Hotel revenues to slide again this year, albeit at slower pace, company chief executive says
Abu Dhabi’s Rotana trims costs and refocuses growth priorities in tough market conditions
Rotana, the hotel management company based in Abu Dhabi, has trimmed operational costs and reshaped expansion plans to focus on the GCC and sub-Saharan Africa, as it works to stay afloat in challenging market conditions with ongoing revenue declines, its president and chief executive said.
“In spite of cumulative inflationary cost increases in excess of 16 per cent over the past five years, we managed not only to avoid these increases but decease our expenses by 13.5 per cent over the period,” Omer Kaddouri told The National at the company’s newly opened Saadiyat Rotana Resort in Abu Dhabi.
“We are a regional company, we know the market and culture, we’re good at what we do and there’s plenty of footprint to grow here, so let’s just focus on our immediate area.”
Hotel revenues and room rates across the Middle East have been subject to steep declines in recent years because of low oil prices denting consumer spending power and rising supply of hotel keys as the market matures.
Average revenue per available room (RevPar) in Abu Dhabi declined by 14.7 per cent year-on-year in the first quarter of 2018. It fell by 13.3 per cent in Dubai in April, according to an EY hospitality sector report.
Rotana, which operates 65 hotels across the GCC, Turkey and Africa through management agreements, recorded an average RevPar drop of 10 percentage points across its portfolio in 2017 and expects the rate of decline to slow to 5 to 7 per cent this year. Preparing budgets for the company has been “very difficult” over the past five years, Mr Kaddouri said.
“Each year has been tougher than the last. We’ve become used to adapting ... to protect profit as much as we can,” he said.
Rotana has managed cost savings in areas such as staff accommodation, where a decline in residential rents in the UAE have helped to cut expenses by 10 to 20 per cent over five years, food and beverage and staff headcount. There have been no hotel closures – most are experiencing profit declines, but none are making a loss, Mr Kaddouri said.
This year, Rotana will focus on retaining its market share and keeping costs at a "sane, realistic level". “You could cut costs until the cows come home but what’s the result? No quality, customers complaining, then you’ve lost your reputation and your brand. We’re being very sensible,” he said.
Despite lower revenues, Mena hotel occupancy rates are holding up, EY’s report said, attributing it to resilient demand. Rotana’s average occupancy rate this year is 78 per cent, marginally higher than 77 per cent in 2017. “There are more people coming to the GCC, airlines are expanding and new attractions are cropping up in the region,” Mr Kaddouri said.
The number of hotel guests staying in Abu Dhabi increased by 4.9 per cent year-on-year during the first five months of 2018, according to official statistics released on Monday.
Rotana plans to open 14 new hotels in 2018 including four in the UAE. It expects to grow The Residences by Rotana brand after taking over management of Dubai’s Cayan Tower last month, and is in talks to manage two more residential projects in Abu Dhabi with deals set to conclude this month.
Saudi Arabia will be “huge” for Rotana, which plans to operate 20 to 25 hotels in the kingdom by 2025, and is in talks with a land owner to manage a residential compound of 400 villas. Africa is another market where Rotana plans to expand “aggressively”, targeting 15 hotels by 2025.
Last month, the company signed an agreement to manage a hotel in Bosnia, the closest it has managed to operate in western Europe. However, overall, it will defer long-held ambitions to expand in the mainland Europe, the United States and China, Mr Kaddouri said.
Rotana is also putting plans for an initial public offering on ice, and does not intend to launch new brands until market conditions are steadier.
“We’re ensuring we can get business into every one of our hotels and don’t want to be distracted at this stage,” Mr Kaddouri said. The IPO is “still on the books. But while it would be great to have a war chest full of dollars to expand the company, the timing is wrong [right] now.”