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Tue 16 Jun 2009 04:00 AM

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Stars are blind

The Middle East has seen a recent influx of budget hotels springing up to take advantage of a clear gap in the market. According to these new players, traditional star ratings are fast losing significance, with brand recognition and value for money driving consumer choice in the new economy.

Stars are blind
Centro by Rotana Yas Island.
Stars are blind
Centro by Rotana Barsha.
Stars are blind
Premier Inn’s three-star economy room.
Stars are blind
Premier Inn’s Darroch Crawford.
Stars are blind
Ibis Al Barsha general manager Phillipe Montaubin.
Stars are blind
Centro by Rotana.
Stars are blind
Landmark Gulf Group general manager hotel division Michael Weyland in a Citymax hotel model room at ATM.
Stars are blind
The Holiday Inn Express brand is undergoing a global relaunch.
Stars are blind
IHG’s Phil Kasselis.

The Middle East has seen a recent influx of budget hotels springing up to take advantage of a clear gap in the market. According to these new players, traditional star ratings are fast losing significance, with brand recognition and value for money driving consumer choice in the new economy.

No-frills, budget, economy, limited service - ever-tightening belts across the world have increased the demand for low-cost options in a market that is currently overflowing with five-star hotels.

Instead of the latest designer hotel brands and ultra-luxe resorts, the names on everyone's lips lately are Premier Inn, Ibis, Holiday Inn Express, Centro by Rotana and a host of other budget hotel concepts.

These operators agree that the Middle East has been dominated by an unsustainable level of opulence for too long and is now mature enough to recognise the need for mid-range and low-cost options.

However, while the gap in the market is undeniable and consumer demand is strong, several challenges face the burgeoning budget hotel industry in the Middle East.

For most hoteliers, classification disputes and the danger of oversupply top the list of concerns.

The vast disparity in rating systems across the Middle East is perhaps most apparent in the budget sector; IHG's Holiday Inn Express hotel was given a two-star rating in Dubai, yet the same standard rooms managed to warrant a four-star rating in Bahrain.

EasyHotel founder and "serial entrepreneur" Stelios Haji-Ioannou freely admits that his planned expansion plans into the Middle East have faced severe delays and ever-increasing costs because of regulatory constraints.

He says the company has been forced to add extra amenities to its usual no-frills, "superbudget" rooms, after prolonged battles with local authorities.

Haji-Ioannou's argument, that consumers should judge what is necessary and vote with their wallets, is echoed by Premier Inn managing director Darroch Crawford.

"EasyHotels have a very small room [size] - by their own description - and they find that they are not able to deliver the same product that they are delivering elsewhere in the world, which has added considerably to their costs," says Crawford.

"I think we, as operators, should be able to deliver a similar product throughout the world and let the customers decide if that product is acceptable or not."

Premier Inn has a three-star rating in Dubai, based largely on the fact that its hotels offer both a bathtub and shower in each room.

However, Crawford explains that the brand is deliberately un-rated in the UK and prefers to downplay its three-star rating.

"Star ratings are a throwback to days when it was difficult for people to have any idea of what they were buying," he says.

"With modern technology, it is possible through the internet to know exactly what you're buying and I think that's what people rely on now, rather than stars."

Ibis Al Barsha general manager Philippe Montaubin represents another hotel that has shrugged off its star rating.

"We don't consider ourselves as a two-star; we name ourselves an ‘economy hotel'," he says.

"This is simply a value-for-money property offering great service in an ideal location."

The recently-opened Ibis Al Barsha is a 480-room hotel on Sheikh Zayed Road.

Montaubin explains that despite its budget price-tag, the hotel strives to remain up-to-date with its contemporary clientele.

All rooms are wifi-enabled and are equipped with IDD telephones, flat-screen televisions and a plug-and-play device for music players and other electronic accessories.

"It is not a high-tech hotel, but we still have to be in line with what is happening in today's world," Montaubin explains.

IHG vice president for development in the Middle East and Africa Phil Kasselis says that budget hotels in the region have a unique opportunity to offer value for money in a contemporary setting.

"The beauty of this market is that all of our developments are new-builds, so effectively you are creating a new product, which hasn't been compromised by having to retrofit an existing building; you're launching a clean brand," he says.

"Accordingly, people are pleasantly surprised."

The Holiday Inn Express brand (part of IHG) is currently in the middle of a global re-launch initiative, focusing on consistency, quality and a more contemporary brand identity. It is expected to be completed by the end of 2010. Back on home turf

While many of the local up-and-comers are seen as small-time competition by the major brands, most agree that the new Centro by Rotana will prove itself a force to be reckoned with.

The Centro concept is pitched at the budget-conscious business market, targeting corporate companies, small to medium business owners and individual travellers.

As the name suggests, Centro properties will be situated in the central business districts of major cities throughout the Middle East.

The first two Centro by Rotana properties - Centro Yas Island in Abu Dhabi and Centro Barsha in Dubai - are expected to open in September 2009.

Rotana president Selim El Zyr says the company undertook thorough market research to set the Centro brand apart from its potential competition.

"In order to ensure such differentiation, we first pinpointed the essential requirements of today's young business and leisure travellers, who seek both style and finesse, yet at affordable rates," El Zyr explains.

"Subsequently, we improved upon the services and the physical product required to cater to these requirements against an international set of benchmarks.

"The result was a product design unlike any of the other brands which are expected to be available in the region."

Unlike some other budget brands, Centro hotels offer extra "frills" such as swimming pools, gymnasiums, meeting rooms and business services, including secretarial support.

El Zyr also points out that Centro will have access to Rotana's sales and marketing network, including global reservation systems and operations, a region-wide loyalty programme, plus centralised staff recruitment and training programmes.

Premier Inn's Darroch Crawford readily admits that: "Centro will clearly be a competitor that deserves our respect."

"Rotana has a heritage of opening hotels in this region; they have an understanding of the market that is better than most and I think that the Centro project will be one that we have to watch more carefully than most," says Crawford.

Rotana plans to roll out a total of 25 Centro properties across the Middle East by 2014.

Landmark Group is another local player gearing up to launch into the mid-market hospitality sector with its new Citymax Hotels brand.

Plans are underway to open three hotels in Dubai and Sharjah by December 2009, including a 693-room property in Bur Dubai; a 378-room in Al Barsha; and a 260-room in Sharjah.

Landmark Gulf Group general manager hotel division Michael Weyland says the Citymax hotel brand will cater to "discerning business travellers".

Weyland says the hotels will operate on a flat rate - under AED 500 (US $136) and possibly as low as AED 290 ($79).

"I believe that the core differentiator of the hotels is its transparent pricing," he says. "Room rates will be consistent throughout the year, enabling the traveller to plan his or her trip well in advance.

"This is especially relevant for corporates who want to budget and plan travel itineraries of their employees well in advance without any nasty surprises of increased tariffs."

As for competition, Weyland insists that "the cake is big enough in Dubai" and says Citymax will not be taking business away from its competitors, but instead from the upper scale segment. Risk of over-supply?

While no-one seems to disagree that there is space in the market for budget and economy hotels, opinions remain divided as to just how much space there is.

"Overall the budget sector is still a very small percentage of hotels - in other parts of the world, the budget sector is often up to 30% of the market," says Crawford.

"I don't think that Dubai will ever get to that level, but there is already an oversupply appearing in certain areas.

"Certainly on Sheikh Zayed Road now, there's an oversupply of budget hotels in my opinion - particularly when the four- and five-star hotels are dropping their rates to budget levels."

However, Crawford insists that the situation in Dubai is "a short-term blip" and says budget hotel brands are right to continue to invest in this region, because there is huge potential".

Premier Inn has two upcoming properties in Dubai, including an airport hotel scheduled to open in December. The brand also has projects in Abu Dhabi, has secured land in Fujairah and Ras Al Khaimah and is "actively looking" at Muscat, Doha and Riyadh.

Crawford says Saudi Arabia offers the greatest potential for the brand, largely because of the number of Saudi nationals who travel by road within the country.

"There is a demand for affordable accommodation in Saudi Arabia," he insists.

"I think there was always a demand [in the Middle East], but it was just unfulfilled. For example, there were a lot of people who couldn't afford to come to Dubai, even to visit friends and relatives, because the cost of accommodation was enormous."

EasyHotels' Stelios Haji-Ioannou agrees, explaining that people are quickly being brought back down to earth as the global economy tightens and corporates scale back spending.

"As people are forced to trade down, they forget their expense accounts and their ‘image' and start looking for the cheapest option," he says.

"Reality has finally set into Dubai - it's not la la land anymore."

Ibis' Montaubin believes that the budget accommodation sector will ride on the back of increases in low-cost air travel to the region.

"Everybody is waiting for flydubai and we already have Air Arabia in the market," he says.

"If these airlines are growing, there is a market for us because we work hand in hand."

As with the rest of the hotel industry, many owners and operators are nervous about being drawn into a pricing war.

Sami Al Ansari, chief executive officer of Ishraq Gulf Real Estate Holding says that "sanity must come back into the market" and it is time for hoteliers to draw a line.

Ishraq Gulf Real Estate Holding owns more than 20 Holiday Inn Express properties throughout the Middle East.

"We are just shooting ourselves in the foot as prices continue to come further down," says Al Ansari.

He believes management companies are to blame for slashing rates and suggests that "talk may start about a cartel" if the situation continues.

On the flip side, Haji-Ioannou argues that in a market driven by supply and demand, prices should be allowed to fluctuate.

His budget mantra remains: "Price to fill - whatever it takes."

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