Complex Made Simple

Sound the alarm: GCC hotels facing a wake-up call

Gulf and Indian Ocean Hotel Investors’ Summit (www.GIOHIS.com)

The next 12 months will be a testing time for the GCC hotel industry, with owners and operators facing challenges on multiple fronts

Saudi’s aims to have over 70,000 rooms supply by 2023 is “colossal, very ambitious" Attracting labor with new salary and package incentives can add to cost, but hotels can overcome that Cost pressure will come from ESG which will be a much bigger factor going forward

An AMEinfo exclusive

The next 12 months will be a testing time for the GCC hotel industry, with owners and operators facing challenges on multiple fronts, according to Simon Allison, organizer of this year’s Gulf and Indian Ocean Hotel Investors’ Summit. The event will take place in Ras Al Khaimah (RAK), November 14-16, 2021.

Simon who is also CEO of HOFTEL, a network of hospitality property investors, said the hotel industry needs to prepare for new ‘headwinds’ as it recovers from COVID-19, including managing cost, a shortage of labor, and the need for investment in technology.

“Things look good right now but hotels that fail to plan for these potential obstacles will be hit hard,” Simon warned.    

In an exclusive interview with AMEinfo, Simon provided crucial details behind his advice to the hotel industry.

Survival at any cost

Hotel
Simon Allison

Simon urged hotel owners to focus initially on not letting costs escalate to 2019 levels, especially as more players throw their hats in.

“A whole range of pressures are on current owners now, not the least of which coming from new supply in the GCC pipeline,” Simon told AMEinfo.

He called Saudi’s aims to have over 70,000 rooms supply by 2023 “colossal, very ambitious, but also very exciting for the region and the kingdom.” The UAE keeps adding new keys and will have a total inventory of 150,000 keys.  

“It adds to the pressures unless you keep growing the tourists quite quickly.”

Simon praised the region for doing “amazingly well in the last 1.5 years,” calling UAE’s strategy for remaining open, “the right one, and which for RAK translated for the best year ever.”

Compared to the rest of the world, where occupancy was in the single digits at the start of the year, and just now creeping up in the 40’s and 50s levels, most of the region has been at 50-70% occupancy and even 80% occupancy in RAK, he said.

At the same time, margins soared as costs were cut.  “You’ve had hotels breaking even at occupancies of 20-30%, way lower than ever thought possible, partly because budgets were cut, including sales and marketing budgets, maintenance (lack of room usage), and more importantly, the recharge on managed hotels coming from big brands which weren’t levied because the hotels weren’t making revenues.”

But surviving on a shoestring is no longer viable. Times are changing and many costs are creeping up again.

Facing cost headwinds

Simon indicated that to keep a lid on costs, the sector will require more efficient working practices, and potentially some additional investment in automation.

Attracting Staff

During COVID-19, many hotels were closed and had to lay off a lot of people,” Simon said.

“This is emotionally a difficult thing to do for all concerned and the problem the industry is now facing is getting staff back again,” he added.

Former hotel staff either went to work in other industries, set up their own businesses, while for this region, a lot of the workers in housekeeping and F&B that came from south Asia or the Philippines simply went home, “…so getting them back, as hotels fill up again, may turn out to be an issue,” Simon indicated.

He said this was a global problem as well, with a worldwide shortage of chefs, for example, currently being an issue. Something had to be done.

“In certain markets, salaries in F&B departments or even housekeeping are up. In the UK, there is a 28% increase in starting salaries but it’s also happening across other countries as well. The industry needs a better career structure to attract talent and while automation will free up some of the mundane jobs, tech can’t get involved in every staff function.”

Attracting labor with new salary and package incentives can add to cost, but hotels can overcome that, Simon assured.

“A lot of it is about empowerment. I know of a hotel manager that cut 150 staff out of the payroll, yet guest satisfaction scores went up because team leaders and staff were incentivized, took ownership, became more efficient, and were motivated to make the hotel they worked in a success. It isn’t always about numbers or straight pay, but how do you align staff and give them a feeling of belonging,” Simon explained.

He gave another example where NH Hotels once conducted a study that found hotel room attendants spent 30% of their cleaning time walking in and out of the room to the trolley out in the corridor.

“So, they redesigned the trolleys to fit in the room. That gave them some 10-15% productivity per room. Sometimes you need thinking out of the box, or people from outside the industry to give you a fresh perspective.”

Automation

Simon opined that automation can cut costs and has its place in hotels but that human interaction is inevitable.

“In the end, most guests want quick check-in and out, a comfortable bed, shower, and a soundproof room. Most owners have that. In resorts, you can be creative and we have new groups coming trying to move the needle, tech-wise,” Simon reckoned.

“UK’s Yotels launched the first contactless check-ins and technology keeps progressing. I personally invested in a group that has finger-vein technology. Once you register your finger, you can pay with it, check-in and out, and it never runs out of battery or loses a signal,” Simon quipped.

According to Simon, check-in and check-out are areas that can be automated, although one needs to keep on hand human intervention if something goes wrong. But for things like F&B and cleaning a room, Simon believes one really cannot automate and that “Automation works for cost-cutting, speed, and hygiene but not for everything.”

“Cost pressure will also come from ESG which will be a much bigger factor going forward, not just because the customer is demanding more environmental awareness, but because most institutional investors are adamant that unless a hotel hits certain benchmarks, they won’t be able to buy or invest in it,” Simon asserted.

Hotels are advised to invest in tech and sustainable practices that reduce energy, remove single-use plastics, recycle, prevent food waste, source food locally, and ultimately offset carbon footprints for incoming aircraft, he said.

Cost of guest acquisition

Simon also emphasized that the cost of guest acquisition remains a big issue for owners, particularly with the growing dominance of online travel agents (OTAs).

“OTAs have a far bigger choice for travelers than what a hotel brand can offer them, and once you register with an OTA, it takes a few clicks and you’re done. Brands have not been able to compete with that,” Simon said.

As such, hotels have had to push loyalty programs which can be very powerful – indeed, the larger the brand, the more valuable the loyalty program in driving business. That said, the cost of these programs is becoming an issue for owners, according to Simon.

“By the time you give a loyal customer a 5% discount, and then you pay the brand a fee of maybe 5% for that loyal customer because that’s what you signed up to, and you then pay the brand the GDS (Global Distribution Service) fee of 2-3%, actually you’re not paying that much less than if you took  an OTA booking,” Simon explained.

He added: “The brands want to claw back the customer, but they are losing the OTA battle for market share and using the loyalty programs doesn’t have enough of a cost advantage for owners anymore.”

And so, liberating owners from big brands’ fee structures is one of the ways forwards to give hotels a chance at better playing the loyalty game.  

Management charges

According to Simon, charges and recharges levied on owners are extraordinary with very few owners realizing what they are paying for, though some are starting to.

He said big global brands have added multiple recharges, often lost in the system, costs which owners thought were covered by the management fee, but were not, and amounted to millions of dirhams per hotel, per year.

“Many owners need to be looking at their relationships with brand partners,” Simon advised.

“To avoid that, one of the key trends going forward is that a lot of the owners are either moving with a franchise where they run the property, or they sign up with a white-label operator, and some even set up their own brands.”

This is happening globally and locally.

“The First Group are moving away from managed hotels towards franchising, and now setting up their own brands. ADNH has set up white label operations. Aldar took over management of 6 hotels on Yas Island and decided to run them themselves by using internal economies of scale, and consolidating duplication of procurement, HR, and ENG teams,” Simon described.

External threat: Holiday homes

Simon considered Holiday Homes a potential threat for owners but also because big brands are also getting into the act.

“Lots of owners got worried about the short-stay apartment rentals trend. Airbnb’s explosion and now brands managing private homes like Marriott Residences or ACCOR’s rental units,” Simon confirmed.

“One of the concerns owners have is that big brand partners are rushing into the sharing economy so they are setting themselves up in competition with the owners who are not very comfortable with that.”

Owners are now doubly concerned with attracting tourists or business travelers to their hotels. Could turning experiential solve that issue?

“Citizen M in the urban space and Six Senses for resorts have changed how people perceived luxury. But there are an awful lot of humdrum ‘me too’ groups, who are basically borrowing the most important marketing words and rearranging them,” Simon said.

“Newcomers may bring new ideas, but moving the needle on experiential works most easily with high-end resorts and needs investments and creativity. Even then there is a challenge. As more and more of them proliferate, how unique will the next tented camp, beach resort, or fort hotel be?  

“Brands and designers need to keep inventing in order to keep the offer fresh,” Simon said.