AHIC event preview: Future in focus

The Arabian Hotel Investment Conference (AHIC) 2018, with a theme of ‘Focus’, is set to take place on April 17-19, and will, for the first time, take place at a custom-made complex called the AHIC Village on the beach in front of The Waldorf Astoria Ras Al Khaimah.

At the time of this announcement, Bench Events chairman Jonathan Worsley released an open letter to members of the AHIC community outlining the changes in the conference this year. In an interview with Hotelier Middle East prior to releasing this letter, Worsley revealed at the time: “We have been in Madinat Jumeirah for 13 years and Gerald Lawless was a great supporter of the conference when we first set it up. We thought it would be good to shake it up and take it outside Dubai to make it more of a destination conference for our delegates.”

Bench Events managing director Middle East Jennifer Pettinger-Haines tells Hotelier Middle East: “We are tremendously excited to host ‘AHIC on the Beach’ this year and believe this answers to feedback we’ve received in the past by taking the industry out of the day-to-day and creating an environment where attendees can really immerse themselves and focus on connecting, learning and doing deals. Everything Ras Al Khaimah has to offer, from the highest mountain peak, to the depths of the sea and everywhere in between, make it the perfect location to enhance the AHIC experience within an authentic cultural setting.”

She continues: “Ultimately, AHIC is about and for the Middle East’s investors and their scope is regional, global in fact. Whilst previous editions have always reflected this broad appeal, we felt it was time to explore a new destination. It is really testament to the success of Ras Al Khaimah as one of the region’s fastest growing tourism destinations and its emergence as a prime MICE and business host. Crucially it also offers a fantastic opportunity for our delegates, as hotel investment is integral to accommodating the Emirate’s growth, with the need for an additional 15,000 hotel rooms by 2025.”

Pettinger-Haines notes that the event includes high-level strategic insights to the principles of hotel investment, development and management, as well as a regional and global showcase of hospitality projects with live investment opportunities, and more networking events than ever before. “For the first time, AHIC really extends after hours and gives delegates the opportunity to connect over dinner and drinks in a much more informal fashion,” she adds.

Saudi Arabia-based Maad International’s chief hospitality officer Abdellah Essonni says that Ras Al Khaimah as the host city will take centre stage this year. “And deservedly so. Ras Al Khaimah is steadily establishing itself as a destination of choice for nature lovers and adventure seekers but has also thrown the doors wide open for investors in all sectors.”

Hilton vice-president development Middle East North Africa & Turkey Carlos Khneisser comments: “This year AHIC is being hosted for the very first time in Ras Al Khaimah. This is a destination Hilton has pioneered and we are proud to be welcoming guests to the Waldorf Astoria Ras al Khaimah for the event. Having the event in Ras al Khaimah is a reminder of the importance of a forward looking mindset when it comes to hotel development.”

The event’s new feature ‘Day of Disruption’, which takes place on the first day (Tuesday, April 17), is something Pettinger-Haines highlights, because it “promises to harvest knowledge from outside of the hotel industry and challenge the status quo”.

She explains: “The day has been purposefully designed to shake-up traditional ways of thinking and bring insight to the hospitality investment industry from forward thinkers operating in various sectors, from cybersecurity and cryptocurrencies, to marketing and motorsports. We hope this will inspire and challenge the hotel investment community to approach things differently as they focus on the future and analyse the potential of current and future assets alike.”

The Day of Disruption will be attended by CEOs from companies such as Winding Tree, Vayner Media and Tint who will share their knowledge and experiences in the industry. Author of The Disruptor’s Feast and former CEO of Starwood Hotels and Resorts, Frits Dirk van Paasschen, will headline The Day of Disruption on April 17.

Discussing the future of the industry, Pettinger-Haines says that by its very nature, there is a continuous evolution in the business of hospitality, but points out that the speed of change is only going to accelerate. She notes: “People will always travel and need hotels but it is becoming more challenging for traditional players to keep pace with what the consumer wants from the industry.  I think hotels are going to become progressively polarised into experiential versus functional properties.”

She comments on the number of hotel company mergers and acquisitions over the last few years, which have resulted in the formation of huge groups. “As a direct result, I think we will see certain types of investors (as well as travellers) seek out smaller brands and operators,” she predicts.

One of those kinds of travellers are the millennials. Emaar Hospitality Group CEO Olivier Harnisch agrees, and says: “There will also be an emphasis on how the new generation of travellers — the millennials — are changing the hospitality industry landscape, especially with an increasing demand for midscale hotels. Emaar Hospitality Group launched Rove Hotels, our contemporary midscale hotels, in response to this shifting trend.”

Pettinger-Haines also concurs, and states: “I think that the millennial market is the one everyone is trying to capture and, as such, properties which are more unique and focused on experience are becoming more popular.  Similarly, as the mid-market traveller becomes more important for the region, there is a push to invest in this segment as well as develop outside of primary cities.”

This is why brands such as Hilton Garden Inn and Hampton by Hilton are where Hilton sees the greatest opportunity for the region and in particular markets such as Dubai, Jeddah and Makkah where upscale and luxury is firmly established, reveals Khneisser. He notes: “This is something that, as our mid-market hotels open and begin to drive market premiums, owners are realising as well and coming to us asking for more. Aside from looking for operators who will maximise returns, owners are increasingly wanting to become involved in their investments and this means they value brands that can offer flexibility. Brands like DoubleTree by Hilton and our Curio Collection are less bound by brand standards and guidelines, meaning that an owner can develop a hotel with us that still avails of our commercial platforms (and 70m plus  Hilton Honors guests) but is still able to retain its own unique identity and branding.”

So all are in agreement that there is plenty of opportunities to be had. Essonni says that recent industry reports show a staggering pipeline increase in rooms supply for the GCC, with more than 51% (72% in Makkah alone). “Is there a risk of over-supply?” he asks. He says that the KSA 2030 Vision and opportunities that it avails to investors, developers, operators, and suppliers should be a point of discussion at the event.

Harnisch shares some statistics, which shows that the region’s construction market, which BMI Research and PwC named the world’s fastest growing, now totals over $4 trillion — much of this construction directed towards the hospitality industry. “Hotel owners are, no doubt, seeking increased returns and value. That is why we have introduced our new approach to the hotel management agreements. This is a departure from the prevalent fee structure in the hospitality sector, where hotel operators receive a base fee as a percentage of gross revenue and an incentive fee based on the gross operating profit,” he reveals, and continues to say: “Our alternative model is based only on an incentive fee, which is driven by the operator’s ability to generate profits rather than revenues. In an industry where most global fees earned are linked to revenue, the new model aligns the interests of the owner and operator as it focuses on profit generation, replacing the emphasis on top-line results with a focus on bottom line achievement.”

Essonni comments: “What are owners looking for when it comes to signing operators? In one word: ROI. Gone are the days where owner were driven by ego and a sense of prestige. They are more pragmatic now as well as savvier in managing operators. Most will soon insist on risk-sharing mechanisms to be included in their HMA.”

Profits and revenues are important, so Hotelier asks how the introduction of value added tax (VAT) in  the region can affect the sector. Pettinger-Haines believes that the hospitality industry is one of the best equipped to adjust to VAT. “The reason for this is that many of the operators have a global presence so are well placed to understand the implications and can adjust their business accordingly. At the same time, customers from several large source markets for the Middle East are familiar with one form of tax or another being added to their purchases in their home countries. For many first-time visitors to the region, I don’t expect they’ll even notice it.”

She states that this should provide some reassurance from the perspective of an investor. “But there are, of course, potential concerns related to the fact that it is already an expensive place to run a business from and with the introduction of tax, experience tells us that what starts at 5% can quickly escalate over time.

“The introduction of VAT could also potentially cause consumers to tighten their wallets and search around for value offers. On a regional level, there will be an increased cost in living generally and only time will tell which luxuries consumers are happy to spend on and which they decide to cut back on.”

On a macro level, Pettinger-Haines says: “In addition, as a destination without income tax, many expats come to work in the UAE with the promise of higher disposable incomes. With the introduction of VAT, recruitment may be impacted with expats worried about the potential increase in the cost of living.”

Harnisch says: “Value-added tax per se does not impact investment opportunities; it is customer-oriented, and as you can see in the UAE, there has been a seamless transition. Here in the UAE, the authorities have defined how 
VAT revenues are going to be channeled for the nation’s development.”

Essonni says: “VAT has been long coming so businesses were preparing themselves to embrace it and integrate it in their business plans. Also, we’re all bracing ourselves for even more forms of taxation in the near future…It’s inevitable!”

When it comes to the future, technology is also an issue mentioned by many hoteliers and owners as a trend that hotels need to take seriously now and over the next few years. Harnisch shares his thoughts: “While there are several areas of discussion, one of the central themes will be the ongoing debate on the digital transformation of the hospitality industry and how that is changing the way the industry addresses guest service.”

At Emaar Hospitality Group, Harnisch confirms that the operator has launched three key projects to mark their digital transformation, which will be a focus area for discussion at AHIC. The first project focuses on removing inflexibility of transactions and bringing seamless service to the guest, ensuring that guests can check-in/check-out anytime, anywhere. Transactions can be conducted through integrated mobile systems promoting self-service options.

“Our second digital initiative leads to the transformation of hotel rooms as intelligent rooms that tunes itself to the preferences of the guest through machine learning and artificial intelligence. By leveraging the Internet of Things, there will be connected devices for room control, motion sensors and integrated TV and voice control for enhanced guest experience,” he says.

Finally, Harnisch adds, the third project draws on digital collaterals to free up space in guest rooms and public spaces. “Through digital storage and connected processes, operational spaces will be decluttered, and turned into social spaces for better guest interaction and fun activities,” he reveals.

He notes: “From an operational point of view, the future of our industry will be set by how efficient our internal processes are. The application of blockchain technology and efficiency improvement tech-modules will be a driver of success. We are already relooking at how the guest experience can be further enriched through key digital projects, while enhancing our operational efficiency.”

The future also holds many events as well as long-term vision plans from various GCC governments. So Harnisch echoes Essoni’s comments, and says: “Investments in the region’s hospitality sector are strong especially with the focus of the governments to drive economic diversification with a focus on tourism sector for the enormous potential it has. In the UAE, the preparation for Expo 2020 Dubai, is another driver for hotel investments.

In Saudi Arabia, it is the Saudi Vision 2030, which aims to strengthen the share of tourism in the GDP, that has energised hospitality investments.

Essonni concludes: “With two global events upon us, Expo 2020 and the World Cup, the sentiment is rather positive, which fact is evident in the sheer size of the pipeline (51% as mentioned earlier). Most see these two events as catalysts for even further growth for the region as a whole. There’s also a mounting appetite for affordable ‘design’ hotels such as Marriott’s Moxy and Aloft, Hilton’s Curio or yet Hyatt’s Andaz.”