Exclusive forecast: hospitality trends for 2016
Last year, Hotelier Middle East reported that the trouble with the rouble from 2014 filtered through to 2015, while the Egyptian market was experiencing a slight upturn. The infrastructure in the region however, is still going strong, and tourism numbers are on the up and up.
TRI Consulting associate director Chris Hewett tells Hotelier: “2015 was a challenging year for hoteliers in the region with macroeconomic, currency fluctuations and geopolitical factors all impacting performance levels. With oil prices expecting to remain low and stagnant growth in Europe and Asia, we anticipate 2016 to be another challenging year.” And Rotana COO Guy Hutchinson admits that 2015 has been a tough year due to the impact of the fall in oil prices and the currency drop with the rouble and euro.
However, PwC released its research and forecast mid-2015, which suggested that growth will again be the dominant theme for 2016.
According to a statement: “Much will depend on when and whether visitor numbers pick up again from Russia, and hoteliers in the region are still assessing the impact this could have on both RevPAR and TRevPAR. The weakened euro is also making it considerably cheaper for GCC tourists to head to Europe for shopping rather than travelling within the Middle East.”
STR Global’s Middle East and Africa hotel pipeline for November 2015 has revealed growth as well. There are 501 hotels totalling 144,321 rooms under contract in the Middle East and 285 hotels totalling 53,093 rooms under contract in Africa, according to the November 2015 STR Global Construction Pipeline Report (NB: Under contract data includes projects in the ‘in construction’, ‘final planning’ and ‘planning’ stages but does not include projects in the ‘unconfirmed’ stage).
Hotels under contract in the Middle East subcontinent represents a 30.1% increase in rooms under contract compared with November 2014 and a 57% year-over-year increase in rooms under construction. The Middle East reported 82,446 rooms in 253 hotels under construction for the month.
REVPAR, SOURCE MARKETS, AND OCCUPANCY
Viability managing partner Guy Wilkinson tells Hotelier Middle East: “Specifically in Dubai, the city’s hotel market was quite significantly impacted in RevPAR terms during 2015 by a combination of fast pipeline growth (29 new hotels with almost 8,000 rooms have opened in Dubai since our previous pipeline survey published in June 2015) and diminished demand from key markets such as Russia and China, whose weakened currencies affected their tourism spending power.” He adds that this downward hotel performance trend will continue over the next few years, until demand growth resumes in the run-up to Expo 2020.
Time Hotels CEO Mohamed Awadalla says that in 2015, Saudi Arabia was the brand’s main source market, while it has also seen a rise in travellers from Kuwait. “This can be attributed to the emirate’s attractiveness as a safe and welcoming destination in the region, compared to other previously popular Middle Eastern and Levant countries. We expect both markets to grow in 2016,” adds Awadalla.
Hilton Worldwide Middle East & Africa president Rudi Jagersbacher highlights the importance of the Chinese market. “In 2016 and beyond, Chinese outbound travel is expected to grow at an unprecedented pace, with the number of outbound Chinese travellers expected to double from 100 million to 200 million by 2020. This will have a natural ripple effect on arrivals to the GCC, with China remaining a top target source market for the coming years.”
Jagersbacher notes that the number of Indian visitors to the GCC is also expected to grow in 2016 — with a number of tourism boards in the GCC, including those in Sharjah and Ras Al Khaimah, driving promotional efforts in the south Asian nation. He also says that Egypt is definitely a growing market, as the country targets 20 million tourists by 2020 and the government undertakes a global marketing drive.
Hutchinson says new source markets such as Poland, Slovakia, and Hungary have also emerged, and adds: “Surprisingly, the GCC itself was one of the main markets in 2015, thanks to the inter-regional travel percentage. It is worth mentioning that a recent study stated that the average spend in the GCC countries for inter-regional travel is as high as US $4,980, and for international travel, it is $9,920. This includes airfare, hotel room, ground transport, travel supplies, and car rentals.”
Echoing what the other hoteliers shared, he says Saudi Arabia was one of the most important tourism source market in the GCC for inter-regional travel. Hutchinson says: “The main source markets remained the same as the previous years and that included the UK, Russia, Germany, China and India. In terms of geographical areas, the Middle East looks set to remain as the UAE’s single largest source market for visitors, with its share of arrivals sitting at around 30%. The Asia Pacific region is forecasted to take a greater stake this year, with the number of tourists predicted to rise from 2.9 million in 2014 to four million in 2018.”
Taj Dubai general manager and area director Jason Harding says that in its first year of operations, Saudi Arabia, Abu Dhabi and India have been driving the largest number of visits. “We don’t expect this to change substantially in the months to come, although given the uncertainty of the oil prices, we anticipate business from the petroleum sector to soften,” says Harding.
TRAVEL AND TOURISM
Speaking about the opportunities for hoteliers in the next 12 months, Jagersbacher notes: “Having worked in hospitality industry for more than 40 years, I can say that the pace of growth and change we have witnessed in the past five years is almost unmatched, and presents a great opportunity to evolve our offering to meet broader guest demands.”
In this regard, Jagersbacher says there is an increased demand for experiential travel, while owners want their properties to retain their individual identities. “We see this as a major growth area in 2016, following the launch of Curio — A Collection by Hilton in late 2014. Curio currently has 21 properties under development, which include the Curio at the Mall of Qatar and the Rosemont Hotel & Residences in Dubai.”
The Rezidor Hotel Group area vice president Middle East and Turkey Mark Willis also says that authenticity will be a key opportunity: “Sophisticated travellers are increasingly choosing iconic products in unique locations that define the destination and are able to tell a story. These unique locations used to be often run as independent hotels but often lacked visibility or service quality. Some hotel operators have seen the opportunity by adopting to the model and accordingly, Carlson Rezidor launched the Quorvus Collection.”
Harding also points out that there is a growth in lifestyle concept properties which will increase over the coming years.
Hutchinson says he is optimistic about the outlook of the GCC tourism sector. “We expect strong growth in tourist arrivals, tourism receipts and hotel industry value. The GCC has made major investments in expanding airports For instance, an AED 117.5 billion ($32bn) expansion of Al Maktoum International at Dubai World Central is expected to begin by the end of the year. Airports across the region are expected to handle as many as 250 million passengers by 2020, which is a very promising sign to the tourism industry.”
Jagersbacher continues on similar lines: “While we see changes to guest demands, we are also witnessing major development of tourism infrastructure to accommodate industry growth. As the region upstages its position in global travel, with more world-class tourism infrastructure taking shape, and as airports across MEA see record passenger numbers, there is an opportunity to continue the Hilton Worldwide tradition of developing airport hotels.”
To mark that, in May 2015, the brand signed a Hilton hotel for Dubai South, which will be in close proximity to the main passenger entrance of Dubai Al Maktoum International Airport. “We also signed Hampton by Hilton Al Qusais, which will be close to Dubai International Airport’s Terminal 2 and in June, we signed Hilton Garden Inn Jomo Kenyatta International Airport in Nairobi,” adds Jagersbacher.
Wilkinson says that in terms of opportunities, Expo 2020 (expected to attract 25 million visitors over six months) is key.
Hutchinson says: “Many other more permanent demand drivers support developers’ faith in the future strength of Dubai’s market, not least the large numbers of visitors expected at Al Maktoum International, with a capacity of 200 million passengers.
“Increasing tourist/business traveller numbers to the region have lifted investor confidence in the Middle Eastern hotel sector, while domestic developers and HNWIs form a large portion of investors; there is also an increased appetite from global institutions and conglomerates. Demand from visitors is rising in the UAE and in Dubai in particular, leading to the investor confidence, but there is also a consciousness of the possibility of oversupply.”
He continues to say that the sector’s growth is also expected to be driven by international tourist arrivals, especially those from Asia, and a stronger MICE [meetings, incentives, conferences and exhibitions] segment. “In 2016, we are expecting the growth of the sector to be driven by initiatives undertaken by GCC governments to enhance infrastructure, thereby positively impacting the continued investor appetite for the region and tourism.”
Catering to the millennial traveller is still important in 2016. “One of the hot topics has been the rise of lifestyle brands and the unique demand from today’s millennial traveller for products that are mobile and technology driven. Hoteliers need to provide an experience to meet the changing demand of forward-thinking customers who want more from their hotel stay. A personal interaction experience is where we will see growth next year,” explains Willis.
Hutchinson agrees that one of the top trends is today’s generation, ie the millennial or Generation Y. “Hoteliers are now focusing on wider variety of demographics, and definitely the new generation travellers have been the latest focus for the industry. Generation Y is definitely a driving force as they love to be online and do a lot of research and this segment helps the hotelier to plan accordingly to cater their needs. We’re seeing a lot of growth in that area and then they’re influencing the boomer and the older generations as well.”
Wilkinson is brief when asked about what trends he’s expecting in 2016: “Falling rates and more cut-throat competition!”
Top hospitality trends according to Jagersbacher include the increase in the number of guests seeking mid-market hotel options in 2016 and beyond. “In April 2015, we announced the launch of our second mid-market brand Hampton by Hilton in the UAE and by 2016, the Emirates will boast three Hilton Garden Inn properties, underlining our unequivocal support of the government’s call for more mid-market options. This focus has resulted in our mid-market pipeline in the Middle East more than doubling in size to 15 hotels under either our Hilton Garden Inn or Hampton by Hilton brands during the 12-month period from Q1 2014 to Q1 2015.”
Awadalla concurs on the mid-market trend and says: “One ongoing trend is that of the rise in budget-conscious travellers, especially given the continued forecasted low oil prices. Corporate travellers are increasingly looking at switching to mid-scale range hotels and hotel apartments when travelling to the Middle East for business.”
“Though luxury is the trademark in our region, there has been growth in the three- and four-star hotel market, which broadens the region’s appeal to a wider audience,” adds Harding.
Family travel is also a major trend to watch out for. Jagersbacher says: “With the newest additions, Hilton Worldwide is well placed to own a large portion of the family travel market, which accounts for over 12.5% of global tourism. We see huge potential for growth within this segment; particularly in Dubai, which welcomes growing numbers of incoming guests from top family source markets including Saudi Arabia, Oman and India; and sees plans to open family-friendly attractions such as Legoland Dubai taking shape.”
In line with this, theme parks, say the hoteliers, figure as a top opportunity. “As another example, the three theme parks and water park at Meraas’ Dubai Parks & Resorts are expected to attract 6.7 million ticketed visitors in 2017, the first full year of operation,” explains Wilkinson
Willis also believes that while the hospitality industry has fully embraced social media, 2016 will see a lot more creativity in the use of platforms and the employment of tools. “Hotels will invest more in social media in the coming years, particularly in tracking online activities and resources to manage their social media efforts. Rich media and great content in general will remain as the cornerstone of successful social media management,” he adds.
Hutchinson says that he also thinks social media will continue to be highly influential in terms of driving customer behaviour and purchases.
“With more than 1.5 billion people connected to the world through the internet today, a recent survey found that more than 70% of them trust online reviews as much as personal recommendations. They spend more time surfing online to make their decision on where to book — hotel mobile apps can make this process much easier. They also highly appreciate the importance of social media platforms as they allow them to share their experiences.
“These platforms have become one of the hospitality sector’s strongest tools to enhance the experience and satisfaction of every single guest, improve operational efficiency by receiving positive and negative feedback, build solid trust and increase engagement. They are very essential in creating brand awareness, reputation, visibility and business as word of mouth spreads swiftly. However, managing bad feedback properly and promptly can turn a disgruntled client into a lifelong one.”
Millennium & Copthorne MEA chairman and founder Ali Hamad Lakhraim Alzaabi agrees that there will a focus on content marketing and continual growth of social media.
“We will see increased focus on content marketing as a means for brands to differentiate themselves whilst boosting their search optimisation. Video content in particular will continue to increase in the hotel marketing. Statistics show that more than three billion videos are uploaded each day on Facebook, whilst we see a continued strong upward trend of travel-related content on YouTube.
“As we know the digital world is rapidly evolving and video is becoming one of the most trusted sources of brand content and becoming a key influence within the purchasing decision for a consumer.”
CHALLENGES AND THE FUTURE
Pipeline numbers and supply is a challenge, according to Time Hotels’ Awadalla. “It is obvious that as more hotels come onto the market in 2016, we, and other hotel groups, face the spectre of oversupply. With this comes increased competition and the possibility that more rooms and more competitive rates will drive down overall ADR. This means that we need to focus on refining our business strategy and ensure that we remain front of mind for inbound travellers in 2016.”
Jagersbacher agrees the supply is a challenge in terms of remaining innovative and relevant in the face of rising competition —especially with STR Global’s Construction Pipeline Report showing more than 700 hotels in the Middle East & Africa development pipeline.
Alzaabi also says there will be increased competition due to new hotel supply. “However, we believe that increased competition is good for consumers as it provides more choice and intuitively drives up the quality of offering for guests. Increased competition drives us to be more creative in communicating our unique points of difference and to strive to deliver the best possible experience for our guests,” he adds.
Another challenge is related to security, says Willis. “For some countries the challenge of political uncertainty and security issues remains although countries such as Egypt, Libya and Beirut have started seeing signs of recovery.” Hutchinson also highlights the political unrest in the wider region, which, he says, will continue to have an impact on travel habits. “While the turmoil has had an impact in some markets, we are hoping that the situation will stabilise in the near future,” he says.
The hoteliers are also not unaware of the challenges related to oil. “The decrease in oil prices and instability in main source markets such as Russia have affected inbound tourism to countries such as Egypt, Oman and the UAE,” explains Willis.
Hutchinson agrees that the considerable drop in oil prices will have an adverse impact on the GCC revenues.
“However, the GCC economies are increasingly diversified and any negative impact will be lesser as compared to the national economies of other countries within the region which rely more heavily on oil as a revenue source,” he adds.
“One of the other challenges in 2016 would be to recover our Russian market as the number of Russians leaving home for vacation had dropped by 40.3% during the first quarter of 2015, according to official figures from the Russian Federal State Statistics Service,” reveals Hutchinson.
He continues: “More visitors are still travelling to the UAE, but arrivals from Russia and the CIS has been weak. The decline in the rouble has had a major impact on spending by Russian tourists, which dropped by 52% in Q1 2015, taking Russia out of the top five spenders list for the first time in recent history.
“The currency’s depreciation puts higher pressure on the GCC and mainly UAE tourism industry to provide a wider range of affordable accommodation. So, we are forecasting that these situations will continue for some period in 2016.”
Alzaabi however says it’s important for hoteliers to adapt their strategy and approach where necessary to cope with this situation and “look to alternative source markets as we have done in the last two years”. He adds: “We will continue to tap into source markets such as the Middle East, Europe and India and also continue to develop tailored seasonal campaigns and promotions to target new markets such as China and South East Asia.”
However, Hutchinson anticipates stronger RevPAR growth from 2016 onwards, with Abu Dhabi and Muscat leading the field with the growth. He says: “In most cases, this progress is coming from increased occupancy, as the different cities face different challenges in terms of levels of supply, increased competition, and changes in the demographic profile of their visitors.
“Even though 2016 does not seem like a very promising year for the hospitality industry, it yet has some markets that stand a potential to gain business. For example, Abu Dhabi is predicted to have a positive impact in 2016 in terms of room RevPAR. Dubai on the other hand is expecting a greater occupancy rate, with 28,000 hotel rooms to build up by 2016, which is quite massive. However the survival of the industries will be tough for the next two years considering the current scenario.”
Harding says: “We are all aware that overall occupancies and average rates achieved have softened in the past 12 months and looking forward new properties are opening. With these two factors alone in mind, one would imagine the main challenge will be how each hotelier is to grow their respective business.”