Checking in: Managing Marriott's growing business in the Middle East

Marriott’s man in the Middle East and Africa, Alex Kyriakidis, discusses taxes, trends and the upcoming tie-up with fellow hospitality giant Starwood.
Checking in: Managing Marriott's growing business in the Middle East
By Ed Attwood
Sat 18 Jun 2016 03:19 PM

"Transformational is the word I’d use,” says Alex Kyriakidis.

The man in charge of Marriott International’s operations in the Middle East and Africa is – of course – discussing the deal that is the talk of the hospitality industry right now.

Expected to be closed any day now, Marriott’s acquisition of fellow giant Starwood Hotels & Resorts for around $12.4bn will create the largest hotelier in the world, with 30 brands and 1.1 million rooms.

For Kyriakidis, the deal is especially momentous, given Starwood’s strong presence in the region. The combined firm will have 50,000 rooms in the Middle East and Africa, up from Marriott’s 25,000 at the moment. Altogether the new entity will have 85,000 rooms either open or in the pipeline.

“We will have dominance over anyone else in the region by far – my guess is by about 23,000 rooms,” the Marriott executive says. “And in some markets, the power of the brands will be extraordinary. These are by any stretch of the imagination very powerful, and will give us a voice, I think, around the future of travel and tourism in these markets.”

In the UAE alone, Kyriakidis says, the new firm will have nearly 80 hotels and 22,000 rooms. In Saudi Arabia, it will have nearly 50 hotels and 13,000 rooms.

While the deal may be almost concluded, with regulators in just four countries still yet to sign it off, the real hard work lies ahead.

Issues that are already being worked on, Kyriakidis says, include the integration of two giant loyalty schemes that will need to be up and running on what Marriott insiders are referring to as ‘Day 1’ – the day the deal will be confirmed – and work on uniting two complex technology platforms.

“We’ve been on the case since the shareholders voted to practically look at how we can make sure that our people are trained to deal with the customer from day one, and in addition we’ve got to plan how the organisation is going to come together and that’s in full swing right now,” he says.

“So the day we close, everybody has clarity about their job and who they report to – that’s crystal clear.”

Even without the task of melding together two giant organisations, Kyriakidis already has a challenging job on his hands.

Marriott is hard at work opening new hotels on a regular basis, with 17 earmarked across the Middle East and Africa alone this year. Another 93 are expected by 2020, to bring the firm’s total to 240 properties and 40,000 rooms – not counting Starwood’s portfolio.

Kyriakidis is preparing to double his inventory in the Middle East and Africa.

But, as with other big hoteliers, Marriott is also having to cope with the geopolitical and economic issues facing the various parts of the region. First up is the oil price and its effect on the Gulf, which Kyriakidis says is a double-edged sword.

On the one hand, the pullback in infrastructure spending is having a knock-on effect on business travel – a core component of the travel industry in the GCC states.

On the other, Saudi Arabia’s recent economic transformation plan – including a plan to attract 30 million visitors a year by 2030 - and the continued strong performance of the Dubai hospitality market is buoying sentiment.

And despite the concerns over the oil price, the Marriott executive says the pipeline of Saudi hotels is “healthier than it’s ever been” with a particular focus on the holy cities of Makkah and Madinah.

“It’s interesting that the kingdom homed in on travel and tourism – it’s real recognition that this sector delivers significant economic growth,” Kyriakidis says. “Today the kingdom has 14 million international visitors but what’s not widely publicised is that there are 25 million domestic trips every year.

“So travel and tourism is close to 10 percent of the country’s GDP; if you take direct and indirect together, nearly one million people are employed in the sector.”

Another challenge has been the shifting trends in tourism, thanks to the strength of the US dollar. That has seen travellers from Russia and other parts of the world steer clear of the Middle East, where many currencies are pegged to the greenback.

Instead, Kyriakidis says, his hotels are seeing what he refers to as “the emergence of the Arab traveller”. That has occurred in Dubai, where Arab nationals now constitute more than 50 percent of Marriott’s room nights, and in markets like Egypt, where regional travellers are filling the space left by the departure of Russian and Western tourists.  

However, even the growth of the Arab traveller has not offset dwindling demand in some parts of the Marriott regional portfolio.

In Egypt, the downing of a Russian airliner over the Sinai in October last year, the loss of an EgyptAir flight over the Mediterranean last month and a hijack incident also involving the flag-carrier earlier this year have hobbled tourism, an industry that accounts for as much as 11 percent of GDP.

“The piece that’s still very important is geopolitics, and this is the piece that, frankly, I worry about the most,” Kyriakidis says. “It devastated our business on the Red Sea this year so far, and we haven’t recovered. There’s no airlift, and although there’s discussion that maybe some of the tour operators will start again towards the tail-end of this year, they have to feel confident that the country’s security system is working.

“We’re pushing, pushing, pushing from where we sit because frankly, until that is done, we just don’t see significant demand coming back into the market.”

Back home in the UAE, where the Marriott regional headquarters is based, and Kyriakidis says the Dubai market “shows no limits in its appetite to invest”. That’s despite a decline in revenue per room reported by the city’s hotels in recent months as a steady stream of new properties come online.

According to STR, revenue per available room (RevPAR) at Dubai hotels declined by 16 percent in April compared to the same month a year earlier. However, it still sits at AED615 ($167), while average occupancy sits at a sliver under 80 percent – still one of the highest rates in the world.

“Please, step back and take a look at those numbers,” Kyriakidis says. “It is nothing more than the inflection point that happens when you accelerate supply beyond the natural growth of demand.

“You have that inflection point – I think everyone is saying there will be a 10 percent softening in RevPAR for Dubai [this year] and we are aiming to beat that.

“Our strategy when this happens is to try and win market share away from our competition and therefore do better than the market and that was a really successful strategy last year.”

If there is one major concern in the offing for Kyriakidis, it is clearly the introduction of value-added tax (VAT) in the Gulf. Likely to be introduced at some point in 2018, the sales tax will probably be around 5 percent. While this is not so much of a concern in other GCC countries, Kyriakidis says, the introduction of VAT could prove problematic in the UAE, where other taxes are already in place, and could convince customers to change their buying decisions.

In some cases, he points out, the introduction of VAT could mean that customers are paying a tax rate of 31 percent, if packaged together with existing municipality, service and hotel apartment charges.

“What we are saying to the DTCM [Dubai Tourism] and to the government is – let’s make sure we look at the implications through proper analysis, proper modelling and focused customer feedback to really, really understand the effect of introducing a – let’s say – 5 percent fee to the hospitality industry.

“Could you make the case for exempting the industry versus not? This is the kind of discussion we need to have with government.”

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