As the hospitality sector in the UAE is gradually emerging out of difficult times, the cost of running a hotel remains on the top priority list for operators. Faced with a decrease in the revenue per available room (RevPAR) compared to two years ago, hoteliers are making a desperate attempt to cut costs.

Ahmed Ramdan, Chief Executive Officer of Roya International, a Dubai-based hospitality solution firm with global opertations, talked to Emirates Business about the sector and new innovative ways to save costs and increase revenue for hotels.

How do you perceive the present situation of hotels in Dubai and read the potential of growth for hotel management oversight (HMO) services?

Roya International and Deloitte have recently signed an MoU (memorandum of understanding) for offering HMO services in the Middle East. The key objective of this service is to ensure hotel owners' financial and non-financial needs are met and the gap between an operator and an owner in a property are matched, especially in the present situation.

We believe that the potential for HMO is huge as more the number of hotels, more the opportunity. And the number of hotels is all set to increase in the Middle East.

Timing for starting HMO service is perfect as more hotels are now thinking about costs, which was not quite the situation two years ago.

Unlike in South East Asia, America or Europe the HMO service is a bit new for the Middle East market. We are seeking owners and operators to explore this field as not just cost-cutting measure but as a complete hospitality solution. However, as consultants we are expected to be more knowledgeable than the operators. That is the only way to gain respect. That is why when we say our team is extremely important. Roya and Deloitte have a vast quality experience of hospitality industry, not just in the region but also globally.

You mentioned that the average room rate has reduced in the region. Have the rates reached an equilibrium level?

Yes, the correction in the room rate is a positive thing for Dubai. As Dubai had gained a reputation of being really expensive and we were losing some of the GCC market. The price correction may regain this market for Dubai.

One must also consider that as Dubai hotels dropped the room rate, the occupancy increased. The question is: where does the balance lie? I would like to point out that equilibrium is different for different hotels, and one cannot generalise what is a good average room rate and good occupancy. We believe that right now we are at an acceptable position. Rates had increased a lot in between but now they are at an acceptable level.

So what is your prediction for the hospitality industry in the region?

There is no room for panic. The occupancy rate is at a very acceptable level now. We do not have a need to go further down. Though what could cause some concern is the oversupply in the industry. Several more hotels are going to be opened and I am sure the Department of Tourism and Commerce Marketing (DTCM) is doing enough work to attract more tourists and create more demand for the region.

But I would like to say that the present situation is really good. Our occupancy and average room rate are among the top 10 in the world. Average room rate has gone down and so has the RevPAR, but the earlier room rates were unrealistically high. You can always jack up the price for two or three years on the higher side during the boom time, but you cannot be unrealistic and end up being more expensive than cities such as New York and Tokyo.

I do not think anyone should anymore make comparisons with the earlier average room rates that existed in the region. As I do not think that may ever come back.

What is the status on deals in the hospitality sector. Are mergers and acquisitions happening in the market or they have completely dried out?

Investors are waiting for right valuations and they are unsure if that [current valuation] have bottomed out or will go down further. But the interesting thing is investors, who were not even considering deals in this region, have now at least started to explore deals.

Though you may not see actual deals happening some time soon, but only after the certain situations in the market and the hospitality sector are cleared. Secondly, one has to distinguish between non-freehold property and freehold property.

While the latter is volatile as it was always exposed to risks, the former is relatively more stable.