EAHQ Issue 3, July 2015

E A HQ July 2015 | Edition 03

Welcome Message by Terry Kane‎ Head of Auto, Finance, Telco & Travel at Facebook & Instagram In simple terms, it is because these services work in the “now”, they speak to the individual, not the mass, they provide all options in one place, but more than anything they respect and answer to the need, our most precious commodity: Time.

The legendary Internet Futurist, Mary Meeker states that we spend around 10 hours per day looking at a screen of some type, but more importantly, we are now spending over 3 hours looking at our mobile screens. With approx.

20% of travel bookings now completed on mobile, this is where the commercial future also clearly exists.

The importance of time and content has never been more powerful, but more importantly is the power of relevancy. At Facebook we know better than most the value of people time and the content that creates “Thumb Stopping Moments”. Effectively we are the very personal digest to over 1.4 billion people, every second As a passionate life-long-learner, it is my privilege of every day and the most consistent single complaint and pleasure to welcome you to the 3rd Edition of we get regarding advertising refers to brands providing irrelevant content (“if you know me so well, why are you the Emirates Academy Hospitality Quarterly. sending me that”), or effectively disrespecting peoples Anyone that attended the World Travel Tourism personal space and time.

Conference Global Summit in Madrid this April would have noticed quite a few uncomfortable The challenges for travel brands are as wide as the CEO’s and CMO’s in the room. The seat twitching industry is fragmented; however the opportunity is vast was stimulated by renowned startup investor Gary for those companies that thrive at valuing consumers’ Vanerchuck speaking to the real world of travel, a time in all contexts. stark wakeup call on the future of travel brands who There is no secret to being successful in a digital are now operating in market place economies. economy. By investing in smart people and giving them If you think about it, the world’s largest the space to lead, to create change and to provide value accommodation provider owns no beds (AirBnB), to consumers they will clearly be in a more competitive the world’s largest transport provider owns no position to deliver returns on shareholder equity, the vehicles (Uber), the world’s largest travel agent ultimate focus for any CEO.

In this Edition WELCOME MESSAGE

BY TERRY KANE UAE F&B OUTLETS EXPANSION ECONOMIC OUTLOOK TECHNOLOGICAL LANDSCAPE IN HOTELS MEGA PROJECTS IN THE UAE UPS AND DOWNS IN TOURISM DEMAND FOR 2015 TIME TO FOCUS ON THE SOFT ASSETS OF THE COMPANY?

has no travel agents (Priceline), and of course the world’s largest content provider owns no Please do take the time to search for the video of Gary content (Facebook). Something very interesting Vanerchuck at the WTTC; it may be the most valued 15 is happening…Why are people literally flocking to minutes of your time today! these market place services?

Angela Anthonisz, Editor Conrad Sokolnicki, Research Associate

July 2015 | Edition 3

UAE F&B Outlets Expansion on the Run Up to 2020 With just over 6000 f & b outlets across the Emirates, dining choices for the consumer have never been better but for the operators of these outlets this highly competitive environment is about to become much more complex. A recent report by Euromonitor International has identified that across the UAE another 19,000 F&B outlets will be developed in the next 5 years. Much of this development is linked to the massive growth in hotel and retail spaces that are being developed to cater to increasing numbers of tourists and population growth on the run up to EXPO2020 but there are also a number of new brands seeking to set up in key community locations across the rest of Dubai and the UAE. Many of these new operators are hoping to tap into the burgeoning food culture that can be seen in Dubai with a number of new celebrity chefs offering fine dining concepts, particularly in hotel properties where location is a key factor in determining demand. With increasing numbers of consumers choosing to dine out and increasing levels of disposable income there is likely to be room for expansion in the market but there are already concerns about oversupply and operators will need to start thinking more seriously about the quality of the experience they offer and the level of service and employee engagement. The increase in more discerning customers is inevitable and with no real switching costs associated with changing where you choose to eat out F&B operators will need to think hard about their competitive offering. As we run up to 2020 more and more consumers are likely to demand, not only good quality food but also good quality service, and they will want it at a reasonable price.

Economic Outlook The hotel industry across the GCC continues to see a downward trend with Kuwait being the only location to see positive growth so far in 2015.

The downward trend in occupancy and ADR shown in the first few months of 2015 continued into Q2 of this year with Dubai being particularly hard hit in April with a drop in occupancy of 3.4% and ADR and RevPAR down by 10.% and 13.3% respectively.

Figures for May were more positive with a slight increase of 2% on occupancy levels for the same period last year, although ADR and RevPAR are still negative as an outcome of price reductions across many hotels in Dubai. So far this year Abu Dhabi has experienced the most positive growth in the Emirates with increases across the first half of the year in room occupancy (+0.7%), ADR (+4.5%) and RevPAR (+5.2%).

PWC have observed that the issue now is whether the significant decline in visitor numbers seen over the last three quarters will reverse, and if so how quickly. This is especially crucial given the enormous supply set to come on stream.

Angela Anthonisz, Editor Conrad Sokolnicki, Research Associate

July 2015 | Edition 3

Technological Landscape in Hotels

Mega Projects in the UAE

In the Travel Industry, the transformation in use of digital has occurred at an incredibly rapid pace. However in the hotel industry in particular, companies do not seem to be catching up with this change. Various travel apps now available offer travelers a collaborative consumption model where direct two-way dialogue occurs between host and guest, offers instantaneous service, and updates users with information in real time.

Trends are showing that hotel guests also want these kinds of services when checking-in, however most hotels are falling short.

With construction projects in the UAE continuing to grow we see the landscape of the country changing on a daily basis. Here is an update on some of the mega projects in the UAE.

However there are now signs that hotels are making efforts to catch up with these demands. Spending on technology developments in hotels is expected to increase in 2015 to match this growth. On average US hotels will invest 4.9% of their revenue or around $150K per property into IT with this figure increasing to 6.6% for the mid-scale sector according to the American Hotel & Lodging Association. Technology in hotels has shifted from being a tool for the back-of-house operations, to being a guest-facing tool that can significantly impact the hotel experience in a positive way.

Some properties are indeed going to the extreme such as the Hennna hotel due to open in Japan this July. The property will be staffed almost entirely by robots that will greet guests, clean rooms and even carry your bags. Robots will be complete with an unnervingly lifelike human face and will speak several languages. Other brands seem to be taking a less zealous approach but one that is still impressive. In Q3 2014, Accor unveiled a five-year, € 225 million technology strategy aimed at becoming the global digital hospitality leader and Marriott International announced a major expansion of the company’s mobile check-in/checkout function to cover 4,000 of its properties by year-end 2014. More recently this year, Hilton announced that it too has globally expanded its mobile check-in/check-out feature to cover 4,300 hotels across 12 brands.

With technology issues in hotels being a key reason for dissatisfied guests according to J.D. Powers, heavy investments and innovations in IT must continue to be made in hotels in order to stay competitive.

Angela Anthonisz, Editor Conrad Sokolnicki, Research Associate

- As part of the Abu Dhabi 2030 Master plan, the $2.69 billion Midfield Terminal at Abu Dhabi Airport is nearly half built and on schedule with its July 2017 completion deadline. The terminal will be able to accommodate 40 million travelers annually and handle 19,000 bags per hour with the world’s largest baggage handling system. The project has been awarded with 3 Pearls under the Estidama Pearl Building Rating system for its sustainable design.

- Although not well known, the UAE is continuing its development of the Etihad Rail Network. Currently only being used to transfer sulfur produced in Shah to Ruwais in Abu Dhabi, plans are in place to expand the system with connections to Dubai, Saudi Arabia and Oman. A third stage is planned to connect to the Northern Emirates. When completed the rail network will transport goods and passengers along 1,200km of rail. The Etihad Rail Network will significantly boost travel and trade within the UAE and across the region.

- Progress on the Deira Island project is also moving forward. Nakheel has awarded and floated several development tenders as well as partnering with RIU Hotels & Resorts to build a 750-room beach resort. Plans are also in place for a night market in the style of an Arabic Souk with over 1,400 retail stores, restaurants, and anchor stores. An amphitheater and marina are also in the pipeline for the project.

- The USD 10 Billion Mohammed Bin Rashid Al Maktoum (MBR) City – District One, project is scheduled to hand over the first and second phases of villas by mid-2016 and mid-2017 respectively. Along with vertical structures, the infrastructure which includes an 8.8 km cycle and jogging track are rapidly progressing. The entire development is scheduled for completion by 2020 and will include a 14-km boardwalk along the world’s largest artificial beach.

- In a joint effort between Emaar Properties and Dubai Municipality, the AED 10 Billion Al Mamzar Beachfront project is expected to start construction by early next year. When completed the development will host 4,000 residential units, 300 hotel rooms, 250,000 square meters of retail space and a 3.5 km walking track covered by lush vegetation.

July 2015 | Edition 3

Ups and Downs in Tourism Demand for 2015 2015 has not seen the best of starts in terms of room occupancy rates and depending on your core business and how much you rely on certain generating countries your hotel may have been harder hit than others. The response across the industry has possibly been a little extreme with many hotels laying off staff and cutting costs wherever possible but average occupancy rates are still at 78%, and if this is only a temporary dip in the market have we just lost key staff to the competition unnecessarily?

Many people have pointed to the decrease in numbers from Russia at the start of the year as the main reason for the decline in occupancy, RevPAR and ADR but there are a number of factors currently impacting on tourist numbers and tourist spending not least of which is the increasing room supply across the region which is outstripping demand and providing an increasing number of options in terms of hotel brands and star ratings.

Global economic fluctuations particularly in terms of the strengthening dollar and the falling euro are impacting on exchange rates for many of Dubai’s core markets and eroding the purchasing power of many visitors who are subsequently looking for alternative destinations or for more package deals and value for money options. Changes in the economy are also affecting outbound tourism from the GCC region with increasing numbers heading to destinations such as Turkey, Germany, Switzerland and Austria.

In addition to this perceptions of political instability are changing and while Dubai and the Emirates as a whole has often been unaffected by troubles in neighbouring countries the increasing number of reports in the media about political unrest in the Middle East is likely to impact on perceptions of safety in the region.

However, it isn’t all doom and gloom. Despite the fluctuations in tourist numbers the Middle East still outperforms many other regions in terms of ADR and occupancy levels and PWC has highlighted that the growth fundamentals of the region continue to be strong. While 2015 may be a mixed year we must bear in mind that this is the nature of the hotel industry and it is expected that 2016 will see a return to the occupancy levels of 2013. Growth will continue to be the dominant theme as the Dubai government invests in tourism infrastructure and a range of attractions aimed at broadening the appeal of Dubai as a preferred tourist destination on the run up to EXPO2020.

Time to Focus on the Soft Assets of the Company?

As the EXPO draws nearer the momentum in the hotel industry that was created by the initial announcement of the bid does not seem to have slowed, with new projects coming online on a regular basis. As mentioned in a previous EAHQ these hotel projects will bring at least another 20,000 hotel rooms in the next three years, all trying to compete via their location and/or design of the hard assets and the range of facilities for the customer. The question is, how far does this create customer loyalty? Perhaps more hotels should be focusing on what researchers term ‘inimitable competitive advantage’ – the type of advantage that cannot be duplicated by competitors!. This can only be achieved by investing in our employees to ensure that recruitment, selection, training and retention are maximized. This not only saves the company money on the bottom line (most hotels spend 45 % of operating expenses and 33% of revenues on labour costs) but has the potential to increase long term customer loyalty.

With both McKinsey and Deloitte predicting both a global and local shortage of labour by 2020 this will be no easy task. Growth in the hotel sector in Dubai, and increasingly in Abu Dhabi will generate significant demand for new employees and will encourage existing staff to look for new opportunities with other brands offering higher wages. Given that staff turnover currently averages 30% across the industry perhaps it is time to start rethinking our HR strategy so that we can ‘future proof ’ both our company brand and our competitiveness and be prepared for the intensification of staff turnover as we approach 2020. Perhaps it is time to stop investing quite so heavily in the design of hotel properties and time to start investing in the design of the guest experience?

Angela Anthonisz, Editor Conrad Sokolnicki, Research Associate

July 2015 | Edition 3