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Fri 6 May 2016 12:07 AM

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Hilton's man in the Middle East

With 131 hotels either operating or in the pipeline across the Middle East, Hilton Worldwide’s regional boss Rudi Jagersbacher is one of the most prominent figures in the industry. The charismatic Austrian gives his experienced insight beneath the headlines

Hilton's man in the Middle East

After five years at the helm of one of the largest hoteliers in the Middle East, there are few, if any, in hospitality that would not recognise Rudi Jagersbacher. The charismatic Austrian has been regularly ranked among the most influential in the sector, while he has introduced three new brands, opened scores of fresh hotels and orchestrated entry into 16 new markets since 2011.

He now oversees operating hotels in 21 countries in the Middle East and Africa, with another 11 planned in the next few years. There are 125 hotels operating or in the pipeline in just the Middle East, with Hilton Worldwide brands accounting for one in every four new hotels announced for the Middle East, according to industry analysts STR.

Including Africa, there are 106 new hotels on their way.

Established by Conrad Hilton in 1919, Hilton Worldwide became the largest hotel chain globally in January, according to the number of hotel rooms and international presence.

Jagersbacher has spent a total of nine years in Dubai (including 2002-2006) and has witnessed the region’s ever-changing hotel landscape and see-saw performance. The pace has changed again amid lower oil prices and macro-economic activity affecting key source markets. Hoteliers are now grateful if they can maintain occupancy levels at their current extreme heights and some – not all – are re-aligning their focus towards the mid-market.

Jagersbacher readily admits figures are not as they once were, but he is far from disenchanted. Dubai Tourism director general Helal Saeed Almarri said last month he expected hotel rates in the emirate to average about 77 percent until 2018, as increases in both supply and demand level out. Deloitte also suggested last month that Dubai was heading towards a new norm for occupancy levels of between 70-75 percent, compared to above 80 percent for the past few years.

But Jagersbacher's view is not so flat.

“I don’t think so, personally,” he says. “You have to split it up. So anything to do with beach, the answer is ‘no’, beach will always be busy, I would say exceeding 90 percent year-round. I’m confident these are the figures.

“To have 70 percent in secondary locations, that’s a possibility. But the cost of investment and all the financial drivers you have [mean] you are still in a high-return area. That beach versus city centre [analysis] always had that difference, so this is nothing new."

With 10 hotels across Dubai and another 12 in the UAE’s other six emirates, Jagersbacher has created his own method of analysing the industry’s performance by dividing Dubai into four distinct areas that he refers to as ‘circles’.

Hilton Dubai Creek's pool still has one of the best views of the emirate's authentic side.

The first is the older part of the emirate, encompassing Deira and Dubai Creek, where vast change is taking place with the redevelopment of Dubai Creek Harbour, a 6 square kilometre development expected to be twice the size of Downtown Dubai and include what could be the world’s next tallest tower. Off the coast, developer Nakheel also is moving forward with its second man-made Palm project.

Hilton has operated in the area almost since Dubai's beginning and Jagersbacher says the new Hilton Garden Inn, which opened a few blocks back from the centre of Dubai Creek last year and is the largest of the brand outside the US, was already doing “outstanding”.

“The Creek has changed a lot in terms of the number of hotels and new developments going in. It's changing, which is good. I think there are further changes - we won’t see the impact for four or five years but it’s great to see,” he says.

“That area will sustain itself, particularly with The Palm Deira, so I think that model really works because you have focus service and full service and a couple of luxury products. I don’t see any issue for growth in that area.”

But the softening in the market is more noticeable closer to the centre of Dubai, where there has been a significant level of development in the past decade but which is now reaching maturity.

“In the central circle - Business Bay, Downtown, DIFC - we’re seeing the sensitivity in terms of occupancy,” Jagersbacher says. “We’re seeing the increase in occupancy but also there is a softness in the rate. I think that is an inevitable sign that people have more options and therefore with the introduction of some of the focus brands, people are switching from full service luxury across into some of these fabulous focus brands.”

Even Jagersbacher’s ‘untouchable’ resort market is feeling fatigued. Hilton operates four resorts along Jumeirah, Jumeirah Beach Residence (JBR) and on The Palm Jumeirah.

“[The coast] is mostly resort driven, that works very well, occupancy is high [but] we also see there a softness in the rate,” he says. “We also see a reduction in the F&B [food and beverage] offering; people are choosing more B&B [bed and breakfast] offerings, particularly [visitors] out of Europe.

“So you can see the sensitivity.”

But on the up side is the emirate’s new area called Dubai South, at the southern tip of the emirate, a short drive from the border with Abu Dhabi. For Jagersbacher’s purposes, he ties in the industrial area of Jebel Ali, the new Al Maktoum International Airport precinct and multiple new mixed developments nearby.

Hilton Dubai The Walk rooftop lounge.

Hilton already has signed a deal to operate the first airport hotel for what is due to become the world’s largest international airport next decade, and Jagersbacher says Hilton Dubai World Central will be one of the largest hotels in the UAE. Due to open in 2019 with 535 keys, he expects demand from the 200 million passengers forecast to eventually use the airport annually, plus those doing business in the vicinity.

Hilton is also in negotiations for more properties in the area, although Jagersabacher says it is too early to predict how many will be needed or to comment on the standard. The Dubai government has said it ultimately expects 1 million people to live and work in the area, although it has not set a specific timeframe. Jagersbacher believes the area will be self-sustainable, with a variety of customers.

“It’s going to be very strong,” he says. “There’s [already] a strong demand for prior bookings. The number of [planned] hotels is not enough for future development for that area.”

While Dubai’s hotel market has become sufficiently mature – and is likely to hit 100,000 rooms this month – it is top heavy in the five-star-plus category. Savvy hoteliers are now filling in the gaps, with numerous new three- and four-star properties opening or under construction. At least one-third of Hilton’s planned hotels in the region fit this category. 

Jagersbacher’s experience saw him identify the market shift when it began to recover from the 2008-11 global downturn and implemented a strategy in 2013.

“We already decided three years ago in order for us to have sustainability going forward, in terms of growth, we needed to introduce new brands into the region that were able to off-set some of the full-service hotels that were going up everywhere,” Jagersabacher says.

“The indicators are very, very simple. [Mid-market hotels offer] great rooms, great locations, great value for money.

“The demand is clearly there for the future … and there’s a willingness also from the investor to go into the [mid-market].”

UAE residents have filled the most rooms in Hilton’s new three- and four-star properties, Jagersbacher says. Visiting Indians make-up the second largest contingent, followed by Europeans.

While Jagersbacher foresaw the organic growth in demand for mid-market hotels, it has been aided by more recent economic factors including the impact of lower oil prices and the declines in currencies from major source markets such as Europe, Russia and India.

The number of visitors has continued to rise – by 4.5 percent in the first quarter, according to Dubai Tourism and Commerce Marketing – but they are spending less, Jagersbacher says. The impact also is flowing into food and beverage (F&B), forcing Hilton to change its strategy.

Hilton Abu Dhabi.

“One of the most important things is, we’re looking at a lot more outsourcing [of F&B outlets]. In previous years we would have managed many of our restaurants ourselves; today we’re making huge headways in outsourcing restaurant spaces in prime locations.”

The DoubleTree by Hilton in JBR is a prime example. The hotel has leased space off its loading dock to The Maine Oyster Bar & Grill, operated by Montreal ‘gastropreneur’ Joey Ghazal and head chef Liam Breen. The restaurant, whose back-end overlooks the hotel’s pool and leads to the beach, has opened to rave reviews.

“That’s the strategy and we’ll continue to do so,” Jagersbacher says. “That’s to increase demand because restaurants are great value for money but today when you look at the sophistication of our travellers, there’s clearly big demand to go to branded restaurants.”

There are similar market changes in neighbouring Abu Dhabi, where occupancy and RevPAR also have fallen heavily: by 2 percentage points and AED90 in the year to February 2016, respectively. 

The capital’s hotels will soon be subject to a new 4 percent municipality tax, as well as a AED15 ($4) charge per night on each bill. Jagersbacher supports the revenue raises, although would prefer an alternative method of implementation.

“I think indirect taxation is a good thing. What would be preferable is if one could build all of these things into the room process and the airline ticket prices,” he says. “But if you go to New York, you pay city tax; you have exactly the same, so that’s nothing new. And I think generating additional revenue as part of improvement across the line for tourism, promotion and marketing is a good idea.”

He does not believe the additional costs will dissuade future guests from staying in the emirate. “As long as we give value for money, as long as we’re competitive in the international playing field, I don’t think so.”

Under Jagersbacher, Hilton has 106 hotels in the pipeline for the Middle East and Africa, with about 70 percent already under construction, making it one of the fastest growing hoteliers in the world.

Unsurprising, Saudi Arabia is at the top of the priority list, with 30 hotels already under construction - which would quadruple the current inventory. With religious tourism around the Grand Mosque in Makkah and a gradual opening up to foreign business, the kingdom’s is emerging as one of the most lucrative in the global hotel construction industry.

“For us it’s probably one of the most important areas,” Jagersbacher says.

The other “very important” country is Oman, where tourism appears to be such an obvious key industry for the country but has barely been exploited. Suffering its largest state deficit in decades, the sultanate last month announced plans to drive more attention into the sector and grow its contribution to gross domestic product from 2.5 percent to more than 6 percent by doubling visitor numbers to five million by 2040.

 

“It’s somewhere we’ve had a gap for a very, very long time. It was not a priority but it is certainly a priority today,” Jagersbacher says.

The hotelier has been in Africa for 50 years but on a small scale. It is now one of the company’s fastest growing regions. When Jagersbacher opened a Hilton hotel in Chad in December, the central African state became the chain’s 100th country of operation. Africa is set to continue to be one of the company’s most important areas of growth into 2020, with plans to enter about 10 new countries.

Of the 54 states on the continent, Morocco is particularly favoured. Hilton has three additional hotels in the pipeline there.

“We continue to strive to develop Morocco; we see a big future in the Moroccan domestic market but also the [inbound] tourism market,” Jagersbacher says. “Morocco is an incredibly beautiful country, it has high ethics, it’s safe, secure and not very far away from Europe.”

Also in North Africa, Egypt has in the past been a high achiever for Hilton, but times have been tough since the 2011 uprising. Country-wide visitor numbers fell by one-third in 2011 and have endured a bumpy road back up, with various violence causing further hurdles, including the downing of a Russian commercial plane in October, which killed all 224 people on board and saw the majority of foreign airlines suspend services to the area.

Hilton, which has 20 hotels in Egypt, put on hold its new hotel developments in the country in 2011 but they have been since revived and Jagersbacher says outside Sharm Al Sheikh, the country is rebounding.

“We saw considerable improvement in major cities; occupants have risen [and] rates have risen,” he says. “The only set back we’ve had, clearly, is the Sharm Al Sheikh cluster because of the incidents. But we see in the next two to three months all the flights will resume and we’ll be back in business.”

Hilton Jeddah in Saudi Arabia is benefitting from the west coast city's growing tourism.

Jagersbacher also expects to see business in Iran, but with the company’s headquarters in the US, which still has sanctions applicable to its own firms, that will not be anytime soon.

“We’re not allowed to go into Iran but long-term we see a big future.”

Globally, Hilton Worldwide recorded a doubling in profit in the first quarter compared to the same period last year, albeit the majority of which was due to tax benefits. Still, revenue increased nearly 6 percent to $2.75 billion.

The chain expects revenue per available room (RevPAR) at its hotels worldwide to increase an average of between 3-5 percent. That contrasts with the UAE, where rates are mostly coming down.

However, with promising areas such as Dubai South and Saudi Arabia and the barely explored markets of Oman and Africa on his horizon, Jagersbacher is confident his patch will continue to contribute handsomely to the chain’s worldwide balance sheet.

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