The Kingdom holds its own

With development and opportunity in Saudi Arabia a key talking point at the recent Arabian Hotel Investment Conference and Arabian Travel Market, Louise Oakley finds out why the country holds so much appeal for the industry and uncovers why it runs the risk of disappointing the hotel guest in the future.

The Kingdom of Saudi Arabia's ever-expanding hotel pipeline and apparent resilience to current market pressures came under scrutiny from the hospitality industry last month at the Arabian Hotel Investment Conference (AHIC).

The panel session entitled ‘how to succeed in Saudi Arabia' generated mixed views and the conversations on KSA continued throughout the conference - and indeed at the Arabian Travel Market (ATM) which followed directly after. Here, Hotelier Middle East picks up the debate, looking at the freshest data, the latest announcements and the strongest opinions.

Firstly, let's look at the facts. According to the latest data from STR Global, occupancy in KSA stood at 72% in April, 5.5% less when the April 2009 figures are compared to April 2008. Comparing the same periods, ADR increased by 9.7% to SAR611.49 (US $163), resulting in revPAR for April 2009 of SAR440.26 ($117) - a 3.7% increase on April 2008.

Also of significance is the fact that Jeddah was one of only four Middle Eastern markets (the others being Amman, Beirut and Muscat,) to report double-digit increases in ADR, with Jeddah reporting +23.3% to $176.53 in April 2009 (compared to April 2008).

So, while occupancy might be slightly down in the Kingdom, it is still at an acceptable level and hoteliers are holding their rates. Secondly, the KSA government has massively stepped up its role in supporting its hospitality and tourism sector, with a new national tourism plan set to be published this year.

Presented at AHIC by the Saudi Government Commission for Tourism and Antiquities (SGCTA) president and board chairman HRH Prince Sultan bin Salman bin Abdulaziz Al-Saud, the plan states that:

• Visitor numbers will nearly double from 47 million in 2008 to 88 million by 2020

• The number of hotel rooms will rise from 117,097 to 254,310

• Apartment units would increase from 101,544 to 185,853

• Industry employment is set to grow from 1.1 million to 1.5 million

According to HRH Prince Sultan, the numbers will be even greater than these "prudent" estimates, especially as the government has approved bank financing to process loans to fund heritage projects for small and medium size enterprises.

The plan came about in order to meet increasing demand and cater to the domestic market.

"More than $10 billion is spent by Saudi Arabians on travelling overseas...but they are now eager to spend a good part of their holidays at home," says HRH Prince Sultan.

"We aimed to capture 5% of this but with the trend to ‘holiday at home', this could be bigger - there is a large gap between supply and demand with areas such as weekend traffic showing major growth potential," he adds.

As a result, the government budget has not decreased, despite the economic slowdown.

"Our government budget in 2009 is the biggest ever in order to keep projects on-stream with an unsurpassed expansion of the infrastructure," asserts Prince Sultan.

"Our economy is based on factors that make it more resilient to fluctuations (worldwide).

"We are sure that hotel investment will be one of the biggest growth areas in Saudi Arabia as tourism is accepted on the national agenda.

Coupled with the market data, this is obviously music to the ears of hotel owners, investors, developers and operators alike, providing an even stronger rational to the construction pipeline currently underway.

The Al Hokair Group, for example, is developing its sixth Holiday Inn in partnership with IHG and keen to share in the government's vision.

At the launch of Holiday Al Khobar Corniche during Arabian Travel Market, Al Hokair Group managing director Mosaad Al Hokair commented: "The SGCTA has a robust plan in place to increase the tourism industry's share in the country's gross domestic product from six to 16% by 2020. We are proud to be contributing to that plan with our partner IHG whom we can rely on to support our objectives."

Another KSA-based company keen to make an impact on the country, no doubt in preparation for the increasing presence of international brands coming up, is Elaf Group of Companies, which comprises Elaf Hotels, Elaf Hajj & Umrah and Elaf Travel and Tourism.

"We have just completed our roadmap for the coming five years: we are planning to triple our capacity in terms of rooms under management; the number of pilgrims we are serving; the number of customers we are serving in the outbound business; and to expand our business outside of Makkah Madinah through developing in Jeddah," reveals Elaf deputy chief executive Tarik Nabulsi. The group's first hotel outside Mecca, the Elaf Jeddah Red Sea Mall, is set to open its doors in July this year.

"So far we have specialised in Umrah and Hajj hotels, taking care of religious tourism in Makkah, but this year we are getting out of Makkah and looking to Jeddah with our first city hotel," says Nabulsi.

"We have expanded into city hotels because we felt there was a big demand for this kind of product in Jeddah and not enough supply," he adds.

For those based outside of KSA, the opportunities are just as strong.

Hilton Hotels vice president development Middle East Elie Younes believes the KSA market, where Hilton will launch the region's first Garden Inn branded property in Riyadh this year, is resilient.

"Saudi Arabia is definitely a sufficient market - it is more recession-proof than others," he says.

Meanwhile, Accor Hospitality chief development officer Christian Karaoglanian sees "great opportunities" for both an Ibis country-wide network targeting corporate clientele and luxury Sofitel hotels in Riyadh and Jeddah, starting with the opening of Sofitel Al Khobar by the end of this year. And development for the country's most luxurious hotel to date is already underway, with Raffles Hotels and Resorts set to manage an all-suite property - with three members of staff to a suite - in the Abraj Al Bait Complex being developed by Saudi Binladin Corporation.

Fairmont Raffles Hotels International (FRHI) chief operating officer Chris Cahill says: "Raffles Makkah Palace will be Raffles Hotels & Resorts' second property in the Middle East.

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