Executives from InterContinental Hotels Group and Radisson Hotel Group emphasized their optimism for development in the Middle East, but said brand promise, simplicity and focus on owners will divide the successful from the unsuccessful.
RAS AL KHAIMAH, United Arab Emirates—Leaders from InterContinental Hotels Group and the newly renamed Radisson Hotel Group see the Middle East as critical for the success of their companies.
“We’ve been here for four decades and have cemented relationships,” said Keith Barr, CEO of InterContinental Hotels Group. “It is one of our priority markets. It is a phenomenally important region, dynamic (and) growing.”
Elie Younes, EVP and chief development officer at Radisson Hotel Group, also sees growth opportunities in the region, and hinted the Middle East might see more openings of Radisson Blu-branded properties.
“It is the largest upper-upscale brand in Europe, with 50% more than the next brand in that space,” he said. “We’ve looked at (that brand) as doing things differently. Simplicity brings owners on board, simplicity in your contracts, approach, aligning interests.”
Barr said IHG has just short of 90 hotels in the Middle East, with 75% of its business in the United Arab Emirates and Saudi Arabia.
“Our goal is to expand by 25% in the next five years, accelerating growth over a variety of brands,” he said.
He added IHG has been operating in Saudi Arabia for even longer than in the UAE.
“We also have deep relationships there,” Barr said. “Society is changing (in Saudi Arabia), and we’ll see how that has an impact on the economy.”
Speaking at separate times during the Arabian Hotel Investment Conference, the executives were both aware of the challenges in the Middle East region, starting with staffing and relationships.
“Everything boils down to people,” Younes said. “A good deal in the region needs someone who you can dance with, that gives value to both sides, as well as to other stockholders and guests. … If there is one thing that keeps me awake, it is the cycle. Economical gravity must happen, but the one thing I keep asking is when is that going to happen?”
Traveler perception is another concern in the region, Barr and Younes said.
“A lot of people see the Middle East and only see Syria, not the dynamic culture, history and people, and how special this place is. (IHG has been) here through all the ups and downs,” Barr said, adding the biggest surprise for him was the pace of development.
“I worked in China, and it is like that,” Barr said. “There is a drive to balance the economic drivers. Are we building supply before demand? Well, I think that is natural in a developing market.”
Of course, these challenges can be overcome, the executives said.
“Success is by having feet on the ground, and that often means meeting with local partners and having the GMs involved from the very beginning,” Younes said.
Barr said overall development and infrastructure improvements help, too.
“Investment in roads, metros, airports, museums, entertainment—all that is happening so quickly, but that is where the real potential is: a balanced market,” he said.
The midscale and economy segments are expected to continue to dominate markets in the Middle East, at least in terms of hotel openings, the executives said.
“The customer is demanding something more unique and more boutique,” Barr said. “We’re opening two Hotel Indigo hotels in Dubai in 2019 and 2020. Our ability to leverage our scale, to build loyalty and distribution, which drives revenues to all our hotels around the world at a much lower cost. I’ve never met at any point in my career an owner who did not want more revenue at a much lower cost.”
Younes said “brands have a revenue advantage, a cost advantage, but not every brand is good at that.”
He suggested to brand leaders: “Engage with owners, and again be relevant in whatever you do to that owner.”
Brand costs never stop being a concern for owners, Younes said.
“A definite challenge is to lower distribution costs,” he said. The cost of online travel agencies “is one component of your (profit and loss account), but it does not show up as an individual item.”
“But for owners, revenue is not the only issue,” Younes added. “It would be if they were robots, but they are not robots.”
The two leaders said Africa presents some of the same problems, just more so in particular circumstances.
“In Africa, the challenge is delivering the hotel, converting the pipeline into scale. The second challenge is talent,” Younes said. “It is difficult to find new markets, too, as we found in Africa. It has to be about innovation and doing things differently.”
“Africa is a challenging market,” he said. “There are so many destinations you’d want to be in. It is all about strategic partnerships with those who already have the infrastructure in place.
“We are better brands today than we were 20 years ago because customers are forcing us to be better. It is what you have to do to compete today. After all, we encourage our owners to spend billions every year on real estate.”