While the hotel world increasingly explores the mid-tier market in the Middle East in response to growing demand and government calls for more affordable accommodation, FRHI Hotels & Resorts is forging its own distinct path.
The parent company of luxury and “upper upscale” hotel brands Raffles, Fairmont and Swissôtel has no immediate plans to take the three and four-star route, as its competitors are, but rather is entirely comfortable expanding its portfolio doing what it knows best.
“We’ve given it a lot of thought and we’ve had a lot of conversations around it,” Jennifer Fox, president of FRHI International and its Fairmont brand, tells Arabian Business.
“We’ve decided for the moment to stay in that luxury sector and the reason for that, primarily, is that we still see a lot of growth opportunities for our three brands, so we want to really max out those brands and really get them into all the right markets that they need to be in and where our customers want to go.
“Now, over time we may consider to go into the mid-scale market, but at the moment our real focus is really getting those three brands to all the key markets that we need to have them in.”
To do that FRHI, which manages 110 hotels in 32 countries and has a reported profit in the $100m-plus range, is embarking on its most aggressive expansion with a recently unveiled target to grow its global portfolio by 50 percent in the next five years.
Following what Fox describes as a two-year consolidation period, in which it identified Dubai as one of four new global regional headquarters under a new geography-based operating model, it has also resolved to double its 19-hotel Middle East, Africa and India (MEAI) portfolio by 2020, starting with the opening of both the Fairmont Ajman and the Fairmont Riyadh, Business Gate in the fourth quarter of this year.
Unveiling its plans for seven other projects in the region at the Arabian Travel Market (ATM) in May, FRHI is also embarking on a 7.5 million sq m, three-hotel mega project in Egypt’s popular Sharm El Sheikh, as well as new hotels in other key markets Saudi Arabia, the UAE and Africa.
Headquartered in Toronto, Canada, FRHI’s links to the Middle East are embedded in its ownership structure, with sovereign wealth fund the Qatar Investment Authority holding a 63 percent stake in the company and Saudi Arabia’s HRH Prince Alwaleed Bin Talal’s Kingdom Holding Company making up its second-biggest shareholding at 35 percent.
In particular, the involvement first of prolific investor Prince Alwaleed, whose net worth is estimated at $34bn, was the catalyst for the creation of the FRHI Hotels & Resorts tri-brand merger in 2006 after his $3.3bn cash bid with Colony Capital for Fairmont in 2006 staved off a partial takeover play by legendary corporate raider Carl Icahn for the then-publicly listed company.
As a result of the move, Fairmont was combined with Raffles Hotels & Resorts, which already owned the Swissôtel brand. The deal with QIA would come later in 2010, when amid a reported 25 percent revenue drop in less than a year as a result of the global financial crisis, FRHI CEO Bill Fatt went looking to the Gulf state for a much-needed cash injection.
Now, Australian-born Fox says the company, which counts hotels such as the famed 127-year-old Raffles Singapore, The Fairmont San Francisco and London’s Savoy among its collection, is tapping into the region’s fast-growing leisure and business market. With the 127-year-old Raffles brand, FRHI’s oldest in its portfolio, pitched as iconic and luxurious, Fairmont, which is its biggest brand at 67 properties, seen as global with extensive connections, and the 34-year-old Swissôtel branded as a distinguished business hotel, it believes it has both sectors covered.
Under the biggest development in its plans, it will partner with Egypt’s Citystars Properties to develop three new hotels — Fairmont Citystars, Swissôtel Citystars and Raffles Citystars — and a signature golf course in the Egyptian Red Sea coastal city of Sharm El Sheikh.
The first phase of the flagship project will include the Fairmont hotel, comprising 457 guest rooms, 232 residences and the largest crystal lagoon in the world, and is due to open in 2015. The second phase, to open in 2016, will include the first Swissôtel in Egypt, comprising 400 rooms and 400 residences; a 250-room, 50-villa Raffles hotel and a Colin Montgomerie-designed, 18-hole championship course, while in the final phase a residential development, a unique boutique desert hotel with 80 tent-like rooms as well as a new school, tennis academy and natural reserve of mangroves will be built.
Fox says the strong performance of its existing hotels in the country, the Fairmont Heliopolis and Fairmont Nile City in Cairo, is an indicator of what can be expected when the political situation improves.
“Egypt is a great opportunity, I think, moving down the track,” Fox says. “We all know Egypt’s had so much political instability, which has impacted the tourism market. But, long term, I really believe in Egypt as a destination and as a company we do believe that once this political instability is stabilised there will be such a pent-up demand for places like Sharm El Sheikh — it’s a high tourist destination for Europeans and for people from the UK… and we’re building at the right time.”
However, Fox believes Saudi and the UAE is going to be just as important as the company seeks to grow its local footprint, which currently stands at 6,804 rooms in the MEAI region — the smallest by property count for FRHI (the Americas is the largest at 45 hotels) but among the fastest growing for business and leisure travel.
In addition to existing Raffles, Fairmont and Swissôtel properties in Makkah, and the planned Fairmont Riyadh, FRHI is planning a 180-room, 188-residence Raffles Jeddah and a 350-room Swissôtel Jeddah. Also on the cards is a Swissôtel in Dubai’s Jadaf district, offering 276 guestrooms and suites, and taking to four its hotels in the UAE, as well as plans for a Fairmont Lagos in Nigeria — a 220-room, 50-residences property that marks its entry into western Africa.
Rami Moukarzel, FRHI’s vice president development MEA, describes the Raffles project as one of the first mixed-use developments with a hotel and branded residences for sale in the region, while he says the more business-oriented Swissôtel covers the other spectrum of the city near the King’s Fountain on Palestine Road. Fox says she also wants to see a Fairmont hotel in Jeddah and flags a Raffles project for Riyadh as well as a Fairmont Goa to add to Fairmont Jaipur and Swissôtel Calcutta on the sub-continent.
“We’re very focused on growth in India, we’ve got a very aggressive growth strategy [but] it’s a little harder to get deals in India. We think it’s a very important market, it just takes time,” she says.
“We are quite focused on the cities where we know there will be a certain level of room rates and occupancy that would really match the development cost of those hotels — this is very important for us,” Francois Baudin, FRHI senior vice president of development MEAI, says at ATM in Dubai. “The owner is an important factor, but also the location and the market.”
“We are keen as well in Bahrain. We are [also] looking at Doha in Qatar, so we are assessing two projects at the moment.”
Baudin says Oman is also on the cards, as are “major cities in Africa”, in addition to FRHI’s two existing hotels in Zimbali, South Africa, and its two safari clubs and one hotel in Kenya. “Swissôtel is a great brand for Africa, we have a few leads at the moment, so we want to consolidate on that,” he says.
Dubai, on the other hand, is “one of the most important hubs in the world”, Fox enthusiastically says.
With a new regional office in Dubai, complementing FRHI’s other regional headquarters in Toronto, Canada (North America), Zurich in Switzerland (Europe) and Singapore (Asia Pacific), it has firmly fixed its success in the region to a UAE hub.
“How we operated, historically, we were very highly centralised around our brands, so the Fairmont brand was based in Toronto, Swissôtel brand was based in Zurich and the Raffles brand was based in Singapore, so we were running what was going on in the region from those three offices,” Fox explains.
“When we looked at this growth — doubling the size of our company in this region over the next five years — we couldn’t sustain it, operating in a brand model, so moved to a geographical model.”
With Sami Nasser brought over from Sofitel, where he was senior vice president MEAI, to head up FRHI’s MEAI office, she says she expects it will grow from 15 to 60 staff by the end of this year in a global workforce, including its hotels, that numbers 47,650.
“First of all you’ve got people on the ground that can make decisions for the Middle East, you’ve got that local knowledge and you’ve got that depth of understanding of the culture, how you do business in the Middle East and the relationships and you’re much closer to the ground in terms of decision making and understanding,” she says. “We’ve gone in and we’ve made sure that we’ve got development people, we’ve got design and construction, we’ve got sales and marketing, we’ve got human resources, we’ve got finance, we’ve got digital marketing, we’ve got all the resources here now.”
However, the company’s relatively small size also has its advantages, she argues.
“We’re big enough to have all the systems and all the things that the big organisations have, but we’re still small enough to be able to develop very personal, high-touch relationships with our partners and with our owners and I think that is a benefit,” Fox says. “I will go and sit with owners, my boss [Fatt] will go and sit with owners —whereas if you’re working with one of the big guys you’re probably never going to see these people.”
While Fox won’t talk numbers on the grounds that the company is privately owned, Fatt told Canada’s The Globe and Mail in March that an IPO “just isn’t a priority for us”. Prince Alwaleed, who also owns a stake in Four Seasons Hotels Inc among his many and varied investments, had signalled late last year that a merger between the companies or an IPO was a consideration, but Fatt argued that the QIA did not see a strong rationale for it.
That’s not to say, however, that further investment from the Doha-based fund would be unwelcome. “Some reports say that they have $10bn-a-month of free cash flow,” he told the newspaper. “That’s a problem that I’d love to have right now.”
With Dubai Department of Tourism and Commerce Marketing (DTCM) data showing guest numbers across all hotel establishments (hotels and hotel apartments) reached 11.01 million in 2013, compared to 9.96 million in 2012, and JLL predicting in its 2014 Hotel Intelligence Report that city-wide occupancy will continue to grow from 80 percent in 2013, Fox says any impact from the recently introduced tourism tax, or Tourism Dirham Scheme, of between AED7 ($1.9) and AED20 per room, per night, has been negligible.
“Taxes change in different countries and different cities over time, so I think there’s not much we can do about them but embrace them and know that the taxes are being put to good use in the city,” she says. “It certainly hasn’t had an impact on occupancies or ADRs [average daily rates] in Dubai. Dubai is just a very strong, solid market and I think that really helps us in terms of being able to absorb any thing that happens in that sense.”
She says the company is also not planning to create or take over another brand. “But like all great hotel companies we’re always looking and analysing any portfolio opportunities that come up,” she notes.
“We’re certainly not opposed to the idea, but at the moment our main focus is these three brands and to really continue to strengthen the brands and work really closely with our owners, making sure that we get our brands into the right destinations and that’s where we’re focusing our energies right now.”
It’s all part of ensuring, as executive vice president and chief of marketing Jeff Senior notes, that FRHI is following that distinct path.
“What we’ve tried to do is to stay very, very upscale, so when you think about the three brands there’s not going to be any confusion that we’re playing in any place other than the affluent market.”
Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.