Taking Care of Business

Lee Jamieson discovers Kuwait's untapped tourism potential

Missoni Restaurant.
Missoni Restaurant.
Phil Kasselis, MEA vice president of development IHG: Kuwait is still economically buoyant.
Phil Kasselis, MEA vice president of development IHG: Kuwait is still economically buoyant.
The InterContinental Hotel Kuwait is one of the five-star hotels planned to open in Kuwait.
The InterContinental Hotel Kuwait is one of the five-star hotels planned to open in Kuwait.
Carlos Khneisser , senior director of development, Hilton Worldwide Middle East.
Carlos Khneisser , senior director of development, Hilton Worldwide Middle East.
Luxury hotels like Hilton Olympia Kuwait are expected to capitalise on the business travel market.
Luxury hotels like Hilton Olympia Kuwait are expected to capitalise on the business travel market.
The InterContinental Kuwait Downtown hotel.
The InterContinental Kuwait Downtown hotel.

Kuwait has an estranged relationship with its travel and tourism industry. Unlike many of its neighbouring GCC countries, Kuwait has never made any serious attempts to diversify its economy away from oil.

And why should it? Kuwait’s reputation and fortune has been built on oil. It owns approximately 10% of the world’s oil reserves and, according to figures from Euromonitor, oil is responsible for 50% of Kuwait’s GDP, 90% of its export revenues and 80% of government income.

Travel and tourism, like many sectors in Kuwait, lives in the shadow of the country’s oil industry.

Although oil has given rise to an active business tourism scene, leisure tourism remains in its infancy.

The sector’s performance has been poor to date. Travel and tourism only contributes 3.7% to Kuwait’s total GDP and, according to Euromonitor, this is expected to fall to 3% by 2019. Employment within the tourism industry is also predicted to fall from 71,000 jobs last year to 65,000 jobs in 2019.

However, recent economic turbulence has made Kuwait acutely aware of how reliant it is on the global economic system. The Kuwait Stock Exchange experienced a loss of US $10 billion early last year, high inflation is an ongoing concern and the number of expatriate workers, which make up 50% of its overall population, has dropped for the second year in a row.

Despite this turbulence, the Kuwaiti government has proved to be resilient throughout the economic storm, in part thanks to its vast financial reserves, and has proved itself to be a safe harbour for hotel investors.

“The fact that Kuwait has remained economically buoyant despite the world recession is a key factor driving investment into the country,” explains InterContinental Hotels Group Middle East and Africa vice president of development, Phil Kasselis.

“Kuwait’s economy is largely based on oil revenues and downstream petrochemical activities and, therefore, the country saw growth in most industries last year.”

Against this backdrop, there is a fresh commitment to rejuvenating Kuwait’s travel and tourism sector in order to foster a more diversified and stable economy.

“Five years ago the Kuwaiti government launched a 20-year tourism plan to develop the travel and tourism sector,” continues Kasselis. “This plan was developed together with the World Tourism Organisation and includes the development of new hotels and resorts. According to Kuwait’s Hotel Owner Association, more than 3000 rooms are planned to enter the market in the next five years.”

Business as Usual

Kuwait’s business tourism scene continues to flourish, with business travellers accounting for 73% of Kuwait’s arrivals. In particular, the MICE sector continues to grow with an estimated 15% of inbound business travel to Kuwait linked to the meetings and exhibition industry.

In recent years, Kuwait has also established itself as a business and media hub for the ongoing situation in Iraq, offering a more stable environment for international organisations involved in the rebuilding of the country.

“Business tourism remains the most exciting segment to invest in,” says Hilton Worldwide Middle East senior director of development, Carlos Khneisser. “The country has a constant stream of corporate travellers due to the many infrastructural and industrial developments taking place. This has fuelled rising demand for hotels and transportation options.”

Business tourism remains the primary focus of Kuwait’s 20-year tourism plan and has therefore attracted many of the luxury five-star hotel brands. Competition at the top of the luxury scale is predictably fierce and many hotel groups are differentiating their products into new areas.

Luxury brand demand

This year sees the opening of Rezidor’s latest luxury offering, Hotel Missoni. This designer brand aims to differentiate itself from Kuwait’s luxury hotel scene by marketing to the growing lifestyle sector of the hospitality market.

“There are a number of strong international brands operating in Kuwait but we believe that Hotel Missoni is a unique product in the market,” explains Rezidor Hotel Group area vice president, Marko Hytonen. “It’s a lifestyle brand with a strong designer luxury element. In a region famed for its love of fashion and high-end designer brands, we anticipate strong interest in Hotel Missoni Kuwait.”

Strong branding is essential for luxury hoteliers looking to differentiate their product in the Kuwaiti market. By partnering with Missoni, an Italian fashion house, Rezidor has created a brand with niche market appeal. Hotel Missoni appeals to sophisticated, cash-rich travellers with a passion for contemporary culture. The brand amalgamates contemporary design, fashion, authenticity and culinary excellence to create an experience that reflects the values of its guests.

“We aim to bring something new to the Kuwait market,” adds Hytonen, “something we believe the market is ready for.”

Gaps in the mid-market

Many owners and operators are diversifying away from luxury concepts by introducing mid-market brands — and a partnership between Accor and Action Hotels, a Kuwait-based hotel development company, aims to capitalise on this new market potential.

“Our vision was to introduce budget segment hotels into the region,” explains Action Hotels chairman, His Excellency Sheikh Mubarak AM Al Sabah. “Initially we decided to partner with Accor in Kuwait because of its core strength in this segment: its mid-price brand, Ibis, has done extremely well in the global markets”.

In part, the market expansion of Kuwait’s tourism industry owes a debt to the liberalisation of its foreign direct investment legislation. Now foreign companies can invest and operate in Kuwait with autonomy. This includes complete foreign ownership of business and brands across a number of sectors including tourism, fostering new opportunities for hospitality investors.

“In recent years Kuwait has steered towards diverse offerings like full-service, mid-market and extended-stay properties as investors explore alternative asset types,” explains Hilton’s Khneisser.
“We welcome this trend because it aligns perfectly with our strategy. We aim to roll out the entire portfolio of brands under Hilton Worldwide from the luxury Waldorf Astoria and Conrad to mid-market options like Hilton Garden Inn.”

A Sustainable Market?

With so many global hotel operators expanding their portfolios in Kuwait, many are concerned about oversupply in the market. The problem is particularly acute in Kuwait because the essential infrastructure required to grow the country’s tourism industry is not in place.

Euromonitor statistics show that last year, Kuwait’s outgoing tourist expenditure came to just $4.2 million whilst domestic tourism expenditure totalled only $5.3 million. Just over $400 million was contributed by incoming tourists.

“It’s true that Kuwait’s lodging segment is currently facing oversupply,” explains Sheikh Mubarak. “New entrants must be willing to face stiff competition, be able to create unique selling points, and be ready to spend a longer-lead time to profit realisation.

“And, of course, with increased competition comes an increase in costs. To earn a sensible piece of the pie, new hospitality projects in Kuwait require a long-term, sustainable vision.”

New Developments

It is hoped that today’s oversupply will be offset by growth derived from Kuwait’s ambitious development plans.

In March, an agreement was signed to double the capacity of Kuwait International Airport over the next two years. Already the airport is operating at full capacity following a 26% passenger increase last year. The airport will increase capacity from 7 million to 20 million passengers by 2012.

“Also, the emergence of regional low cost carriers such as Wataniya Air and Jazeera Airlines will make travel more accessible and affordable,” adds IHG’s Kasselis. “In turn, this will drive up visitor numbers.”

Kuwait also plans to develop a new city across the bay from Kuwait City. Once completed in 2030, The City of Silk is expected to provide tourist attractions alongside a network of hotels and spas.

In recent years, new development plans have rejuvenated interest in Kuwait’s travel and tourism sector. International brands are establishing themselves in the country and have strategically positioned themselves to tap into Kuwait’s potential as it unfolds.

But, there’s still a long way to go. It will be many years until Kuwait’s travel and tourism sector fully emerges from the shadows of the ubiquitous oil industry, but when it does, a bright — and profitable — future is assured.

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