Rezidor sees 25% Middle East growth

The Rezidor Hotel Group first entered the Middle East Market in 1980 with Radisson SAS Hotel in Kuwait. It was its first hotel outside Scandinavia and it has remained its sole Middle East investment for many years.

Today, President and CEO Kurt Ritter (pictured above) is putting the region on the company’s top agenda promising to double its portfolio in two-and-a-half years.

Ritter, the world’s longest sitting CEO in a hotel company, has been candid in his exclusive interview with Emirates Business.

“Whenever I would come here, some people would comment that I was neglecting the Middle East. Probably yes but we can’t be everywhere. But now that we have good foundation, it’s about time to go in,” he said.

How big is Rezidor Hotel Group today? Compared to other hotel magnates where do you position yourself?

In Europe size-wise, the Radisson brand is number two after Hilton. We are much bigger than Marriott, Sheraton and Sofitel. That’s quite a nice position, considering how young we are.

All these firms have been in the market for more than 60 years. We started the hotel segment 50 years ago as SAS International Hotels but it was very modest and we only had one or two hotels. Our take off came in 1994 when we tied up with Carlson and the Radisson brand was launched. So our company is literally 13 years old.

Rezidor seems to us a Belgium-headquartered company with most of its operations concentrated in the Nordic states. What are your expansion plans and will the Middle East have a large cut of your growth strategy?

We are more of a Nordic company. The Middle East was just 12 per cent of our market in 2002 and Nordic was our biggest market with 44 per cent. But this year we have grown bigger in Western Europe with 46 per cent and Nordic decreasing to 28 per cent. The Middle East shrank to 10 per cent. But it doesn’t mean we lost hotels; it’s just that the rest of Western Europe grew very fast.

Looking forward, we want to grow 25 per cent in the Middle East and 30 per cent in Eastern Europe.

In 2002, 95 per cent of our brands were Radisson. This year the Radisson brand was decreased to three fourths with Park Inn having the other one fourth. Our aim by 2009 is to make Park Inn, our mid-market brand, to have half of the brand and Radisson maintaining the other half. A small segment will be comprised of Missoni, Regent and Country Inn.

We have a target to add 20,000 rooms approximately150 hotels between 2007 and 2009. We have met 90 per cent of that target. Signed up hotels are now 321 in 48 countries. Out of that 230 are open now. So we won’t have any problem in reaching that goal by 2009.

What is your short- and mid-term goal and why only now have you decided to create a heavier presence in the region?

We want to double our capacity in two-and-a-half years. So we are looking at 30-35 hotels. In the Middle East, we currently have 14 hotels under the Radisson brand and one Park Inn. Under development are seven Radisson hotels, four Park Inn facilities, one Missoni and one Regent.

We only had one hotel in Kuwait which we started in 1981. It was our first hotel outside Scandinavia and I was the opening GM then. When I took over the company in 1989 – by the way I’m the longest sitting CEO in a hotel company in the world – we remained a Scandinavian company with one hotel in the Middle East for so many years.

We thought, rightly so, that we had to first grow in Europe. Whenever I would come here, some people would comment that I was neglecting the Middle East. Probably yes but we can’t be everywhere. It was only six years ago when I said it was about time to concentrate on the Middle East. I said: ‘We have a good foundation now, let’s now go to the Middle East and let us see what we can do’.

Have you separated a specific budget for the Middle East market for all these expansions?

We can’t answer that as we are a management company. We are neither investors nor developers. In the Middle East we also do not do leases. We don’t need to invest money other than the cost of running the company.

The GCC’s economic growth, particularly in Dubai, has been tremendous largely benefiting the hospitality industry. Is the downturn imminent?

A lot of people talk about the downturn as in every cycle there is a peak and a downturn. But we have seen a positive RevPAR (Revenue Per Available Room) growth over the last four years across the industry. There is also a strong market development in Europe, the Middle East and Africa as well as continued RevPAR growth in the Nordic region. I have seen firms were able to increase pricing for the next year by five to seven per cent. But I don’t want to put our heads in the sand like an ostrich and say there is no downturn. You never know when it’ll come but we don’t see it.

Don’t you think there will be an oversupply of hotels in the Middle East as there would be so many of them simultaneously opening in 2009? Is oversupply something to be wary of?

I may be a little bit of a pessimist as in the last three to four years; I have already said it’s going to be too much. But Dubai has really been able to do a fantastic job in maintaining the interest and this kept a healthy rate of growth along with the price. They have performed very well, much better than what I have predicted. Where I am still afraid is if there comes an oversupply the prices will fall and people will panic. Once you pull down the prices, you change your clientele. And then you may become a cheaper destination and that’s something I hope would not happen.

That’s why I am cautious with the new permits. But for the time being, we don’t feel it. Rezidor is still very good and our hotel is doing fantastic. We are very happy.

What can you say about rates here? Are the rates higher here than in Europe?

It depends on how you look at it. If you look at it as a holiday destination, yes. Rates here are higher than Europe. Dubai has high rates for leisure travellers. Also construction here is very expensive, as costly as Europe. And if we want to be profitable, we have to be able to trade on the rate that we are charging now. If these rates fall, a lot of owners will have problems because they will not get the return of investment as they calculated.

How long do you think this boom will last?

That I don’t know. If you’d asked me four years ago, I said I was pessimistic, I would say two more years and then it’s gone but it’s still there. That is why I am admiring Dubai as it is market savvy and adds new things to its portfolio to keep the interest going.

As of now, we have signed up 90 per cent of our target expansion. But opening in 2009 may be moved to 2010 or even 2011.

So are you considering – due to shortage of materials and people – some of your hospitality projects will be delayed?

I think so.

Would these delays affect the bottom-line or the return of investments?

It’s money that comes in later. Since we are an operator, we get managed contracts so we get money from day one. We have certain percentage of revenue and of the gross profit so we do not lose.

Is the weak dollar good or bad for your business?

It’s not good for us. We have seen that summer guests were fewer in Europe. The company calculates exports in euro so we lost a lot every month in the exchange rate. I could see the hotels in the United States are doing better because the Americans stayed there. A lot of Europeans and Asians also went to America. In that respect, a weak dollar is good for the United States.

Is the UAE the heart of your Middle East operations?

Today yes, but that doesn’t mean we are not looking at the other countries. Saudi Arabia is growing; Bahrain is doing very well; Oman kicked off tremendously; Kuwait still does good overall.

Three years ago, Rezidor said it was on its way to becoming the first international operator to enter the Iranian market (Kish Island) in 25 years. What happened to your Iran plans?

We had to pull out on that one. But we still keep an eye on Iran and we would like to go. Business is good there, money is there.

Why did you pull out?

It didn’t work with the owners. There was a hotel already built by the developer and then he never really finished it. It’s a pity because it could have been a very nice hotel. He spent the money everywhere but not on the things that the guest do not see. He never complied so we pulled out.

Are you looking at Iraq as well?

Right after the war we went there but because of the security situations we stopped. We have a few projects that are on hold.

The history

Scandinavian Airlines (the hotel company was called SAS International Hotels) opened its first hotel, the SAS Royal Hotel, in Copenhagen in 1960. The firm later opened hotels in all Scandinavian countries. In 1994, the company signed a master franchise agreement with Carlson Hotels Worldwide to operate all Radisson brand hotels in Europe, the Middle East and Africa.

In 2002, the company changed it name to Rezidor SAS Hospitality. Rezidor SAS and Carlson Hotels signed a new franchise agreement that added three other Carlson brands to Rezidor SAS. In 2006, it issued an IPO because SAS wanted to exit the hotel business to focus solely on the airline industry. Today, the Rezidor Hotel Group is owned by Carlson (41.7 per cent) with the remainder owned by private shareholders. The SAS group has relinquished all its assets in the company.