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Sat 16 Jun 2018 11:59 AM

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Global growth, regional focus: InterContinental Hotels Group's plans for the future in the Gulf region

Kenneth Macpherson, CEO, Europe, Middle East, Asia and Africa at Intercontinental Hotels Group (IHG), is spearheading the hotel group's Middle East expansion

Global growth, regional focus: InterContinental Hotels Group's plans for the future in the Gulf region
Kenneth Macpherson, CEO, Europe, Middle East, Asia and Africa at Intercontinental Hotels Group (IHG).

InterContinental Hotels Group (IHG) manages  more than 5,000 properties in nearly 100 countries. Its portfolio in the Middle East includes the InterContinental, Crowne Plaza and Holiday Inn Express and comprises 84 hotels with 27 more in the pipeline.

Arabian Business spoke to regional CEO Kenneth Macpherson about what lies ahead for the brand in the GCC.

Are we seeing growth in travellers to the UAE and the wider region?
We’re seeing a projected increase in numbers to the region. It’s looking like eight percent growth in 2018, year on year. One of the keys to this is intra-regional travel. Another significant driver is the investment from countries in the region to expand their airports, which brings travellers into the region.

The real fight is to ensure they don’t just pass through in transit, which is where the Dubai tourism vision comes into play.

You’ve got the shopping and leisure destinations, and it’s a great place for families. And the more there is to do the more you might stay more regularly. Finally, there’s the MICE sector [meetings, incentives, conferences and exhibitions] which is also of continued importance.

Are you expanding in the UAE?
We have 20 hotels in the UAE with a pipeline of 12 more. With Expo 2020 coming up, along with all the associated investment in tourism, we think there is plenty more opportunity to follow up on what we’ve got already.

Intercontinental Riyadh

Is Expo 2020 impacting your strategy?
Currently, we’ve got about 60 percent of our portfolio in the luxury space. The changes that Expo will bring, along with the economic development generally, create opportunities for more midscale offerings.

We have Holiday Inn and Holiday Inn Express, which is arguably the world’s strongest midscale brand, and there is a very strong opportunity to roll that out more. We recently opened Holiday Inn Festival City, which is our largest in the UAE, and half of the rooms in our pipeline for the UAE are for Holiday Inn.

How important are millennials to your brands and the industry generally?
We have a portfolio of distinctly positioned brands that meet the needs of all groups of travellers. So for example, Hotel Indigo will be a big pull for millennials as it’s a very distinct lifestyle, boutique brand that is all about the local neighbourhood. There’s always lots of information about the local attractions and it’s done in a stylish and slightly irreverent way. 

The brand is quite playful and it’s a place where you can get high-quality service in an informal, cool environment. We’re opening in Business Bay and Sustainable City and they’ll be very much focussed on their immediate surroundings. This introduction of more boutique-style hotels reflects the new demographic of guests and their needs.

Will you bring your other brands here?
We come at this from two angles: acquisitions and developing our own brands. There’s Kimpton, a luxury boutique US brand we acquired about three years ago, which is going to be very attractive for the region. We also recently acquired the Regent brand. It was founded in Asia and has tremendous heritage as a luxury offering. 

We also launched Avid last year in the US. It’s a midscale brand that sits slightly below Holiday Inn Express. And we have Even, an upscale brand positioned around health and wellbeing. And there’s another new upscale brand that will launch soon [Ed’s note: IHG announced the launch of Voco last week].

We don’t have a pipeline for those five brands but we’ve had interest here and with the right owners and locations these could all bring a real richness to the region and an opportunity to keep expanding.

The Holiday Inn Dubai Festival City is the brand’s largest in the UAE

There’s been a squeeze on rates. How are you dealing with that?
There’s a period of adjusting to a new norm. We can all see what’s happened with the oil price and the adjustments that happened as a result. However, hotels have a lengthy lifespan and the industry has proved itself to be very resilient. So there will be adjustments in markets but it’s important to take a long-term view and that’s exactly what we’re doing.

There’s also been more competition in the F&B sector. How are you coping with this?
It’s an important part of the business. We have a dedicated resource in the region to support hotels in evolving their concepts to ensure that they are positioned correctly.

It also helps them to keep evolving how to operate and promote those restaurants as efficiently and effectively as possible. We can’t change how a market develops – and markets will always develop. We’re focused instead on how we drive the best possible performance for our owners within the market.

What’s your strategy for Saudi Arabia?
We are the largest international operator with 31 hotels and we’ve eight more in the pipeline, so it is a significant part of our business. The KSA vision for 2030 is creating more investor confidence and you can see the opportunities and the growth that will come with them as they look to reshape the economy and develop new attractions.

We view it very positively and are looking to partner with our existing owners and new owners to support this development. You look at the population of Saudi Arabia and you’ve already got the domestic numbers to drive significant growth. And the other thing about Saudi is the outbound market to places like Europe, so having an established set of brands in the country supports us on capturing those travellers when they go elsewhere. Inbound tourism will depend on what happens with the visa rules.

The Hotel Indigo brand is pitched at the millennial traveller

How is technology playing a role in the development of the customer experience?
We’re making considerable investments in how guests book via web and mobile. We’ve put a lot of focus into developing our enterprise platforms that you can book through and how they work in terms of user experience. The result is that 76 percent of global revenue is now generated by our own systems and tools.

Does that mean the end of you paying commissions to travel agencies?
We offer our own direct channels through web, mobile and call centre teams. But there is still value in partnering with core travel agencies and other intermediaries. But our scale means that we can bring advantage to those agreements. And there’s also our IHG Rewards Club global loyalty scheme. It’s the largest in our industry and a key feature we offer our owners.

Does IHG work with different owners or one partner in the region?
We have a management model where we’ll manage the asset on behalf of an owner, or our franchise model where the owner manages their asset. We do work with a number of owners and one of the most important things about the way we work is the length of our relationships – 30-year agreements are not unusual. And finally we have agreements where one partner will commit to opening a number of a particular brand over a period of time.

View from the other side

Simon Allison, chairman of hotel owners’ group HOFTEL, on regional tourism trends and the hotel owners’ perspective of the opportunities in the GCC market

A lot of the big brands are creating smaller, more niche products but it’s not just to attract millennials. The whole market is changing and we all want more relaxed surroundings.

HOFTEL represents the hotels owners and we are always a little bit cynical about these new products. Is this proliferation a reaction to genuine demand or a means for big brands to avoid radius restrictions on their existing hotels?

There is also a danger that the big operators will focus on their new offerings rather than developing their existing portfolio, which is a problem to owners of big legacy brands which can get left behind. Consider also that the hotel owners have around $1.5tr in global real estate, which is vastly bigger than what the brands or online travel agents are worth. But because the owners are scattered they tend to get overlooked.

Most of the growth in tourism worldwide is being driven by new markets – particularly China and, in the longer term, India. While high-end Chinese tourists spend more than their western counterparts, the majority of these new guests will come in groups that seek value offerings. City hotels in Dubai are already much cheaper than in previous years though beachfront properties are still very expensive. So one of the challenges will be whether there’ll be enough budget and midscale resorts to meet demand.

In the long-term, the UAE’s new attractions and central location make it a real hub for the surrounding regions, so it will be okay, but there will be a period of pain. You can’t add a 50 percent increase in inventory to a market that over the next five years might have a 30 percent increase in demand and not have a downturn. You can solve a lot of that by sucking in these new tourists from India and China but they will be at those lower rates.

Saudi Arabia, meanwhile, has a good chance to attract a lot more tourists in the coming years. It has a huge domestic market, and it has the Red Sea islands, which could conceivably be home to Maldives-style resorts, given the climate and offshore location. The Haj tourism market can also grow a lot with an influx from Muslims in places like Indonesia and India. But let’s not forget there is a huge supply pipeline so there may be an imbalance there at some point as well.

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