Despite the uncertainties around the global pandemic, the Middle East’s tourism sector is reassessing its business models in a bid to regain its footing – and as countries slowly start opening their borders and encouraging domestic as well as international tourism, market players can’t help but be hopeful.
That cautious optimism was the general theme across the “On the Road” edition of the Arabian Hotel Investment Conference (AHIC), which took place as a hybrid event from September 29-October 1.
Contributed by Devina Divecha
Stuart Etherington, United Arab Emirates-based Dubai Holding’s vice president of asset management, said that the challenge is how this year closes, with the industry needing to take a realistic approach to its expectations for ADR and occupancy. “Maybe [we need to try] to push away from an ADR focus and look more at a TRevPAR mentality to try and drive a better value proposition for anyone visiting our properties to spend a little bit more on-property,” he said during the conference. Dubai Holding owns Jumeirah Group, which has about 26 hotel properties in 12 locations.
Echoing the focus on TRevPAR was Christopher Hewett, vice president hospitality at Ras al Khaimah, UAE-based Al Hamra Group, who added that it was time for the industry to reappraise its whole cost model. He added: “Do we look at seasonal workforce? Do we [Ras Al Khaimah] start looking at having an operating model that’s different from other parts of the UAE? How can we try and do something a little bit different? We’re looking at every scenario because it’s a good opportunity to do so.”
The onset of the pandemic and its resulting effects on the hospitality industry have forced the sector to go back to the drawing board. Rahul Chaudhary, managing director of Nepal-based CG Corp Global & CG Hospitality Holdings, said: “We have had no choice: We have been pushed into a situation where we are reassessing our business model and restructuring our cost structure.”
Al Hamra Group’s Hewett said that with budgets looming, companies are starting to understand what they are looking at for 2021 and beyond. “From the current situation, we have come to value the domestic market more than maybe historically. There was a strong focus on the international segment because they were driving long average length of stay – they were generating 70% to 80% of room nights. But we have seen that the domestic market is valuable.”
The prediction is that Q4 2021 will see a noticeable increase in demand. According to Colliers’ MENA Hotel Market Survey results, the forecast assumes the recovery to start in Q4 2020 and continue in 2021, with the UAE and Kingdom of Saudi Arabia expected to recover faster than the other countries. The former is set to benefit from Expo 2020 (now moved to October 2021), while the presumption is that the latter will benefit from ongoing tourism initiatives, the upcoming mega- and giga-projects, as well as domestic tourism.
Hewett said: “We will see how the rest of the year continues. There are some green shoots coming in from Russia and CIS, and we’re starting to see a little more activity from wholesalers, but what we will see is a continuation of what we have now. We will probably see a little bit increase in Q1 and Q2 next year as we get more international business coming through, but material increase in demand isn’t going to really start until Q4 next year.”
Simon Hasdell, vice president of asset management at Kuwait-based developer IFA Hotels & Resorts, said that while demand will increase, rates will suffer for a while. “The rates are where they have tumbled to – and are going to remain until we get past summer next year and we have Expo coming at us. With hopefully more activity there, you’ll have a demand curve that will go up.”
Looking ahead to 2021 and beyond, STR managing director Robin Rossmann said: “The good news is that some of that increased supply that we were worried about in 2020 obviously hasn’t come through. That being said, we are expecting that still a large majority – and this is after assumed attrition – will come through in 2021.”
He continued: “Our forecasts assume that there is a cure by the end of the year that is meaningfully distributed during Q1 2021 so that travel can really begin in Q1 2022, and we will see a recovery – although not completely rapidly – with Abu Dhabi having a 12% RevPAR increase and Dubai with Expo coming, a 43% increase.”
“Fundamentally we believe that travel demand will recover,” even though it may take a while, Rossmann added, pointing to China’s recovery as a benchmark for the Middle East to follow.