Analysis Considering that Dubai is teeming with five-star hotels, it seems surprising that an unknown player would try to break into the market.
New player at top end in Dubai
Considering that Dubai is teeming with five-star hotels, it seems surprising that an unknown player would try to break into the market. But the emirate remains attractive to hoteliers keen to service the wealthy. And the new player should know; the company is home grown. Essque Hotels, based in Dubai, is gearing up to launch its luxury brand in the emirate. Few people may have heard of it, but Danny Haddad, the chief executive, firmly believes that Essque - pronounced "esk" - will soon be as well known as another home-grown hotel company, the Jumeirah Group. "Once you get the idea of what we're all about, when you see something, you'll recognise it as being very 'Essque'," he says, declining to offer more detail. According to analysts, there is room for more five-star hotels in Dubai, provided they offer something distinctive and appeal to niche markets. Max Cooper, the executive vice president at Jones Lang LaSalle Hotels for the Middle East and North Africa, says brands such as Hard Rock Hotels, scheduled to launch in Dubai in 2011, and other designer hotels could entice new visitors to the emirate. "I think when you get more difficult conditions, people try to separate themselves from the market, so you are looking at brands to help you to try to differentiate your product," says Mr Cooper. "You're battling a slowdown in demand growth and you've got new supply coming on. What you're trying to bring to a property is new areas of business. That is the work of a brand, to bring business into a property, as well as run the hotel on the ground." Other five-star brands established elsewhere such as Conrad, Langham, W Hotels and GHM, are also proceeding with plans to enter the Dubai market in the next year or two. In addition, luxury brands that already have a presence in Dubai, such as Ritz-Carlton, are due to open more hotels in the emirate. The Address Hotels and Resorts, part of Emaar Hospitality, another new home-grown brand, is opening another two hotels in Dubai this year: The Address Dubai Mall and The Address Dubai Marina. Essque Hotels has already signed its first three management contracts. Two of the hotels are being developed in Dubai by Zabeel Investments: on Palm Jumeirah, as part of the Dh2.1 billion (US$572 million) Tiara Residence development, and Sheikh Zayed Road. These properties have been delayed repeatedly and are now scheduled to open next year. Zabeel Investments is also the major shareholder in the company. "We've identified 2010 as a good time to move forward with our properties," Mr Haddad says. A third property was announced earlier this month and sees the operator branching out internationally, with a resort in Zanzibar, Tanzania, also due to open next year. Mr Haddad says Essque Hotels intends opening eight to 10 hotels internationally over the next five years. "We're looking at Abu Dhabi, other parts of the Middle East, Africa and Europe." The company was set up three years ago, when Dubai's hotel industry was reaping the benefits of a tourism boom. Mr Haddad was working for Zabeel Investments as the executive director of hospitality, and looking for operators for the hotel properties in which they were investing. He came to the conclusion that there was a gap in the market. "We realised that there was a lot of room for a new operator with a new mindset that can actually come in with something a little bit different and enter such a competitive market," he says. "All of the five-star brands are phenomenal. They've been doing it for a very long time. We had to come into the market with a certain niche to give a new five-star brand a chance to get into the market." The company was set up in May 2006 and officially launched a year later as Tiara. The name was changed to Essque last year. "We couldn't swim in the same ocean as everyone else, otherwise it would cost us a lot of money to do it better than them. Our brand is not focused on the ostentatious type of luxury. We are more understated luxury. We are more focused on service elements versus expensive design elements," he says, without elaborating. Mr Cooper warns that as thousands of rooms come online this year and next, occupancy levels are certain to slide, even if demand were to pick up next year. However, Mr Haddad remains positive on the ability of the Dubai hotel industry to recover. "Our industry goes through a lot," he says. "We've been through SARS, we've been through the Gulf War and we've had to adapt to all of that, and we did and it picked up again, and every time it picked up stronger." Mr Haddad says there has been a huge investment in Dubai's infrastructure, which will attract tourists and boost demand for hotels. He sees the potential for Dubai to develop into a mass tourism market in the next two years, creating plenty of opportunity for new operators. At the moment, though, The Monarch, another luxury hotel that opened in Nov 2007 in Dubai, is finding market conditions tough. "The Monarch was launched as a super-luxury brand, a 'Burj Al Arab' on Sheikh Zayed Road," says Arshad Hussain, the director of business development. The brand is part of Kuwait's Refad Hotels and Resorts. But with established five-star hotels reducing their rates to as low as Dh400, he says it is becoming increasingly difficult for new brands to compete. "It's such an interesting market. Where do you go from this?" Business was booming when the hotel started out two years ago, Mr Hussain says, but the market turned at the end of last year. Five months ago, occupancies at The Monarch fell to as low as 32 per cent, and plans to open another two Monarch hotels in Dubai are on hold. A combination of factors has reduced demand from key source markets such as the UK, including a string of negative media reports on Dubai and a downturn in the UK economy, he says. "Established brands like Fairmont and Shangri-La started cutting back rates," Mr Hussain says. "How are new properties like ourselves going to survive? What do we have to do to get the market share? Unfortunately, we have had to follow suit. We haven't dropped our rates to Dh400, but we have brought it down as low as Dh850, from around Dh1800." However, guests expect the same level of luxury, so the hotel is hit hard, he adds. "We're a new hotel, so we don't have a global brand behind us." Mr Haddad is not deterred, saying the slide in rates has already been taken into account. "When we work with the owners, we consider the worst-case scenario and work out the risk," he says. "We need to be successful in the worst-case scenario." firstname.lastname@example.org