will operators be smart and collaborate to ensure rates don’t drop? You will always have unsophisticated operators who will slash rates to fill beds. But that brings down the whole market. There is a ripple effect throughout the whole of Dubai. These are challenges to be understood globally. But arguably more important here as Dubai is the fastest growing market.
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