By Ed Attwood
Backed by heavyweight shareholders in the form of the Qatar Investment Authority and HRH Prince Alwaleed Bin Talal, Fairmont Raffles Hotels International has an ambitious plan to grow by 50 percent over the next five years. The president and chief operating officer of the Canadian hotel giant, Michael Glennie, explains what role the Middle East will play in hitting that target
It didn’t take Michael Glennie long to find his feet in the world of hospitality. While fellow hotel management graduates from the University of Surrey found themselves working as stewards or in the kitchens of some of the big-name brands, Glennie immediately found himself a plum job working as the food and beverage manager for a RockResorts property — the luxury firm founded by Laurance Rockefeller — on the British Virgin Islands.
“I think they were pretty envious,” he says, of his graduate friends.
They’re probably even more jealous now. Just over 40 years later, Glennie is now the president and chief operating officer of FRHI Hotels & Resorts, the Toronto-based giant that owns three large hotel brands: Fairmont, Raffles and Swissôtel. With 115 hotels in 30 countries, the firm counts some of the world’s most famous properties in its portfolio, including the Raffles in Singapore, The Plaza in New York and The Savoy in London.
Not only that, but FRHI also boasts some impressive financial firepower in the form of two of its biggest shareholders, the Qatar Investment Authority and Saudi investor Prince Alwaleed Bin Talal.
For Glennie, who is making one of his many trips to the Gulf, the last couple of years have seen a return to form for FRHI. The firm had a turbulent time during the credit crunch, especially in the US, where it experienced what Glennie refers to as “a massive decline” in its business. That stemmed not only from the decline in leisure travel, but also the tendency of corporates to tighten their purse strings, meaning the conference business fell dramatically. FRHI has 20 hotels in the US (with one in the pipeline), plus an additional 19 properties in Canada.
“Fortunately we’ve come out of that and we’re having very strong growth in the US — it’s been very positive,” Glennie says. “And the strong US dollar is helping Americans whenever they travel around too.”
The story is also looking pretty positive elsewhere. While the company is privately held and doesn’t reveal revenues, the president says that 2014 was a “very good year for us financially, and we see another very good year this year”, helped by the turnaround in its US business and its ambitious global expansion plans.
While the Eurozone is generally facing a turbulent time due to the troubles associated with member economies such as Greece, Spain and Portugal, FRHI’s exposure is relatively limited to better performing cities, such as London, Paris and Zurich.
“In those sorts of centres, we haven’t been hit as hard as more secondary cities and regions,” Glennie says. “So London is still strong, while Paris has seen some softening at the end of last year, and the beginning of this year.”
But it’s outside the more traditional markets that Glennie sees FRHI’s future. Over the next five years, the company is planning to add another 55 hotels — a rise of 50 percent — to its portfolio, with the vast majority of these coming in emerging markets. Tallied to that plan is
a push to double its 17 residential projects worldwide, especially given the demand these developments have seen in places like Abu Dhabi.
In terms of emerging market opportunities, those will include hotspots such as China, but a huge focus will also be placed on the Middle East, Africa and India, where FRHI is planning to double its footprint from 18 hotels to 36. In India, where the company has two hotels (Jaipur and Kolkata), Glennie says a new strategy should drive significant growth, although he adds that he doesn’t have a set target.
“We’ve seen very positive signs from the Modi administration,” he says, of India’s new prime minister, who was voted into power last year on a pro-business platform. “When we first went into India about seven years ago, we tried to team up with third-party developers and buy land, zone it, and then build a property.
“What we found is that that was a very difficult strategy, as in many cases the land is overvalued, and then getting zoning and building entitlements is very difficult. So now what we’re saying is we will go and look at buying existing hotels, where you can buy them priced on a multiple of cashflow — it’s still not cheap, but it’s still more reasonable than trying to do some over-inflated land value.”
Glennie says that the firm is planning to focus on “key gateway cities”, with Delhi and Mumbai, in particular, target areas.
Here in the Middle East — an area that some may describe as the company’s second home, given its illustrious shareholders — FRHI will be opening properties at a bewildering rate over the next five years. The firm already has five hotels in the UAE, four in Saudi Arabia and three in Egypt, and it’s clear that these three countries form its strategic base in the region.
In addition, the Fairmont Ajman, based in the UAE’s smallest emirate, opened at the beginning of this month. Six hotels, in Saudi Arabia, Jordan, the UAE and Egypt will follow next year, with a further two planned for 2017. Three more will open the year after that, and another three properties — all in Egypt — will be completed before 2020.
The president is especially bullish about Egypt, where the administration of President Abdel Fattah Al Sisi has somewhat stabilised the economy, helped by funding from the Gulf states. Revenues from tourism in the country amounted to $7.3bn last year, down from $12.5bn in 2010. The country’s tourism ministry is targeting $26bn — and 20 million visitors — by 2020.
“Perhaps the most dramatic growth, somewhat counter-intuitively, is coming in Egypt,” says Glennie. “Our existing business in Cairo fell dramatically during the troubles but that’s now starting to come back. I think we’ve got a general confidence that is Egypt is somewhere we want to invest a lot of time.”
New destinations on the drawing board include openings in Amman and Bahrain. And what about Doha, where the Qatar Investment Authority is based? The president hints that a deal may well be in the pipeline.
“As you know, our largest shareholders are Qatari and we’ve been talking with them about a couple of very interesting projects in Doha,” he says. “Kuwait is also interesting; we’ve had a couple of opportunities there, but no specific traction.”
When it comes to Dubai itself, the location where FRHI first chose to set up shop in the region with the opening of the Fairmont on Sheikh Zayed Road 13 years ago, Glennie is again confident about the health of the fast-growing hospitality business. Dubai has also set its sights on attracting 20 million visitors to the emirate in 2020, and saw 13.2 million tourists show up in 2014, after the city’s Department of Tourism and Commerce Marketing changed the way visitor numbers are calculated.
Set against that positive story is an ever-lengthening pipeline of new hotels coming online. Last year, 46 properties opened, and a further 21,100 rooms are expected to join the 93,000 odd currently on the market by the end of 2017, according to JLL. That has resulted in a slightly decline in occupancy and average revenue per room.
But Glennie is not buying the argument that the Dubai hotel market is over-supplied.
“The analogy I see is with Singapore, where about five years ago they had a 30 percent increase in supply and everybody was tremendously concerned,” he says. “But because of the tremendous work put in by the Singapore tourism authority and the airline — that increased supply induced demand.
“Then you look at Dubai and you see the great job that Emirates is doing, with this new supply and the lift coming in, plus a government that moves swiftly to make things happen, it might be analogous. We’re therefore pretty confident that while there might be some lag, it might be a bit lumpy, but it’s going to work.”
From a wider perspective, it appears that FRHI is focused on growing organically, and it certainly has enough on its plate with its near-term expansion plan. Having said that, its three brands don’t compare to those of the giant hotel companies such as Marriott (19 brands), Starwood (ten brands), Wyndham (17) and Hilton (12) — although FRHI does only operate in the luxury space. Glennie says the firm is reluctant to enter a new segment on its own, such as boutique or limited service, simply because it would need instant scale to compete. He is also fairly dismissive of the idea of an initial public offering in the near term.
And what about acquisitions? In the past, the company has been linked with the purchase of fellow Canadian hotelier Four Seasons, in which Prince Alwaleed and Bill Gates have a 95 percent stake.
“With a lot of these things, you have to be opportunistic,” says Glennie when asked whether FRHI is in the market for any rivals. “You have to have already thought through how it would work, you’d have to have your shareholders aligned, so the firepower is strategically aligned, and then the opportunity would have to come along. So a lot of things have to line up at the same time.
“Having said that, there are opportunities that we look at from time to time, where we might be able to do a portfolio acquisition to get scale, so if one of those came up and we felt that would give us instant scale and we could compete effectively, then we might look at it.”
But Glennie says the benefits of FRHI’s shareholders extend to much more than just the money they can potentially table in the event of a future acquisition. He cites the purchase of The Savoy and Le Royal Monceau as being central to FRHI’s fortunes in London and Paris, respectively.
“Then, of course, they have tremendous contacts all around the world, so they’re providing us with introductions, leads and so on. And it’s not just with developers — they are high profile enough that it’s heads of state, so they have given us entrees that are incredibly helpful.”
The main challenge ahead is to scale the business to allow it to hit its growth targets. To that end, and given that 90 percent of that growth will take place outside North America, FRHI has set up a more decentralised structure, opening or expanding offices in Zurich, Dubai, Shanghai and Singapore.
“How do you execute?” Glennie asks. “I’m never worried about sharing strategies with our competitors because in our business, it’s all about execution. You have to open that hotel successfully, and then 365 days a year you have to deliver.
“Our 40,000 employees need to be motivated, trained properly and given the tools they need to do the job so they can consistently deliver good service. That’s a very difficult job — we need to focus on that 100 percent.
“Guests appreciate that; they come back, and then profitability stems from that.”