Owners and operators want stronger business alignment and partnerships, but expressed concerns over the fixation on supply and brand development, which they say comes at the cost of bottom-line performance.
RAS AL KHAIMAH, United Arab Emirates—Owners in Arabic and Gulf Cooperation Council markets voiced frustrations during a panel at the Arabian Hotel Investment Conference over a perceived lack of investment by brands into boosting revenue and overcoming bumps along the way.
The comments by CEOs of hotel ownership companies were spurred by the questioning style of moderator Stephen Sackur, who presents one of the BBC’s flagship political programs, “HARDTalk.”
Competition among existing hotels in Dubai and the United Arab Emirates is fraught, with rates generally not keeping pace with high occupancies, and with added threat soon to emerge as the area’s robust pipeline opens up.
Panelists said they desire alignment and true partnerships with brands, but in the Arabic region, disconnects are forming.
“I am struggling with the fact that all our investment is in software, when we should be concentrating on hardware. We build the bricks and mortar, and we expect the operators to provide that added value,” said Jalil Mekouar, CEO of hotels at Majid Al Futtaim, which has 12 hotels (10 in the UAE and two in Bahrain) among its real-estate holdings.
“You get updates for your iPhone every other day, so why not for the NextGen hotel tech? And of course rate pressures adds to the owner frustration,” Mekouar said.
Kees Hartzuiker, CEO of Ròya International, which in its 18 years has signed more than 100 hotel management agreements, urged brand leaders to speak more with owners.
“On both sides, there has to be more transparency on the expectations and investment parameters. Definitely the operators have very little connection with the investment made, and somewhere down the line that hurts,” he said.
Yannis Anagnostakis, CEO of RAK Hospitality Holdings, a government entity with four hotels in the emirate of Rasa al Khaimah, was more direct, upon being asked by Sackur how brands “ripped off owners.”
“Being ripped off? That would be a very strong statement, and we are jointly responsible for our industry. But it has happened. The aspiration is for a 5-star hotel, and you compete fiercely with the brands, but then you get a 4-star flag as that brand cannot open another 5-star, and then what happens when that operator delivers a 3-star customer?
“It has happened. Owners and operators should be equally prepared to assume the responsibilities,” Anagnostakis said.
Alain Debare, CEO of Action Hotels, which has 14 operating hotels and three in the pipeline, said in general brands are not holding up their end of the bargain.
“Brands are not owning anything in this area. They stand aside from the incentive fees, so the worst that can happen is they make less fees, but we owners are paying the interest every month. If we do not raise the issues, the issues are not being raised, as they are too buss developing hotels,” he said.
Hartzuiker added that brand support often tapers off after the development stage.
“When (the hotel) is built, there is not that connectivity anymore. That affects future investment. It is a about agility and how you react to that. It feels to me that it is the owner who moves, not the management company,” he said.
“We need two things from the brands. The first is revenue, revenue, revenue, and the second is for them to build a smart investment environment for the top line,” Hartzuiker added.
Ultimately, Anagnostakis said, “both sides should be paying far more attention to the customer, and so should shareholders.”
The CEOs on the panel also voiced worries that with supply increasingly coming into some Arabian markets, the brands will continue their focus on development, primarily on midscale. In the UAE, developing that segment is very much part of Dubai’s strategy for its upcoming Expo 2020 mega-event.
That helps owners, too, but the CEOs said the emphasis should always be on revenue, and, of course, the guest.
“We should have more brands, so we can have more hotels,” Mekouar said.
Hartzuiker added: “Development has slowed, and people have shifted their attention to the midscale. It is not just about pipeline. What about the trading here and now? We’ve seen 12% to 20% declines in (revenue per available room).”
Debare said he saw that fixation on development often transpiring into increased development costs.
“I am more than frustrated with the operators sticking to development budgets. That creates a huge gap between the top and bottom lines, and with operators liking to hand out guest discounts, that’s hurting our margins,” he added.
Mekouar said he was confident such pain from growing supply would be temporary.
“If you zoom into one particular year, you’ll see it is bad. In the short- and medium-term, yes, some will get hurt as more supply comes in, but when you zoom out and see the region, or just Dubai and Ras al Khaimah, it will come to a point where is creates the right stabilization,” he said.
“It is about being a long-term player and having the right position as an investor.”
Debare said food and beverage is another “ugly” problem in the region.
“I do not see the operators doing anything about it. They are running away in fact,” he said.
Hartzuiker said he supports changing management agreements, adding that “for new contracts, that is fair, but most of us are dealing with legacy.”
Anagnostakis added: “We’ve lifted the capital intensity of doing business with the operators, who are very happy to pay out dividends and special dividends to their shareholders. We’d like some of that, too, to take some of that capital and create something new.”
Mekouar pleaded with brand leaders: “Help us help you regain control of customer acquisition, which will help us regain customer retention.”