Middle East hotel sector recovery 'to take time'

The downturn has clearly impacted hotels in the region, with the sharpest declines being witnessed in Dubai and Cairo, said Marvin Rust, Global Managing Partner Hospitality for Deloitte.

However, while development in the hospitality sector is predicted to slow to 2% in the Middle East, the region is still expected to be the top performer worldwide in 2008/09.

The industry will continue to decline for the rest of 2009, not just in the Middle East but throughout the rest of the world, he predicts, but 'sometime' in 2010 the market will stabilize, and growth will return again in 2011.

Arthur de Haast, Global CEO for Jones Lang LaSalle Hotels, offered a similar assessment about a return to growth in 2011, but noted that 'whether the recovery will be as strong as some people imagine is not certain because of the supply issue.'

Caution urged

Many hotels have slashed rates to boost occupancy, but some experts warned that doing so will only extend the downturn for the industry.

'At this moment, with the market flooded with offers, and some hotels offering not just added value but ridiculous value, we are in real danger of prolonging the crisis for ourselves. After we see a recovery, how long will it take - if ever - for us to get back to 2007-2008 rate levels?' said Paul White, President and CEO Orient-Express Hotels.

The head of Cham Palaces and Hotels and Royal Regency International Hotels, agreed, saying his hotels are offering add-ons but are not cutting rates. 'We didn't change our price structure,' Dr Ghassan Aidi noted. 'I've always told our hotels not to get into the dangerous game of lowering price - it can be hard to get out of.'

Five year recovery

One expert offered a rather pessimistic view that it may take up to five years for rates to recover. 'Some forecasters are predicting that rates will not return to their 2008 levels until 2014,' said Tony Potter, CEO of Corinthia Hotels.

'That may seem ridiculous to some of us, but if you think it through, it is not. Because when the bankers and economists say they are seeing the first shoots of recovery, for us that means we will still need three to four or five years [to bring rates back up].'

Still, now is no time to panic, says InterContinental Hotels Group's COO for the Middle East and Africa, John Bamsey. 'My message to my people is to relax. There are a lot of younger managers who have not seen times like these before and you need to lead by example.'

In a similar vein, Ed Fuller, President and Managing Director of Marriot International Lodging, says that he has the grey hairs to prove that he has been through many boom times and recessions over the years, and this downturn will end just like all the others.

'This one might not be quite as bad as we may be painting it. I think there is some light at the end of the tunnel, because the demand for travel is greater than it has ever been. And so while the next few years will be difficult and our focus should be on cost reduction and efficiency, I'm a little more positive that we will come out of this a little faster,' he said.

Cost reduction

Fuller said Marriott's major focus in terms of cost reduction has been in the 'back of the house', and it has come up with some shared services that enable it to consolidate its labour, engineering and IT systems.

'Another thing we have done is control our hours so that if you have two or three specialty restaurants, you rotate them so that the customer still has a variety of restaurants available to them, but you reduce one serving team altogether,' he said.

'Also, in cases where we have hotels located close to each other we have been able to run the hotels with one management team even if they are different brands. In the long-term this provides us an opportunity to improve the efficiency of our operations.'

Potter says hotels have always benefited from management practices that have been implemented during recessions, adding, 'we should look at ourselves and say if we can just maintain half of this efficiency when the economy comes back we are going to be able to grow our businesses'.