Hotelier Middle East GM Survey 2017 results revealed!

The Middle East has had a few bumps over the last few months, but nothing that general managers and their teams can’t tackle. According to the STR data revealing Middle East/Africa hotel performance for Q3 2017, hotels in the Middle East reported occupancy fell 2.8% to 60.9%, and an 8.1% ADR decrease to US $145.50 drove RevPAR down 10.7% to $88.61.

All in all, the region is grappling with the concerns around increased supply, along with the competition it presents, and how to deal with the increasing number of guests who turn to online reviews before booking a hotel stay.

ONLINE DETAIL

It’s no secret that online reviews  and ratings are still very important for hotels; but over the years however, many a hotelier has, off-the-record, shared horror stories on fake reviews.

Fairmont Fujairah Beach Resort general manager Omar Souab told Hotelier: “An online review is as important as a personal recommendation as travellers are increasingly driven to hotels based on online reviews. A 2011 study led by Boston-based global research firm Forrester has proven this. They found that close to 50% of consumers are unlikely to book a hotel that does not have online reviews.”

Patrick Antaki, complex general manager of Le Méridien Al Aqah Beach Resort, Fujairah and Al Maha, a Luxury Collection Desert Resort & Spa, commented: “Whether we like it or not, social media is here to stay. It has become an important global platform for travellers to voice their opinions, which is so much easier to do behind a keyboard. Travellers are not inhibited to share a good or lousy experience, and this transparency is good. While positive reviews are appreciated, negative reviews must be dealt with carefully. Hoteliers must look at the concerns and address the reviewer cautiously. We have been fortunate to have genuine reviews on TripAdvisor, which leads to increased business.”

One of the general managers surveyed said a challenge in this region is “to deal with negative online comments where we have no grip on the purposeful blackmailing of some guests” — echoing what has been shared with Hotelier previously.

When asked about this trend, Frasers Hospitality area manager — pre-opening Middle East & Africa Cyril Warsono reported: “TripAdvisor is very important, as people read reviews when they want to make a decision on where to eat or stay.” He said the trend is now largely to have what he referred to as “a social confirmation” before ironing out plans.

Iftikhar Hamdani, the cluster general manager of Ramada Hotel & Suites Ajman, Ramada Beach Hotel Ajman, and Wyndham Garden Ajman Corniche, also weighed in on this. He said that online reviews from TripAdvisor, alongside the comments and ratings from booking websites, have significant impact on business. “The trends are changing as we have recently seen an increase in direct online bookings and these reviews and feedback highly influence the guests in choosing their hotel, on top of the pricing and facilities,” he added.

Recognising the importance of these sites, Hamdani was behind launching a Guest Happiness Committee in July this year with the aim of improving the guest experience and ratings on review websites. “We pooled in members from various departments including the executive office, sales and marketing, and front office departments, who will be responsible for monitoring feedback from different review websites and taking the necessary actions,” he explained.

Premier Inn Hotels dual site GM Pawel Guminski pointed out that it’s not just TripAdvisor, but Booking.com and Google Reviews hoteliers need to think about. Guminski said: “I can’t stress enough the importance of online reputation when it comes to hotels located in Dubai and beyond. It  should be on the top of our agenda as this brings the future customer, whether leisure or business.”

On the topic of fake reviews, all hoteliers mentioned that reporting fake reviews to the platform as soon as they are found is of uptmost importance, so that they can be deleted.

Guminski added: “However our target is to wow our guests and drive the volumes of genuine opinions. Even if fake reviews appear, they will get lost in hundreds of real ones.”

He continued: “Hotels’ online reputation evolved  as a possible addition to revenue strategies, especially in a competitive market. It is important to gather feedback and distribute it in a smart way so hotels can increase their visibility on social media and booking platforms, as well as drive traffic to hotel website. It is, and will be even more, important to start using Guest Satisfaction Index in comparison to Revenue Generation Index. Those two are directly linked (apart from many more factors affecting RGI).”

THAT TAX EFFECT

Another topic general managers are concerned about is the implementation of a number of taxes and fees, including the impending VAT. While 42% of our GMs said they will pass it on to the customer, nearly 45% said they will work on a combination of absorbing the cost as well as passing it on. Only 13% said they will absorb the cost.

Fraser Hospitality’s Warsono commented: “We will pass it to the customer as this is a country-new referendum.”

Premier Inn’s Guminski added that his properties will carry out a combination of both. “There will be requirement to approach various market segments (e.g. public, corporate) in a different manner. VAT will be passed onto some of these segments, whilst in case of others, it will be absorbed by the hotels,” he explained.

One GM from the survey said: “VAT is so unclear we still didn’t plan what we will do about it, but whoever witnessed new tax implementation does understand that it cannot be passed onto end user.” In the survey, a couple of respondents said that their biggest challenge in the next year would be VAT.

When asked what their country’s government could do to improve the operating environment of their hotel, one GM said: “waive taxes and fees”, while another concurred. A few other GMs spoke of delays, and one said: “delay the VAT, freeze the 10% municipality fees”. One general manager even called for a “restructure” of the tax.

A question Hotelier Middle East asked to a pool of 30 members of the AHIC advisory board this year was whether the implementation of VAT from 2018 will affect hotel investment decisions — 47% said it would, while 20% were not sure yet. One-third said it would not.

On the topic of fees and taxes, Hamdani told Hotelier: “Currently, Ajman hotels pay a total of 10% for the municipality and tourism fee. The introduction of VAT in January 2018 will increase it to 15%, which will make a direct impact on the business and undoubtedly affect the major segments including the corporate segment and business travellers, online bookings, and walk-ins. At the same time, we have to absorb the cost to retain the businesses with us, specifically the leisure segment. Our three properties —Ramada Hotel & Suites Ajman, Ramada Beach Hotel Ajman, and Wyndham Garden Ajman Corniche — will not pass on the VAT, and absorb the costs for our leisure partners up to the first quarter of 2018.”

Also for the first time since running this survey, when asked which developments GMs consider to be their biggest issues affecting performance in the next 12 months, ‘taxes/additional fees’ was listed in the top three issues that would affect performance, with 56.41% believing that it would. As for the others, 76.92% said increased competition, and 51.28% said falling oil prices were performance affectors.

WHAT’S AFFECTING PERFORMANCE?

Increased competition essentially means increased supply. STR area director Middle East Philip Wooller recently presented the latest Middle East hotel pipeline and performance data to the AHIC Advisory Board which took place in October, where owners and operators alike aired their concerns about the continuing imbalance between supply and demand and the inevitable consequence of declining RevPAR. According to the data, currently, the Middle East is one of only two regions globally (the other being South America) in which supply is outstripping demand, with supply increasing at a rate of 4.9% versus demand at 3.2%.

According to the survey results, 79.49% GMs think there is too much supply for current levels of demand, while 2.56% think the supply isn’t enough. Southern Sun general manager Pierre Delfau tells Hotelier: “We are certainly seeing a decline in demand, however we are still achieving strong occupancy levels compared to other major cities around the globe. New volume leisure segments are coming to our shores and using mid-market properties which should help forming a base business and close the gap between supply and demand. The key issue remains the price point we have set our hotels at, especially in Abu Dhabi, where aggressive rates are offered throughout the year now and occupancies are still at a good level. We are undervaluing the market and this could have a long-term effect, which will impact on profitability.”

Fraser Hospitality’s Warsono added: “No doubt, the pressure on rates and revenue comes as further new four- to five-star  hotels were added to the market in the 2017 — and a lot of hotels refurbishing existing rooms released them back into the market this year. Despite the recent push toward mid-scale hotels, the supply remains primarily focused on four- and five-star, and occupancy has been a healthy 75% since the beginning of 2017. The decrease in the Dubai hospitality performance is perceived as an adjustment of the market rather than indication of distress/oversupply. The outlook of Dubai will remain positive, especially the city continues to invest heavily in tourism infrastructure and diversify towards new source markets such as China, South East Asia, and North Asia.”

Hamdani commented: “In Ajman, we believe that the additional supply of rooms will meet the growing demands in the emirate. ATDD is very active in sourcing new markets — we have recently participated in their road shows in Scandinavian and CIS regions — to ensure that the new rooms will be filled and there is a healthy occupancy and revenue for the hotels.”

The participating general managers in the survey were also asked to pick their top three source markets. Among our respondents, the GCC is leading the pack with 87.23%, Europe is next with 69%, while the Indian sub-continent accounts for 36.17% of these GMs’ source market.

Hamdani continued: “In terms of the overall scenario in the UAE, yes, there is currently an oversupply of rooms, which affect the rates and RevPAR of the hotels. However, we are positive that the supply and demand graph will eventually balance out closer to 2020, and the entire country — not just Dubai — will reap the benefits of the increase in guest arrivals.”

Guminski added that this is only normal for a booming destination. He said: “Is it not the same case for any country coming up on the map as a popular destination? Until last year, the hospitality industry in Dubai had an amazing time. High level of occupancies and rates that today sound like science fiction. Whoever looked at the course of events surely could predict it will not continue forever. The authorities are doing great job in driving demand, and despite the additional supply, occupancy seems to be stable (at the cost of the rates) and this is something that should continue for next few years to come, according to the STR outlook. Buckle up and get through it.”

Stephan Vanden Auweele, area general manager of Sheraton Dubai Creek Hotel & Towers, is also upbeat. He commented: “With occupancies in Dubai hotels averaging at +75%, it is debatable whether the city faces an oversupply of rooms or not. When comparing rooms on a global level however, Dubai is ranked among the highest, and this gradual increase of room inventory can be justified as a build-up to Expo 2020 where the city aims to welcome 25 million visitors.”

From the Northern Emirates, Souab speaks optimistically: “For our destination, the situation is different. We exist in a destination that is still developing and has much potential particularly in the ever growing tourism sector in Fujairah, as the emirate marches towards its 2040 vision development plan of integrated growth.”

RATES, REVPAR, AND OPPORTUNITY

Increased supply can affect occupancy. When asked what occupancy levels were like in 2017 compared to the previous year, 32% said they were slightly lower than 2016, 15% said significantly lower than 2016, while hearteningly, 23% said it was the same as in 2016. A GM commented that his biggest challenge is “retaining occupancy and increasing ADR”.

On the topic of room rates, these have dropped; 43% said that room rates this year have been slightly lower than in 2016, while 23% said they have been significantly lower. A GM said that a concern was “achieving the ADR that my head office and owner expect”, while another said it was “to increase the average rate based on market supply surpassing the demand”.

Auweele commented: “Dubai is a dynamic market that reacts very quickly to ever-changing business demands. Considering that most of our costs are fixed, hoteliers have a tendency to flex rates to drive volume, and balance the situation.”

Many GMs in this survey, and at length during the Great GM Debate [pgs 30-37], discussed rate drops and the rate wars. Respondents said “room rates and rate war” and “increased competition and price war” were challenges up in the months ahead. Some suggested alternatives; one said that “rate war control” by the government was desirable, while another suggested that the authorities “put lower-end rate capping as per hotel classification to ensure all segments get their fair share of business”.

Yet there are developments giving hoteliers a reason to hope. Many mentioned the enhancement of visa-on-arrival lists as being positive for their numbers, and some called for further diversification. Others mentioned the Expo 2020 as well as the opening of the Louvre Abu Dhabi as developments to capitalise on. We will wait and see how hoteliers react.