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Luxury brands jump into boomtown Baku
October 23 2012

The capital city of Azerbaijan has welcomed new luxury properties from Jumeirah, JW Marriott and Four Seasons this year and now boasts approximately 17 hotels listed as 5-star. 

Highlights
  • Baku has seen an influx of 5-star rooms that risk over saturating the market.
  • A booming oil business and emerging transient demand will eventually absorb supply.
  • Baku’s government officials are working hard to spur demand by making it easier for travelers to visit.
 
Baku now has approximately 17 5-star hotels, several of which, such as the Jumeirah Bilgah Beach Hotel (pictured), have opened this year.

BAKU, Azerbaijan—In centuries past, the city of Baku on the western coast of the Caspian Sea was a major stopover on the old Silk Road, the fabled land route linking Europe and the Far East, filled with caravanserais hosting camel caravans laden with exotic cargos.

And 100 years ago, the city, afloat on vast reserves of petroleum needed for the newly invented motor vehicle, became the first oil boomtown in the world as millionaires like the Nobel brothers built elegant mansions along the fancy boulevards rivaling those of Paris or London. 

Today, history is repeating itself thanks to another flood of petrodollars from recent major oil and gas discoveries. The capital of the ex-Soviet republic of Azerbaijan is again experiencing an influx of business travelers, while leisure visitors also are beginning to discover the country.

Major hotel chains are taking note. This year alone, luxury properties under such brand names as Jumeirah, JW Marriott and Four Seasons opened for business, with Baku boasting around 17 hotels listed as 5-star properties. Additionally, a Fairmont Hotels & Resorts is scheduled to open later this year in the iconic Flame Towers complex that dominates the city’s skyline.

“Over the past several years, they’ve opened a lot of high-end properties,” said Marina Usenko, the Moscow-based executive VP of Jones Lang LaSalle Hotels. In 2009, the city had only 4,400 hotel rooms, and “in 2010 alone they added 1,200 rooms, for a 29% increase.”

In 2011 800 more rooms were added, and, according to Usenko’s research, 1,200 might be added in 2012 to 2013, she said.

More modest properties also are opening, and Usenko said the number of branded 3- to 5-star hotels, or what she describes as “modern quality stock,” is increasing at a far steeper pace.

Overhoteled?
Usenko predicts that by the end of 2015, those categories will have registered growth of 260%, raising the question of whether the city is in danger of becoming “overhoteled,” at least in the luxury category.

“Baku is a nice and attractive city, but these are a lot of rooms for a city of just two million people. Concerning business travelers, most of the impact from the construction and installation boom related to the petroleum business is now over.

“So unless the Azerbaijani authorities reposition the country to attract more (meetings, incentives, conferences and events business) and leisure travelers, I don’t see the high-end hotel market as sustainable,” she said.

Hotel executives running major brands in Baku disagree, although they admit there are tough times ahead, at least in the short term, and are pinning their hopes on government efforts to boost tourism. 

“I agree that the next three years will be challenging because of the number of 5-star properties opening, but I’m optimistic,” said Guy Godet, the GM at the recently inaugurated, 243-room JW Marriott Absheron Baku.

The Four Seasons Baku

He added that the government is keen to develop Baku as a business and tourism hub for the entire Caucasus region, in hopes of becoming what Dubai is for the Middle East.

“Everything is expanding here—waterways, road transport networks, trading, etc. The oil will probably last for some more years, but the gas deposits here are enormous and so there is still a lot of potential here,” Godet said.

Economists concur. A recent report by the American Chamber of Commerce of Azerbaijan noted that the country’s gross domestic product exploded from $7 billion in 2000 to more than $63 billion last year, with trade set to expand with Turkey and Western Europe.

According to Mete Atakuman, the GM at the Jumeirah Bilgah Beach Hotel, a 176-room seaside resort north of the city, the oil and gas sectors will provide the bulk of guests for the immediate future. 

“These are the main sources of business into Baku, (with) major companies like BP and (the French petroleum giant) Total expected to ramp up their operations in the near future.”

However, he noted, “over the short term, 12 (months) to 36 months, we will all find it difficult to maintain rates and occupancies because of the oversupply in luxury hotel rooms. Overall occupancy rates in 5-star hotels have dropped approximately 35% recently, according to industry figures.”

Mete Atakuman
GM at the Jumeirah Bilgah Beach Hotel

Kemal Bayik, the director of marketing for the recently opened Four Seasons Baku, said demand is now primarily from the United Kingdom and the United States because of the oil business.

“But we see huge potential in corporate business from Moscow and not just the petroleum sector but also in such industries as pharmaceuticals, banking, insurance, etc.”

“So we’re counting on 20% of corporate clients from the Commonwealth of Independent States, especially Russia and Ukraine. Another important guest source will be wealthy Azerbaijanis living in Moscow, returning here to attend to their business interests,” he said.

Tourism potential
Leisure travel is another potential market, as noted by Jones Lang LaSalle’s Usenko. She said that while Azerbaijan will never rival Spain or Turkey as an international destination, the country could target the regional markets in the neighboring CIS countries.

“The people in Azerbaijan are very friendly and (like those in the other ex-Soviet states) speak Russian. One thing which could help would be cheaper flights and cheaper accommodations.”

Azerbaijan Tourism Minister Abulfaz Garayev told HotelNewsNow.com that travel to the country has grown each year over the past decade. This year he expects a 7.5% increase in visitor arrivals over the 2.2 million registered in 2011.

“We just hosted the Eurovision contest, which helped put us on the map, and we’re actively working to promote other international events while also developing the region’s first ski resort and pushing Azerbaijan’s attractions on social media,” he said.

The country also is a natural destination for visitors from the Persian Gulf who share Azerbaijan’s Islamic heritage but can enjoy its relatively relaxed social life and Baku’s chic shops, tourism officials and hotel executives said. 

“Difficulties in obtaining visas is my biggest concern,” the minister complained, referring to the sometimes arduous and—for some nationalities—expensive process of applying for a visa to enter the country.

“We’re hoping to ease the process with visas by Internet and reduce the cost to around $20 if visitors travel with an organized group,” he said.

High marks
Overhauling the visa process is high on the wish list of Baku hotel managers, who give the government high marks for attempting to deal with their problems.

“The government does listen to the concerns of the hoteliers, and the president (Ilham Aliyev) is a very smart and intelligent person who has a real vision for Azerbaijan,” said JW Marriott’s Godet.

“And the people in the ministry of culture and tourism are also extremely sharp. When we suggested they set up a visitors and convention bureau, they asked us: ‘Where is the best place to learn about this? What can we do?’”

However, challenges remain. Hoteliers note they have had to implement extensive training programs for local staff. Most of the senior management positions, at least for the moment, are filled by expatriates as there are few Azerbaijanis with the required experience.

Tarek Mourad
Four Seasons

“This is my fourth opening for Four Seasons after Cairo, Riyadh (Saudi Arabia), Damascus (Syria) and Istanbul,” said Tarek Mourad, the GM of the Four Seasons, which opened in early September. “It has gone well, although my colleagues at other hotels say they did not have an easy time of it from a labor point of view. But that can be true in even the most developed countries.”

Training for the JW Marriott’s 300-strong staff was Godet’s biggest headache, but he said progress had been made. “You have to be patient, and you want to invest a lot in training because of the competition. You want to be the very best at what you do.”

“In my career I’ve done three openings in Thailand, South Korea and Indonesia, and I was expecting more problems here,” he said. “In other new hotels, for example, you’d turn on the water for the first time and there would be leaks everywhere. But that didn’t happen here.”

Corruption is endemic in this part of the world, which the local American Chamber of Commerce describes it as “ubiquitous” in Azerbaijan. However, the GMs who spoke to HotelNewsNow.com said it was not a major problem.

The Four Season’s Mourad said: “I haven’t seen any instances of corruption, and as (GM) I would certainly see it.”

With the 5-star market becoming established, analysts said the next step will be cheaper alternatives.

“I believe that once investors see that the luxury market is saturated, we’ll see more mid-market hotels opening,” Usenko said. “Some investors are already in talks with international chains to bring brands like Holiday Inn to Azerbaijan.” 

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