By Shane McGinley
Accor Hospitality exec Yann Caillère says Dubai's hotel sector has a lax attitude that needs to be changed.
The hotel business in Dubai was one of the most lucrative sectors during the boom years. Yann Caillère, COO of Accor Hospitality - Europe's largest hotel group - believes that wealth led to a lax attitude which needs to be changed.
As a former ceo of disneyland Resort Paris, 55-year-old French hotelier Yann Caillère can spot a Mickey Mouse operation quicker than most. During the boom years of 2007 and 2008, the fast-growing Middle Eastern hospitality sector was seen as a no-brainer for global brands and investors, who flooded into the Gulf region in search of fast returns, high revenues and minimal input.
"Over the last three years everybody went crazy," says Caillère, who is now chief operating officer at Accor Hospitality, one of the largest hotel groups in the world with a market cap of $11.21bn, revenues in 2009 of €7.06bn ($9.5bn), 144,679 employees and 4,111 hotels in 87 countries.
"To expect in any given city to run at 98 percent occupancy, is it reasonable? Does it make sense to think life will last forever in that model? Of course not," he says as his emotion makes his French accent become more pronounced.
"It doesn't work that way. I think we all went crazy. We are back to normal and people are forced to be more reasonable. When you see guys opening hotels with no liquidity and leveraging 100 percent, this is crazy."
Dubai-based research company Proleads reports that the GCC is expected to see 48 new hotels, with 14,178 rooms, open this year at an estimated cost of $7.3bn and Caillère hopes that investors are now indeed more reasonable in their expectations.
He says that only a few short years ago investors were coming into the hotel market and expecting massive returns in a short space of time.
"When you see guys looking for 30 percent return on investment it is abnormal... it is a miracle... it is ridiculous. I think now it is [back to] normal."
With so much stock coming into the market in a short space of time, standards were bound to suffer and when he was appointed CEO of Sofitel Worldwide - a branch of Accor Hospitality - it was something that he set out to rectify. Sofitel is described as a luxury hotel brand that "combines French-style elegance with the best of each country's culture."
Caillère was appointed CEO of the luxury unit three years ago and he began a process which he calls "cleaning the network." This involves cutting out the hotels that he believes do not live up to the standards which the brand strived to adhere to and which customers expect.
"When I joined the company we had 206 hotels, now we are down to 126."
And he is not finished yet either. He believes that of the 126 still in the network, another 20 are likely to be dropped, two of which are in the Middle East. He says he decided which hotels were not up to standard by looking at their location, their quality and how much investment was required to bring them up to standard.
"What we had to do was reposition and to define exactly [what] we are looking for. The level we are aiming for is the Park Hyatt level or InterContinental."
The hotel environment certainly has changed from the fast-paced days of the boom years, and Caillère recalls that the hotel construction industry was just as crazy. At one point when the building frenzy got so frantic he says some hotel contractors weren't even answering requests for quotes.
"We came at one point and [Dubai] was over performing and if you had a bid some were never even answered.
"You are looking for a contractor and the guy doesn't even answer," he says, repeating himself and obviously still agitated at the thought of it.
If he bumped into the same contractor today I'm sure it would be a different story now as any number of contractors will be lining up to take advantage of the business he has on offer.
Accor currently has 32 hotels in the region, twelve in the UAE, ten in Saudi, three in Yemen, two in Bahrain and one each in Kuwait, Lebanon, Qatar, Jordan and Oman. It is planning to have 51 in operation by 2012 and currently thirteen are under development in the UAE, three in Saudi Arabia, two in Bahrain and one in Kuwait.
Last year in Dubai, Accor opened the Ibis Al Barsha, the Ibis Dubai Mall of the Emirates, the Suitehotel Dubai Mall of the Emirates and the Sofitel Dubai Jumeirah Beach and it currently has the Ibis Dubai Al Rigga Road, the Pullman Dubai Mall of the Emirates, the Novotel Dubai Al Barsha, the Pullman Dubai Jumeirah Lake and the Sofitel Dubai Sheikh Zayed Road under development. Yet at the same time Caillère says he believes the Dubai market is oversaturated.
"Dubai was hit, but not in terms of occupancy. The big hit was on average daily rates (ADR)," he says. This is backed up by the latest data published by market research company STR Global. It found that Dubai's hotels posted a double digit occupancy rate increase in February, the first the emirate has seen since the global downturn began to have an impact on the tourism sector.
The emirate's hotels, which saw big declines in revenue and occupancy rates last year, recorded a 15.9 percent rise to more than 86 percent and the report found that Dubai was the best performer in the whole Middle Eastern and African region. Occupancy rose 1.9 percent to 65.7 percent, ADR was up 1.7 percent to $166.18 and revenue per available room (revPAR) grew 3.6 percent to $109.23.
Caillère also believes that the oversupply is primarily in the upscale market and that there is still room for expansion in the midscale sector. It is then no surprise that by 2012 the majority of Accor's hotels in the Middle East region will be in the midscale market and it will have thirteen Mercure, twelve Ibis and eleven Novotel hotels, all of which are considered in the midscale or economy sectors.
"We are number one in the midscale market," he says of the company's performance back in Europe. Europe makes up 74 percent of the hotelier's business, France alone accounts for 36 percent, and he is justifiably proud of the fact that the group is the number one hotel group in France, Germany, the Benelux, Italy, Poland, Romania and in the economy sector in Spain. However, he does admit that they are only number four in the UK, a point that appears to bug him and which he will surely aim to rectify as soon as possible.
British and European tourists account for the majority of tourists to Dubai, even during the recession-hit second quarter of last year UK visitors made up ten percent of those holidaying in the emirate. Caillère hopes to use the fact that the company's brands are already so well known among European visitors to help it compete in the Gulf markets.
"Being number one means we are partnering with all the big corporate [players], all the big transportation companies and all the travel agents," he says.
While Accor may be doing better than its rivals - it made $9.5bn last year on 492,675 rooms compared to InterContinental's $1.5bn on 645,000 rooms - it still posted a full-year net loss of €282m ($382m) last year. This was compared to a €575m ($775m) profit a year earlier, mainly due to an impairment and restructuring charges of €514m ($693m) and a ten percent decline in demand for accommodation last year.
The company has a number of strategies to turn business around. It plans to raise €450m ($607m) through the sale of real estate assets and in February it sold five properties in four European countries to Invesco Real Estate for €154m ($207m). It has also launched a loyalty card programme, called ‘The A-Club,' which has reached nearly three million members in a year and is aiming to have ten million in the few years.
Accor also plans to split its pre-paid voucher services unit away from its main core business, as it believes that as a separate entity the company will have greater value and perform better. Vouchers are becoming an increasingly popular way for employers to distribute employee benefits such as meals, child care and cleaning services.
The unit, currently known as Accor Services, operates in 40 countries, has 5,600 employees and with revenues of more than €12bn ($16bn) last year it is even more profitable than the hotel sector.
"We will have two separate companies," says Caillère, "Accor Hospitality will remain and Accor Services will change its name and a new company will be created."