Hospitality industry to pick up despite price pressure

Hit hard by the slowdown but full of promise and expectations for the future – that's the story of the hospitality industry in Dubai.

While most hotel companies shy away from discussing the impact of the recession on the industry Darroch Crawford, Managing Director of Premier Inn, Middle East, told Emirates Business what the present situation meant to his company and the sector.

Premier Inn, which operates in the GCC through a joint venture with the Emirates Group, is part of the UK company Whitbread, a £1.33 billion (Dh7.5bn) operation. Despite talks of the recession crippling the industry, the partnership recently opened a hotel at Dubai International Airport.

There was talk of a revival in the United Kingdom in end-2009, especially as the country's figures for December reflect a fightback, while China and India remain largely unaffected by the slowdown. How do you perceive the economic undercurrents in Dubai and how will they affect the strategies of the hospitality sector and your group?

We are seeing a revival in Dubai already, not dramatic, but in the last few weeks it has been significant. So Dubai has turned the corner and the situation should continue to improve. It will not go back to 2007 level as there is huge pressure on rates. Prices have fallen and will take some time to go up again. That is actually good for Dubai, as hotels have become affordable. This has resulted in more events being organised in Dubai this year, which will directly help the hospitality industry. We have always kept our hotel strategies very simple as the more complex they are, the more expensive they tend to be. So I would not say that we will look at adding value. I think prices have bottomed out and we will gradually improve over the next 18 months. We are not planning any changes in terms of other strategies.

What is your take on occupancy and room rates, which were recently reduced by most hotels, including yours, throughout Dubai?

The airport hotel opened six weeks back and we have had really good occupancy. This hotel will grow from strength to strength as occupancy will only improve from here on, mostly due to events and the fall in rates. We have cut rates by 40 per cent to boost demand and that has helped us to improve occupancy. Lately there has been some supply in the market and demand is still soft. This will put pressure on rates and there will be a bit of a correction by summer, but later in the year rates will stabilise.

Have your expansion plans for the region been affected by the crisis?

There have been some modification to our plans, but we are still determined to reach all the major cities in the region. We are developing a property in Abu Dabhi, we hope to be under construction in Doha soon and are working on projects in Muscat. We have land-bank sites in the Northern Emirates and will develop those when we think the time is right. All these projects will be under way by 2012. On average, we will invest Dh100 million per project – that is Dh1 billion of total investment in the GCC. So far we have invested more than Dh300m.

Budget Hotels were comparatively better placed than luxury hotels during the slowdown the world over. Do you see growth in the budget sector in the region?

More people are looking for comfort at an affordable price and they are exactly the customers we are targeting. In the United States, budget hotels represent 40 per cent of the total hotel industry and the percentage in the UK and Europe is 20 to 25 per cent. Until two years ago, the percentage of budget hotels in the total pie in Dubai was one per cent and even now it is only 10 to 15 per cent. If the growth continues at this pace, the figure will probably reach 20 per cent by 2012.

How much does the Middle East contribute to your revenues and where do you see business going in the next five years?

We have 584 hotels in the UK and three in the Middle East so the revenue contribution from the Middle East is negligible. But in the long term this will be a significant part of our operations. It is difficult to question that the Middle East will contribute 15 per cent of total revenues.

Keep up with the latest business news from the region with the Emirates Business 24|7 daily newsletter. To subscribe to the newsletter, please click here.

Follow Emirates 24|7 on Google News.