Evolution and efficiency

For major tourism destinations in the Middle East, 2016 has been a year of adaptation to new market dynamics. Traditional business from the governments and oil & gas sectors dramatically declined and as a result, tourism boards and hotels had to work together to activate other segments.

Khalid Anib

In Abu Dhabi, the industry reacted relatively quickly and hotels partnered with tour operators and airlines to create packages that would appeal to the FIT market. This has driven volume from previously non-producing customer segments and meant that we have been able to maintain occupancy levels in the hotels. However, it has resulted in a reduction in the average daily rates.
This, I believe, is the ‘new normal’ and there are no economic grounds for anyone to forecast room rate improvement in the coming months. We’re attracting a broader base of guests who require a more affordable package, creating an opportunity for owners to venture into upscale four-star and entry-level five-star hotel developments in Abu Dhabi and beyond.
This is positive, but it brings with it its own set of challenges. Owners, like ourselves at Abu Dhabi National Hotels, still need to drive a return on our assets. If we can’t do this via increases in rate, we must look at the cost component. The current business environment provides opportunity for hotel brands to revise their operating models. They need to put aside historical trends and focus on how to become efficient in the current market scenario.
Operators will have to streamline their operations by considering clustering, perhaps, or shared back office and support services among their portfolio. This is already common practice in Europe. In Paris, for example, a 150-room upscale hotel will have no more than 70 staff. In the Middle East, hotels of this size are currently running with no less than 150 staff. The time has come for this to change.
Operators must also address the ongoing cost of OTA commissions and take innovative, proactive measures to drive direct bookings. They need to engage with the consumer and understand better what drives the customer to book online. Many are taking steps in this direction, with Hilton’s ‘Stop Clicking Around’ campaign a great example of this, but there is still a long way to go.
From the owner’s perspective, these commissions are not only painful; they also significantly reduce the operator’s value proposition. Operators need to take initiative to bring back the value of distribution to the owners.

Anib, CEO, National Hotels, is speaking at the upcoming Arabian Hotel Investment Conference 2017 (AHIC), to be held from April 25-27 at Madinat Jumeirah in Dubai.