Owners reflag hotels following the downturn

Ritz-Carlton, Radisson and Viceroy secure new management contracts

Ritz-Carlton has replaced InterContinental as operator of the iconic Al Bustan Palace hotel in Muscat, Oman.
Ritz-Carlton has replaced InterContinental as operator of the iconic Al Bustan Palace hotel in Muscat, Oman.

A spate of hotel reflaggings has occurred in the Middle East over the past few months, most recently the take over of the management of Al Bustan Palace in Muscat by Ritz-Carlton from InterContinental and the rebranding of two JAL hotels in the UAE by Rezidor.

The Ritz-Carlton Hotel Company revealed last month that it had entered an agreement with the Oman Ministry of Tourism to acquire the full management of Al Bustan Palace starting July 1.

“The Omani capital has long been a key aspiration for The Ritz-Carlton and we have waited a long time to find the perfect opportunity to add to our collection,” said president and COO Herve Humler.

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Commenting on the agreement, His Excellency Sheikh Abdul Malik bin Abdullah Al Khalili, the Minister of Tourism, said: “The new management aims at introducing the concept of luxury and hospitality philosophy in our present time while maintaining the prestigious stature of the hotel”.

In the UAE, Rezidor announced that Radisson Royal Hotel, Dubai and the Radisson Blu Resort, Fujairah Dibba — both previously managed by JAL Hotels — will be operated under the group’s core brand with immediate effect.

Both hotels are owned by ACICO Industries and its subsidiary, a Kuwait-based public company.

“We believe that this relationship is an optimal one for both organisations given Radisson Blu’s experience and presence in the Middle East and Europe, which will undoubtedly contribute to the success of our properties,” said COO at ACICO Industries, Nabil Al Khaled.

Meanwhile in Abu Dhabi, Aldar Properties announced it was handing over the management of its flagship Yas Hotel to US hotel company Viceroy Hotel Group.

The reflaggings followed several operator changes earlier this year, such as Jumeirah Group’s appointment at Zabeel Saray, Crowne Plaza’s rebranding of the former Renaissance in Deira and Meydan Hotels’ takeover of Bab Al Shams.

According to Madhu Azad, director — asset management at Ròya International, these developments are “largely down to the changing dynamics of the hotel business”.

“In these times of downturn, hotel operators have had to adjust with the changing market situations, show flexibility in their approach and adapt to new ways of doing business. The ones who failed to do that have had to part ways,” she said.

Azad said this would be a growing trend, specific to the Middle East because there are “many more management contract relationships here than in Europe where the contracts are made differently”.

“The trend will continue and we will see many more cases of reflagging in the coming days,” she said.

Bernhard Ilming, director, Horwath HTL said that often rebranding came about because “many properties have the wrong brand in the first place”.

“Reflaggings have occurred recently simply because of poor asset management in the past and because the developers did not give enough weight to the search and selection process,” said Ilming.

He said the trend was becoming increasingly common internationally.

“We see this trend more and more globally, as investors and owners come to realise past mistakes, or new trends make them re-think whether they want to stick with their brand for another 10 years, suffering lesser income, or make a proper evaluation and if the conclusion is to separate, to make the decision and re-brand.

“With asset management becoming accepted as a value proposition, owners are more critical as they learn from past mistakes. Increasingly, they are willing to separate and walk away from an non-beneficial relationship,” Illming asserted.

Industry experts were divided as to whether the recent reflaggings should be seen as a trend, however.

Jalil Mekouar, managing director, Middle East & Africa, Jones Lang LaSalle Hotels said he was “not too surprised” by the changes but that it was an “opportunistic trend”.

“It’s a mix of market conditions with the level of flexibility and aggressiveness of operators and also, therefore, owners being encouraged to talk to those operators,” he said.

Emma Davey, director MENA, Christie + Co, said: “Comparative to the number of hotels in the Middle East and the recent global economic challenges, I do not think the number of hotels being reflagged is significant.  Companies across all industries are reviewing their strategies and making changes”.

She added that there were risks associated with reflagging hotels, namely “entering a new agreement without appropriate advice, the hidden costs with changing brand and staffing/retraining issues.”

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