The kingdom holds it own

Why Saudi Arabia offers the industry so many opportunities

Opinion, Comment & analysis, Hospitality trends, Hotel
Raffles Makkah Palace lobby.
Raffles Makkah Palace lobby.
The Abraj Al Bait complex, where Raffles Makkah Palace will be located.
The Abraj Al Bait complex, where Raffles Makkah Palace will be located.
Ballroom at Four Seasons Riyadh.
Ballroom at Four Seasons Riyadh.
HRH Prince Sultan bin Salman bin Abdulaziz Al-Saud.
HRH Prince Sultan bin Salman bin Abdulaziz Al-Saud.

With development and opportunity in Saudi Arabia a key talking point at the recent Arabian Hotel Investment Conference and Arabian Travel Market, Louise Oakley finds out why the country holds so much appeal for the industry and uncovers why it runs the risk of disappointing the hotel guest in the future

The Kingdom of Saudi Arabia’s ever-expanding hotel pipeline and apparent resilience to current market pressures came under scrutiny from the hospitality industry last month at the Arabian Hotel Investment Conference (AHIC).

The panel session entitled ‘how to succeed in Saudi Arabia’ generated mixed views and the conversations on KSA continued throughout the conference — and indeed at the Arabian Travel Market (ATM) which followed directly after.

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Here, Hotelier Middle East picks up the debate, looking at the freshest data, the latest announcements and the strongest opinions.

Firstly, let’s look at the facts. According to the latest data from STR Global, occupancy in KSA stood at 72% in April, 5.5% less when the April 2009 figures are compared to April 2008. Comparing the same periods, ADR increased by 9.7% to SAR611.49 (US $163), resulting in revPAR for April 2009 of SAR440.26 ($117) — a 3.7% increase on April 2008.

Also of significance is the fact that Jeddah was one of only four Middle Eastern markets (the others being Amman, Beirut and Muscat,) to report double-digit increases in ADR, with Jeddah reporting +23.3% to $176.53 in April 2009 (compared to April 2008).

So, while occupancy might be slightly down in the Kingdom, it is still at an acceptable level and hoteliers are holding their rates. Secondly, the KSA government has massively stepped up its role in supporting its hospitality and tourism sector, with a new national tourism plan set to be published this year.

Presented at AHIC by the Saudi Government Commission for Tourism and Antiquities (SGCTA) president and board chairman HRH Prince Sultan bin Salman bin Abdulaziz Al-Saud, the plan states that:
• Visitor numbers will nearly double from 47 million in 2008 to 88 million by 2020
• The number of hotel rooms will rise from 117,097 to 254,310
• Apartment units would increase from 101,544 to 185,853
• Industry employment is set to grow from 1.1 million to 1.5 million
According to HRH Prince Sultan, the numbers will be even greater than these “prudent” estimates, especially as the government has approved bank financing to process loans to fund heritage projects for small and medium size enterprises.

The plan came about in order to meet increasing demand and cater to the domestic market.

“More than $10 billion is spent by Saudi Arabians on travelling overseas...but they are now eager to spend a good part of their holidays at home,” says HRH Prince Sultan.

“We aimed to capture 5% of this but with the trend to ‘holiday at home’, this could be bigger — there is a large gap between supply and demand with areas such as weekend traffic showing major growth potential,” he adds
As a result, the government budget has not decreased, despite the economic slowdown.

“Our government budget in 2009 is the biggest ever in order to keep projects on-stream with an unsurpassed expansion of the infrastructure,” asserts Prince Sultan.

“Our economy is based on factors that make it more resilient to fluctuations (worldwide).

“We are sure that hotel investment will be one of the biggest growth areas in Saudi Arabia as tourism is accepted on the national agenda.

Coupled with the market data, this is obviously music to the ears of hotel owners, investors, developers and operators alike, providing an even stronger rational to the construction pipeline currently underway.

The Al Hokair Group, for example, is developing its sixth Holiday Inn in partnership with IHG and keen to share in the government’s vision.

At the launch of Holiday Al Khobar Corniche during Arabian Travel Market, Al Hokair Group managing director Mosaad Al Hokair commented: “The SGCTA has a robust plan in place to increase the tourism industry’s share in the country’s gross domestic product from six to 16% by 2020. We are proud to be contributing to that plan with our partner IHG whom we can rely on to support our objectives.”

Another KSA-based company keen to make an impact on the country, no doubt in preparation for the increasing presence of international brands coming up, is Elaf Group of Companies, which comprises Elaf Hotels, Elaf Hajj & Umrah and Elaf Travel and Tourism.

“We have just completed our roadmap for the coming five years: we are planning to triple our capacity in terms of rooms under management; the number of pilgrims we are serving; the number of customers we are serving in the outbound business; and to expand our business outside of Makkah Madinah through developing in Jeddah,” reveals Elaf deputy chief executive  Tarik Nabulsi. The group’s first hotel outside Mecca, the Elaf Jeddah Red Sea Mall, is set to open its doors in July this year.

“So far we have specialised in Umrah and Hajj hotels, taking care of religious tourism in Makkah, but this year we are getting out of Makkah and looking to Jeddah with our first city hotel,” says Nabulsi.

“We have expanded into city hotels because we felt there was a big demand for this kind of product in Jeddah and not enough supply,” he adds.

For those based outside of KSA, the opportunities are just as strong.

Hilton Hotels vice president development Middle East Elie Younes believes the KSA market, where Hilton will launch the region’s first Garden Inn branded property in Riyadh this year, is resilient.

“Saudi Arabia is definitely a sufficient market — it is more recession-proof than others,” he says.

Meanwhile, Accor Hospitality chief development officer Christian Karaoglanian sees “great opportunities” for both an Ibis country-wide network targeting corporate clientele and luxury Sofitel hotels in Riyadh and Jeddah, starting with the opening of Sofitel Al Khobar by the end of this year. And development for the country’s most luxurious hotel to date is already underway, with Raffles Hotels and Resorts set to manage an all-suite property — with three members of staff to a suite — in the Abraj Al Bait Complex being developed by Saudi Binladin Corporation.

Fairmont Raffles Hotels International (FRHI) chief operating officer Chris Cahill says: “Raffles Makkah Palace will be Raffles Hotels & Resorts’ second property in the Middle East.

“The growth of Raffles’ footprint to Makkah will also see FRHI operate as a group in the Holy city, as Raffles Makkah Palace will be located adjacent to The Makkah Clock Royal Tower, A Fairmont Hotel, at the Abraj Al Bait Complex — part of the King Abdal Aziz Endowment Project with a mandate to upgrade the precincts of the two Holy Mosques.”

The inside view

While the outside opinion is that business is booming in Saudi Arabia, do those actually working in the country’s hotels agree?

The general manager of Four Seasons Hotel Riyadh at Kingdom Centre, Rami Z. Sayess, says 2008 was a record year for the hotel with 30% growth and that despite the downturn, 2009 looks like another record year.

“We have not really been affected; on the contrary a lot of meeting planners have shifted their events to Saudi Arabia. A lot of financial institutions specifically are going on a weekly or monthly basis to Riyadh in particular because this is an area where they can find people interested in doing business still,” observes Sayess.

While the corporate market, which accounts for 80% of the business is still strong, Sayess business has also been boosted by the fact that women can now apply for visas to travel to Saudi Arabia unaccompanied.

“Another area we have been working on is honeymoon packages, as Saudi Arabia has limited options for this. It has been growing very successfully,” says Sayess, adding that the hotel has also developed a very profitable outside catering business.

Now, he says, the focus has turned to offering activities for children.

“The idea was to get the children to make the decisions; if they want to go to a place they are going to end up there,” he says.

Sayess explains that all of these initiatives are aimed at reinventing the hotel to ensure that it is constantly pleasing its repeat business, which stands at about 45% for rooms and 60% for F&B.

“The challenge in Riyadh is lack of  rooms; there is not enough supply in the deluxe category,” says Sayess.
“One of the things we are going to do is add 12% of our inventory in the next 18 months.”

The renovation will be performed in stages so the hotel will not close, he says, with room numbers increasing from 249 to 278, in-room technology being upgraded and a new-look meetings facilities.

“This is actually a great time to reinvest and be ready before new competition comes into the market so we will be ahead of the game,” says Sayess.

The other luxury hotel located in Riyadh, Al Faisaliah Hotel, A Rosewood Hotel, is also undergoing a multi-million dollar expansion scheduled to open in 2010. It will include a new wing of 106 luxury rooms and suites, a new Mediterranean dining restaurant and a ladies-only spa with 12 treatment rooms.

A question of service

So far, so good — those not yet operating in the market want to and those that are already established are ready and waiting for the competition.

But as more hotels come online, consumers are going to have more choice, raising the issue of ensuring service, not just facilities, are good enough to keep people coming back. And according to Al Mousim Travel president Rashid Al Mugait, this is where the KSA market might struggle: “The country is totally underserved by the hospitality business.

“I think the people of Saudi Arabia and the guests of Saudi Arabia deserve much, much better services and higher quality. Unfortunately this is not the case. I would go to the extreme and really consider if I can call it hospitality, because I don’t feel that hospitality does exist here.”

Al Mugait criticises international brands for not embracing the local culture in their hotels and the F&B industry for not providing local food or a “restaurant that is a destination”.

He also warns that sales and marketing teams do not cast their net wide enough in order to attract business.

Muhammad Al Amir, managing director of Riyada International Hotels and Resorts and Ramada Worldwide — Saudi Arabia, shares Al Mugait’s view that these issues must be addressed.

“There is plenty of opportunity in Saudi Arabia but I concur with Rashid; we need to invest more in quality and systems that will reflect and keep that going,” he says.

He adds that the limited aviation capacity could also be a challenge.

“If you cannot arrange a trip for an individual how can you fly a group,” he asks.

However, with BA this month relaunching its flight from London to Riyadh and Jeddah after a four-year suspension, Jet Airways beginning a daily service from Mumbai to Saudi Arabia, SWISS International Air Lines integrating flights with Lufthansa German Airlines to increase frequency on its Saudi Arabia network and Saudi Arabian carrier nasair upping it flight frequency between Jeddah and Abu Dhabi from three times weekly to daily, perhaps this is an issue that is already being dealt with.

Indeed, according to Air France /KLM commercial director for the Gulf, Iran and Pakistan Bas Gerressen, “there is an over-capacity compared to demand”.

Gerressen believes that in accordance with IATA predictions for 2009, capacity would outstrip demand in the Gulf region this year and that one market in particular that would notice the onslaught of extra seats would be Saudi Arabia, given British Airways’ return as well as a presence from Lufthansa, bmi, Austrian and its own Air France flights from Riyadh and Jeddah to Paris.

But then if the hotels planned for this year open as planned (see box-out) perhaps the ratio will balance out.

And that brings us back to another theme from AHIC; the fact that forecasts and figures aside, with the market so uncertain there is inevitably a significant element of ‘wait and see’ involved when talking about growth.

However, with such strong government support and little signs of real economic slowdown, the wait for Saudi Arabia to boom is likely to be one of the shortest.

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