Hospitality industry: Rethinking and reinforcing the strategy
It is not the most exciting of times, economically speaking. Crude prices are spiraling down, hitting the lowest ‘per barrel’ price since 2003. Last year ended with clocking a deficit of $96 billion.
This year too is set to match it, with an estimated $85 billion deficit.
However, like our ministers and experts rightly say, Saudi Arabia is well positioned to brace the economic head winds.
As one of the visiting Saudi dignitaries also said during the recent Global Economic Forum in Davos, Saudi Arabia has, over the years, built very strong guard rails for its socio-economic growth and sustainability which can carry it through the current era of weak crude futures.
Ample foreign reserves, low debt, healthy investment climate, diversification of economy, robust economic policies and, above all, the firm resolve and vision of the Saudi leadership bode well for Saudi Arabia.
It will weather the storm comfortably and come out more strong and seasoned.
Similarly, the hospitality industry in Riyadh, currently in a challenge mode, can be buoyed with some innovative strategy and policy.
With revenue and occupancy dropping year on year, and new supply entering the market, it looks like a rough road ahead for some time to come.
As per the STR Global, year on year, the market penetration index has gone south from +11.1 percent in 2014 to -7.8 percent in year ended 2015 and the revenue growth Index, a key benchmark to assess the health of the business, has moved from +6.3 percent in 2014 to -8 percent in 2015.
A report published by Jones Lang LaSalle (JLL) last year revealed that Riyadh and Jeddah are forecast to see an increase of 16,000 new hotel rooms by 2018.
Of these, more than 50 percent will be new 5-star hotel developments, as international hotel brands put in place ambitious expansion plans.
This year alone, around 4,171 new rooms (4 and 5 star) are planned to come on stream; give or take a few 100s.
Furnished apartments of all hue and colors are flooding the hospitality space.
Like the International Energy Agency recently said, the oil market could drown in oversupply, the hotel industry too could experience a similar situation here if further new supply continues to stream in.
With the supply increasing unilaterally, occupancy levels decline translating to receding revenues.
In such situations, there is a danger of hotels undercutting each other, kicking off a price war to grab the market share.
Therefore it is critical that we rethink our strategy and engineer social and cultural innovations, within the framework of Saudi laws of course, that could bridge the supply and demand gap.
Firstly, for the near term, additional investments in hotels and furnished apartments within Riyadh could perhaps be rethought and redirected.
Funneled into, maybe, residential townships, libraries, museums, theme parks, science parks, aquariums, public parks, sport arenas etc.
Secondly, it is time people embrace the initiatives and strategies laid out by the Saudi Commission for Tourism and Heritage.
Domestic tourism needs to blossom in all its potential, distributing its bounty through the year, particularly during the ‘need periods’.
Riyadh, of course, should be the focal point due its size and stature — mercury levels notwithstanding.
This, however, wouldn’t be possible without the people’s participation.
Tourism authorities and service providers can only ‘take the horse to the pond’ as the saying goes.
With world-class hospitals and medical facilities, health tourism is another potential source of commerce. And, of course, another source of employment for the young Saudi nationals entering job market.
This was yet another smart program devised by the Saudi Commission for Tourism and National Heritage years ago that needs to be taken forward by the people and private sector — specially the hotel, airline and tour operators.
It’s vital that they participate, offering attractive and affordable packages and promotions in order to nourish this initiative, support the public and garner goodwill and business along the way.
The recent announcement by tourism authorities about Haj and Umrah Plus visas is a shot in the arm for the VFR segment and throws open yet more possibilities for the growth of in-Kingdom tourism.
With existing and soon debuting airlines, airport expansion programs, low fuel prices and excellent airports connectivity and facility, airlines are in a position to create special RBD’s offering competitive airfares to the common man.
Hotels can then pitch in with special room rates to package hotel beds with airline seats at affordable prices.
Even during peak months, the sudden exodus of business tourists from Riyadh before the end of week creates a big vacuum during the weekends. Edu-social and civic bodies could step in to fill this vacuum.
Organizing literary and cultural festival, career guidance workshops, science exhibitions, conducting historical and geographical tours, educational symposia and seminars etc will not only add to the commerce but will also enrich the intellect of the people, especially the youth.
We can promote programs on weekends that will reinforce civic sense and traffic safety rules; we can bring together the bright minds we have in the society to enhance environment awareness among us!?
We can conduct workshops wherein we bring experts from different business verticals like health care, telecom and media, construction, aviation etc to address how their respective areas are progressing and impacting our lives.
During the lean periods, cookery contests — bringing out the culinary creativity of the people and food festivals to promote culture and cuisines of friendly nations — would be another great activity enriching and entertaining one and all.
For a change, we can give our wives a ‘Kitchen Holiday’ on weekends and indulge them to partake themselves from these events. Imagine the richness of mind and money these constructive and creative endeavors could bestow.
And at the heart of this all will be the hotels as they have the facility, appetite and capability to host all above activities with finesse.
To make it financially viable, organizers could invite Corporates to sponsor these activities as part of their ‘Corporate Social Responsibility’ portfolio.
With above initiatives and strategies, among others, taking root, we will likely see hotel occupancies and revenues moving up, especially during need periods.
Riyadh doesn’t need to have beaches, night clubs and casinos to attract tourists and grow its hospitality business.
It has the people, the potential, the public infrastructure and the political will and wisdom to enrich, empower and educate its residents, guests and businesses.