DUBAI, United Arab Emirates — Operating models are shifting across the Middle East, as are owners’ and operators’ expectations around profitability, which has been challenged by the pandemic since March 2020.
Gabriel von Bonsdorff, principal of hospitality investments and asset management at Investment Corporation of Dubai, said focusing on costs is the easy part of the equation.
“It is the trends that are shifting so quickly. Segmentation is so different, and that will shift again. Our focus is on identifying trends and investing money appropriately to better secure demand, and if we do that we think a different customer will arrive,” he said during a panel at the recent Arabian & African Hospitality Investment Conference.
One trend is that economy and midscale hotels will mostly be automated, which is happening more quickly in Asia and the Middle East than in other parts of the globe, according to Marcus Bernhardt, CEO of Deutsche Hospitality.
“It is already completely digitized in China. A 300-room hotel has 15 staff,” Bernhardt said.
Bleisure travel — or business travelers who extend a trip with extra days focused on leisure activities — continues to develop, which begs the question of where savings can be made and profitability and guest experience can be increased.
Hassan Ahdab, president of hotels operations at Riyadh, Saudi Arabia-based owner and operator Dur Hospitality, said hotels are still lagging behind what guests want.
“We need to keep tracking guest habits,” he said.
Hamid Sidine, COO of Middle East and Africa at Millennium Hotels & Resorts, said design is a critical part of this new line in thinking.
Third-party or white-label management — where hotel property owners hire another company to manage their hotels — is becoming more popular in the Middle East. Panel moderator Alison Grinnell, CEO at RAK Hospitality Holding in Ras al Khaimah, United Arab Emirates, said the increase is happening despite owners in the market traditionally being resistant to such a move.
Von Bonsdorff said the United Arab Emirates has tweaked its temporary visa regulations yet again in early September to attract staff. The so-called “Green Visa” permits non-Emiratis to apply for work and residency without the need to be an employer, with the aim of attracting high-skilled labor, investors and university graduates and other top scholars.
“We will see how this works. It could dramatically reduce our breaking point and be a new business model,” he said.
Staying flexible and communicating policy changes to employees will benefit Middle East hoteliers in the long run, Ahdab said.
“When we see demand change, say it is in Riyadh, we have the mobility to move around our people, and we discovered in this process new talent, as staff were willing to try new things. Mitigating our losses was our flexibility and mobility,” he said.
The Factors at Play
Throughout the Middle East, there has been a slight recovery in hotel profitability, Ahdab said.
“We’ve seen a movement to local travel, which was neglected, and we are seeing business coming back. I have seen stronger returns in Jeddah, but the number of pilgrims has slowed down,” he said.
Sidine said the name of the game in recent months has been to mitigate costs while looking at new opportunities such as niche and feeder markets, staycations and family experiences.
Von Bonsdorff added back-of-house initiatives also are feeding profitability.
“There has been some polarization and pragmatic discussions. Some operators have clustered operations, others preferring to have office. The operating model going forward will be to protect margins,” he said.
Bernhardt emphasized technological solutions to the challenges Middle East hotels face.
“Our Chinese owner is very strong in this, sees importance in it. [IT] is definitely the future, to sell rooms on one platform and nowhere else and take advantage of 175 million loyalty members. That becomes a real [advertisement] to owners,” he said, referring to Huazhu Group, which purchased Deutsche Hospitality in November 2019 for 700 million euros ($812.5 million).
Von Bonsdorff said hotel brand standards will be revisited, and the discussion for that could originate from owners or operators.
Millennium’s Sidine said the guest has a different notion as to what these standards should be with rooms now having different uses for guests across different segments.
Rooms "are used for far more reasons than they were. For work, family, weekdays, weekends, and this has a different meaning to our [revenue per available room]," he said. "We also know there are in hotels a lot of empty spaces, too. Meeting rooms, ballrooms, kitchens, cloud restaurants, cloud facility management."
There is also plenty of debt in the Middle East hotel industry that needs to be repaid, Grinnell said.
Bernhardt agreed.
“The people who will [find] success have financial strength but also innovation. Investors are looking for future guarantees, so many things in the contract, such as force majeure, need to be discussed,” Bernhardt said.
“Institutional and private capital, private equity capital, they all have the same focus, and as long as you are open and committed it is possible to find new solutions. It is not easy, but it does need to be transparent and fair,” he added.