2010 expert forecast
Hotelier Middle East presents a round-up of the burning issues, top trends and stand-out openings in the region’s hotel industry this year
As a New Year dawns, hoteliers are more likely to be seeing entering 2010 with trepidation than with a spring in their step. The optimism of a recovery this year that many had spoken of during the first half of 2009 has long since diminished, with everyone from owners to line staff far more realistic about business prospects in 2010. Expectations are toned down and forecasts lower, with hotels aiming for a better year — as opposed to a good year.
On the plus side, hoteliers face significantly less uncertainty than at the start of last year. As the saying goes, forewarned is forearmed. The industry coped with the shock start to 2009 and is now far more prepared to manage the downturn through 2010 — cost saving strategies have been tried and tested, recruitment policies amended and sales approaches more proactive.
Hotels experimented with solutions to counter the impact of the crisis and now have this tried and tested knowledge and experience to help them power into 2010.
And it is not just this new-found wisdom that will work in the industry’s favour; the facts and figures show an industry that is surviving the crisis. According to STR Global data, despite declines, the Middle East still recorded on average higher revPARs and occupancies than other regions. So, people are still checking into the region’s hotels and the softening of rates throughout 2009 has not, generally speaking, had a damaging impact in the short-term.
But what about the long-term impact of the economic crisis? How will the Middle East hotel industry plan for success and growth in the future, while still struggling to secure the bottom line in the present time?
As we said, forewarned is forearmed, so in order to plan ahead, hoteliers must understand the trends that have dominated the industry over the past 12 months.
According to Fairmont Hotels & Resorts regional vice president UAE Philip M. Barnes, also general manager of Fairmont Dubai, “to understand the trends of 2009, one has to understand the consumer”.
“Unemployment is at levels not seen in decades in many parts of the world, and from the factory floor to the executive boardroom, people have suffered losses in investments from stock to pensions. This has resulted in a much more cautious approach to life in general, and the dirham spent today is far more significant than it was a year ago,” observes Barnes. “Value for money is firmly placed top of mind with today’s consumer, and there is a return focus on savings influencing every decision to purchase,” he adds.
Accor Hospitality Middle East managing director Christophe Landais urges dynamic pricing from hoteliers to meet this need.
“Since the bargaining power of suppliers has shifted to buyer, hotels need to adopt a more tactical pricing policy by segment and distribution channels. Moreover, hotels should seek not what clients are capable to pay but what they are willing to pay, still keeping the overall pricing strategy in mind,” he says.
This is a trend also noted by Hilton Worldwide, Middle East & Africa president Jean-Paul Herzog, who says that value is particularly being sought by business travellers. “Given the economic climate, we are seeing great demand from the business traveller for mid-market brands like Hilton Garden Inn. Given this segment is in its infancy, we expect demand to continue,” says Herzog.
While the demand for these mid-market brands is ongoing, Herzog warns that the hotels must still meet the high standards associated with the industry in the Middle East.
“The Middle East has built up a strong reputation for exemplary standards of quality,” he says.
“As economy and mid-scale brands gain currency and popularity, our primary challenge is to launch and position these brands in the region, while managing guest expectations,” adds Herzog.
The growth of these brands also means that four- and five-star brands need to add more value; luxury isn’t enough on its own anymore.
This approach has been adopted by The Rezidor Hotel Group, says area vice president Marko Hytönen, who oversaw the opening of eight new hotels and 2271 rooms in the Middle East during 2009 — a record number for the group, which opened 34 hotels in total worldwide.
“I think that added value will continue to play a role in attracting customers and it is something that has proved successful with our Radisson Blu brand — free internet access, late check-out, super buffet breakfast etc,” says Hytönen.
Eye for opportunity
While operations teams will be focused on offering value, development managers and investors would be wise to take advantage of value in the market themselves during 2010.
“We know that worldwide there are many hotels and brands struggling to stay afloat and in 2010, if indeed the business climate remains as it was for 2009, the challenge of debt payment will become much more significant. I think it fair to say we could well see some significant ownership changes of both individual properties and possibly even brands,” says Barnes.
Hytönen and Landais also observe opportunities for conversions.
“We do not see banks coming back for providing debts on new developments in 2010 as they will be busy in re-structuring primarily ongoing commitments. We expect subsequently equity driven developments and especially distressed funds to be active in taking over existing projects, possibly even existing properties falling short of cash,” explains Landais.
“From the operators’ perspective, we believe that this overall situation will trigger a market oriented towards conversion of unbranded/ill-branded projects and properties into international brands managed by operators with strong covenants. There should be foreseeable conditions required by equity funds and also by creditors in case of debt restructuring,” he says.
For Accor, this opens opportunities for the Mercure brand in the four-star segment and Pullman Hotels & Resorts in the five-star sector, in addition to continued growth in the economy market that Accor has focused on so far in the region.
“Now that all [segments] are hit by the slowdown, everyone expects a better resilience of the economy business model, and investors therefore remain adamant in developing such products and will therefore complete their projects. We see a great opportunity for network expansion and gaining considerable market share in the region with the plan to open six hotels between economy and midscale segments in 2010,” says Landais.
Upbeat attitude
Landais’ positive outlook is shared by those based in the market that has received the most negative attention in recent weeks, Dubai.
Jumeirah Group’s future inevitably came under discussion at the end of the last year in the wake of numerous stories associated with Dubai’s debt repayments. However, in an interview with Forbes magazine, chairman Gerald Lawless refuted claims that its parent company Dubai Holding will sell off the luxury hotel operator to pay off debts maturing next year. “Jumeirah and Dubai Holding are part of each other and Jumeirah is not going anywhere,” Lawless told the magazine. “Dubai Holding will be fine.”
Jumeirah Group regional director of sales Craig Senior says the company is well advanced with bookings and new openings for 2010.
“At Jumeirah we continue to enjoy a robust trading performance with current occupancy rates of more than 95% in many of our hotels, high levels of bookings for the coming year and a healthy balance sheet. We believe strongly in the future of Dubai and the UAE as a travel destination and we therefore remain positive about prospects for the future,” says Senior.
In terms of specific areas of growth, Senior anticipates more inbound travel from China as a result of the UAE government receiving Approved Destination Status from the Chinese government, as well as growth in the GCC, Middle East and Indian Subcontinent feeder markets as travellers opt for shorter vacations. In terms of operational trends, Senior says: “We anticipate the groups segment will show a greater positive return in 2010 compared to 2009 booking and enquiry trends.
“Average rates will remain under pressure; the challenge for the travel industry in general will be to grow rates at certain periods of the year.”
Regarding expansion, Senior says projects are underway in the UAE, Jordan, Qatar, Oman, Bahrain, Kuwait, Maldives, Bali, Thailand, China, Argentina, Spain, England, Scotland, Germany, the US Virgin Islands and Morocco. “During the course of 2010, we look forward to the opening of Jumeirah HanTang Xintiandi in Shanghai, Jumeirah Frankfurt in Frankfurt, Jumeirah Messilah Beach Hotel in Kuwait and Jumeirah Al Fattan in Dubai,” asserts Senior, adding that he expects the group to make further announcements during the course of this year.
As mentioned previously, Accor also has significant plans for 2010.
“Early in 2010, we will open our second hotel in Kuwait, ibis Sharq with 160 rooms. This follows the opening of our first Kuwaiti property — Ibis Salmiya,” says Landais. “We also plan to open ibis Rigga – Dubai, with 280 rooms, within the first quarter of 2010 and our new brand ‘Pullman’ strategically linked to the Mall of Emirates, Dubai with 481 rooms by mid-2010.
“In Bahrain, the luxurious Sofitel Bahrain Zallaq Beach with 263 rooms will welcome its first guests by mid-2010, together with ibis Seef which will have 304 rooms.
“In Saudi Arabia, our projects are also on schedule with three to four hotels scheduled to open in 2010,” adds Landais.
Cautious confidence
If the plans of Jumeirah Group and Accor Hospitality are anything to go by, development is definitely picking up pace in 2010. Some major players originally intended to launch in 2009 or 2010 are still missing, for example, Dubai’s first Conrad by Hilton is now scheduled to open at the end 2011, The Wave Muscat will not open hotels such as the Fairmont until 2012/2013 and the Palm Jumeirah is unlikely to have its full remit of hotels until at least 2013.
Of course, new properties will impact the supply and demand ratio, which most likely benefited from a rebalancing as a result of the development slowdown in 2009.
So, most importantly, are there still enough people travelling to fill the region’s hotels and resorts?
“There are always opportunities for growth regardless of business climate, but once again it will come back to understanding the consumer and delivering the product they want at the price they are willing to pay,” says Barnes.
He adds that the Middle East should perform in very similar terms to 2009, “which despite being a downturn on prior years, was still a strong market compared to many others”.
“We are seeing some positive indications of recovery in 2010, the decline in occupancy seems to have flattened but it is difficult to tell whether or not the worst is over,” says Hytönen at Rezidor.
“Travel budgets will remain tight. The leisure and corporate buy down is evident and expected to continue in 2010 and generally, operating conditions will remain competitive.
Again, as visibility is still low it is difficult to know whether the worst is now over, but the Middle East was Rezidor’s strongest market in Q3 2009 (although maybe a little expected given the time of year) and we are hoping for further improvements as we enter into the new year,” he concludes.
TRENDS TO WATCH OUT FOR
1 Conversions and takeovers: it’s not just individual properties that might change hands, entire brands may face new ownership
2 A buyer’s market: consumer demand for value for money should determine what hotels are charging
3 Mid-market growth: opportunity for the diversification of the market and the possibilities for more three-star hotels expected to continue
4 Guest expectations: the Middle East is perceived as having hotels of a high standard — value offers and mid-market hotels must maintain this
5 Average rates under pressure: it’s up to hotels to identify opportunities at different periods of the year to maximise them
6 Demand for international brands: owners will seek brands with global networks
7 Occupancy steadies: decline seems to have flattened
8 Tight travel budgets: corporate travel still down, but some anticipate growth of the groups segment
9 Reduced pipeline:
Upcoming properties pipeline has reduced tremendously; people with cash are kings
10 Asset management: after a decade of asset creation, the hotel industry is now prioritising asset management