GCC hoteliers unfazed by rising costs

As global inflationary pressures continue to vex businesses, hospitality chains are faced with a choice: increase room rates or sacrifice profit margins. 

GCC hoteliers seem to be opting for squeezing profit margins rather than increase room rates, even as geopolitical tensions and supply chain challenges threaten to push up costs. 

Average daily rates (ADR) in Abu Dhabi rose last year, but fell in the rest of the UAE.

However, this did not have a negative impact on revenue per available room, the industry benchmark for performance.

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This is because the rate spikes of the past two years, after the worst of the Covid-19 pandemic, were enough to compensate for the recent inflationary increases in costs, according to one Abu Dhabi hotel group chief. 

“When Covid-19 ended, there was a real push for travel to come back with destinations seeing a significant growth in demand, with a resulting significant growth in dates,” said Philip Barnes, CEO of Rotana. 

The group operates 76 hotels in the Middle East, Africa, Eastern Europe and Turkey, serving more than 6 million guests a year.

“You saw parts of the world where rates were up 40 to 50 percent over where they had been in 2019,” Barnes said.”Now, we’re seeing a normalisation of that, with occupancy and rates coming down a little bit.” 

While ADR fell by 1.2 percent in the UAE, average revenue per available room rose by 5.6 percent last year, a report by the property consultancy Cavendish Maxwell said. 

Despite this softening in ADR levels on an annual basis, rates in the first nine months of 2023 were still 17 percent higher than in 2019, before the pandemic.

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“The rates are stabilising now, but it’s still more than enough to offset the inflationary costs. Plus, inflation is coming down in many parts of the world,” Barnes said. 

Some hotel chains are keeping a close eye on market trends and are ready to adapt their cost structures, especially in the luxury segments. 

Saudi Arabia will be developing as many as 320,000 hotel rooms to cater to increasing tourism demand. The property consultancy Knight Frank said 66 percent of existing hotel supply in the kingdom falls into the luxury, upper upscale and upscale category. This number will increase to 72 percent by 2030. 

Heidi Kunkel, senior VP at Hyatt, said: “High-end customers are generally going to be more resilient. We know as we get to the mid-range and lower end, there may be greater degrees of sensitivity.”

Home-grown hospitality brands such as Emaar are leveraging economies of scale as they expand in the region.

Mark Kirby, head of Emaar Hospitality, said: “We’ve just opened our 25th hotel. As we’ve grown bigger, we’ve been able to reduce our costs as a larger company. So we’ve been able to protect bottom lines throughout 2023.”

Watch the video for more from GCC hoteliers on how they are facing up to the industry’s challenges.