Major hotel groups plan to expand rapidly this year with a strong focus on regions such as the Middle East.
Even though the global economic outlook is far from bright, leading chains such as InterContinental, Marriott and Hilton will open properties in the next 12 months, and they remain surprisingly upbeat up about the state of the industry.
Guido de Wilde, the regional director for Starwood Hotels and Resorts in the Middle East, which has brands including Le Meridien, Sheraton, Westin, and Aloft in its portfolio, talks about why the hotel sector remains so optimistic.
"We are in the upward trend," he says. "Our competitors are not standing still. We need to be proactive."
What is driving the growth in the industry globally?
You have a lot of new travellers. Don't forget that there's a young generation going on the road. Half of the population is becoming middle class. These people have the means to travel, and as that happens, hotels are getting full. We had 80 [hotel] openings last year and 309 openings over the past five years, predominantly in the emerging markets. As we grow in China, as we grow in India, as we grow in the Middle East, we are seeing also a new traveller that will stick with the brands they are familiar with.
And in this region?
You will start seeing that corporate travel is back. Companies are doing well. They are on the road visiting their clients, meeting, prospecting new businesses. People from the West are travelling to the East to source new business, and people from the East are going to the West to explore new destinations. Most of these business people are through Dubai and this part of the world. As long as we stay active and we stay very focused, we remain bullish about the Middle East.
But this seems to come at a time when in Europe and globally there's so much uncertainty surrounding economic conditions. So why is the industry so upbeat?
We are cautious about what's happening in the world. We know that Europe is a main feeder market for our business. Typically, the German and the UK markets have helped us in the Middle East. Yes, there is a debt crisis in Europe, but companies are moving. They will not sit still. Our corporate business around the globe is up and corporate rates are coming back.
What are your expansion plans for the region this year?
We need to be proactive. In 2012, we have St Regis Doha opening in March. It's a very strong market building up to the 2022 [Fifa] World Cup. Then in [the second quarter], we have the second St Regis in Abu Dhabi - the Nation Towers project. This will mean that Abu Dhabi will be the first destination in the world where we operate two St Regis hotels. In the third quarter, we enter Medina, with a Sheraton complex. This involves two Sheraton hotels that are interconnected. The development will have almost 600 rooms and will be very close to [the Prophet's Mosque]. Then towards the back end of the year, we are looking at opening our first hotel in Tajikistan - a Sheraton in the capital city of Dushanbe. We also have extensions going on. We are extending Le Meridien Dubai near the airport, one of the first hotels in Dubai.
Could you talk about the region and how hotels in countries have been affected by unrest?
We are represented throughout the Arabian Peninsula, from Yemen up to Syria, so we have been affected. We have teams managing Sheratons in Sanaa, in Bahrain, and in Syria. But on the other side, we have seen a lot of [tourists] going to Dubai. People that would normally have gone to Egypt or other countries in North Africa have been attracted to [the UAE]. So we saw an upside in Dubai and we saw a downside in the countries that were affected by political unrest. Doha also came in very strong [last year] as did Saudi Arabia, and we believe that it will continue to grow. Saudi has a lot of development opportunities.
What else is planned for the UAE?
In 2013, we will open the first Sheraton in Sharjah. We have a Four Points by Sheraton in Sharjah and we have a Luxury Collection property in Ajman. So we are opening properties in two emirates where we have never been before. Then we have the Sheraton Sheikh Zayed Road opening towards the second half of 2013. We also have a W coming up in Abu Dhabi in a couple of years from now. That will then be our ninth hotel [in the capital].
Have any hotels in the region been put on hold?
No. Actually, lots of them came back. Some of the projects were put on hold in 2009 and 2010, but now a lot of work has restarted.
Vasant Prabhu, the vice chairman and chief financial officer of Starwood, has talked about opportunities in Myanmar. How does a hotel company decide when it's the right time to go into a new, and difficult, market?
Burma [Myanmar] is a bit out of my scope and I'm not familiar with that market. But I can tell you we've always been a company that has a "first mover" mentality. We've been one of the first movers in the hospitality business in this part of the world and in many countries with the Sheraton brand. If you look at this region, we signed last year in Erbil in Iraq with a Sheraton. Why are we going in? Very often we are asked. Sheraton is a brand that in markets such as Iraq people are familiar with. People get married there in hotels and celebrate their milestones in life.
Would you say the past year has been good in Dubai?
Dubai had a stunning year. In the last quarter, with our 15 hotels, and actually our chief executive [Frits van Paasschen] mentioned it on the earnings call last week to the international investment community. He said in Dubai we increased Revpar [revenue per available room] by 12 per cent on the last quarter. Occupancies grew and average rates increased. Normally, what happens is occupancies grow first and then the rate comes. But actually in Dubai last year we had the phenomenon of both.
So will business continue to grow, even as more hotels open?
There is obviously supply growth in Dubai, but that will not halt occupancy growth. There is a steady supply growth, which is good; it keeps all the existing hoteliers on their toes and competitive. But we believe there is enough demand coming into the market to further build on occupancies and room rates.
What are your thoughts on the Abu Dhabi market?
We're confident about Abu Dhabi as well. We have to look at it from various angles. Abu Dhabi is a market where you had a lot of new supply coming in over a very short period of time, so occupancy will need to be built up. There has been a lot of pressure on occupancy in this market and there is pressure on rates, but I would say that in the near future this will settle [down]. Don't forget that this destination has similar dynamics to Dubai, with an airline [Etihad Airways] that is expanding, with a tourism authority that is doing everything it can to attract people into the destination. They are definitely on the right track, because if you see what they are bringing in here, from concerts to cultural events, to sports events, to major conferences, I believe that in the near future hotel occupancy [will start to increase rapidly].