Hotels swallow rising costs so guests can sleep at night

• Operating costs at three-year high
• Budgets recover to pre-pandemic levels
• Technology to aid efficiencies

Despite costs rising to a three-year high, hoteliers in the United Arab Emirates told AGBI they are not planning to increase room rates, instead opting to squeeze their existing profits as they search for ways to increase operational efficiencies.

The latest S&P Global UAE Purchasing Managers’ Index (PMI), released on Monday, found that costs are at their highest levels for more than three years in the UAE non-oil sector. While the monthly report concluded that many businesses have been forced to increase their prices, this has not been the case so far in the hotel sector.

“I don’t believe we will increase prices,” Jan Sleiffer, Hilton’s president for the Middle East, Africa and Turkey, told delegates at the Arabian Travel Market in Dubai. “It puts pressure on profits. We need to work harder to operate our hotels in an efficient way, and work with local partners.”

Headquartered in the United States, Hilton is planning to more than double its portfolio across the Middle East and North Africa region. It currently operates 85 hotels and has 110 in its development pipeline. Speaking on stage, Sleiffer also added that budgets at his hotels had recovered to pre-pandemic levels.

As Dubai welcomed 3.97 million international overnight visitors between January and March 2022, up 214 percent year-on-year, and the emirate ranked number one for hotel occupancy in the first quarter of 2022, at 82 percent, many hoteliers echoed the Hilton boss’ sentiment and said they would continue to absorb rising costs. 

“We are facing a number of areas in the supply chain, both disruption and price increases, in some cases it’s just availability,” Guy Hutchinson, president and CEO of Rotana, said at the launch of Edge, the company’s latest hotel brand. “However, we’re not really seeing a big impact on the business from this. We’re not increasing prices in any way to compensate for any kind of price increase.”

With 10,012 keys across 36 hotels in the UAE, Hutchinson said the group was able to reduce costs by consolidating services across its growing pipeline, while, at the same time building hotels more efficiently, meaning they are less costly to operate.

“What has really happened is the industry has evolved across the last five or six years… We’re already seeing a far more efficient way of operating and building hotels, with more energy efficient systems which you can build into buildings, which reduce their consumption.”

While the rising costs has had an impact, one way to increase the efficiencies is to embrace technology, reducing labour costs, according to Haytham Abdelaziz, director of operations at Dubai-based Hospitality Management Holding (HMH).

“Obviously the increasing price of oil has a huge impact on all the costs and all the hotels. We have started to learn lessons from the pandemic about how can we control our cost,” he said.

HMH launched its newest hotel brand, ECOS, at Arabian Travel Market, and has built a lot of new technological innovations into the new hotel, helping to reduce costs.

“We have a mobile app,” said Abdelaziz. “You can connect with the reception; report a defect in your room, or ask for amenities. Rather than cutting costs, we’re thinking how to manage it through technology.”

While new properties can increase efficiencies and executives can opt to absorb the costs going forward, new projects currently under construction are feeling the impact of the rising cost of raw materials, according to Vincent Miccolis, managing director, Middle East, Africa, Turkey and India at Ascott International Management Dubai, which started operations in the UAE in 2014 with four hotels and currently has a portfolio of 33 properties at various stages of development.

“We’re having this issue in the construction phase. Our founders are having issues getting the material to start, and some of the raw materials. We’ve seen some issues delaying some of our projects currently,” Miccolis said.

However, in terms of the costs to operate existing hotels, Miccolis said the company has “been able to absorb everything so far” and room rates at its serviced apartments are projected to return to pre-pandemic levels by next year.

Wyndham Hotels and Resorts, the largest hotel group in the world by number of properties, with 64 hotels in the Middle East and another 29 in the pipeline, believed there are a number of other trends at play when it comes to costs.

“It’s interesting to see how the airlines will respond to the energy crisis. If they take prices up, that means that travel will become more expensive. That means staycation is going to come back,” said Dimitris Manikis, president, Europe, Middle East, Eurasia and Africa at Wyndham Hotels and Resorts.

While rising fuel costs are likely to mean more expensive flights, encouraging UAE residents and locals to holiday in the country, Manikis believed the impact across the sector will vary according to the star rating of a hotel.

“We saw an interesting trend during the pandemic… that you saw luxury winning and economy [did] better. Somewhere in the middle, that was the challenge,” he said.

While hoteliers may be happy to absorb the rising costs for now, especially as occupancy levels are at record high levels on the back of the success of Expo 2020 Dubai, some believe the pent-up demand will return to normal once the post-pandemic rush to travel has subsided.

“[2023] is where you’re going to see the consequences of the energy crisis. The increasing costs, the inflation, the interest rate going up,” Manikis warned.