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Is the honeymoon over for Dubai’s hotels?

by Michael McCartan, Managing Director, EMEA |

Dubai has long been favoured as a luxury honeymoon destination by European tourists. But is the honeymoon coming to an end for hotels in the emirate? RevPAR and ADR across the city appear to be in decline, with some areas seeing double-digit drops year on year.

Even during the global economic crisis, the Dubai market held its place as having one of the world’s highest average occupancies and RevPAR. However, as the market matures and travellers start to consider other options, now is the time that hoteliers in the city need to get smart and maximise on all revenue opportunities.

Even with the power of Emirates as a key feeder to the city, there is talk of negative sentiment in the market.

This year’s Arabian Hotel Investment Conference (AHIC) saw hot debate on where the market now finds itself.

Grant Salter, Director of Travel, Hospitality & Leisure Advisory at Deloitte, led one of the panel discussions at the event, whereby owners and operators discussed the situation at present. He outlined how the Dubai market as a whole saw RevPAR decline 15% year on year, between February 2015 and February 2016, and occupancies drop to around 70% to 75%.

Talking at the AHIC event, Mr Salter highlighted that while room supply has grown, demand is slower than it has been in recent years. The mismatch between demand growth and supply growth means that occupancy rates will continue to decline across the Dubai market until parity is reached. The strong pipeline in Dubai indicates that this may take some time to occur. In the meantime this occupancy of 70% to 75% is set to become the new normal.

Protect the Bottom Line, Drive RevPAR Index

A fall in RevPAR and ADR, especially when running relatively strong occupancies, is not good news for hotel owners. Dubai’s hotels are among the most expensive ever built in the world, and the wait for owners to achieve return on investment can often run into decades.

During his AHIC discussion, Mr Salter called on properties to focus on operational efficiencies in order to balance out their new top-line performance with bottom-line gains. This is prudent. However, I’m advocating something different. As professional real estate owners and investors know, even small gains in RevPAR Index can have significant multiplier effects on net operating income, meaning a hotel’s profits can still grow when the market’s revenues are shrinking. This is achieved by taking market share from your competitors. When your overall market is contracting, the most important metric becomes RevPAR Index: how you stand against your competitive set. 

In order to take share from your competitors in this way, you need better information or market intelligence than they have, and you need it faster than them in order to be able to react to their missteps and pounce on the opportunities they create.

As the Dubai #hotels market matures, it must maximise all #revenue opportunities Click To Tweet

Capturing Opportunity

My colleague Hisham Diab, director of sales in the Middle East and Africa for Duetto, based in Dubai, explains that hotels need to be keeping an eye on every small opportunity to gain revenues.

He remarked: “Although looking into past data and what the competition is doing around you is a factor in determining pricing, you also need to consider future data to measure demand elasticity. This will help you better price position your product and service.”

Hisham is advising hoteliers and owners in the Dubai market to consider the 5 Ws:

  • Who is looking at your hotel? This gives an indication of future important dates.
  • What is the reason they are looking at your hotel? Who is converting, and what product are they looking at?
  • When are clients looking at booking your hotel? How far in advance are customers coming to your site to book?
  • From where are they looking at your hotel? Which city, location or country are your potential customers from?
  • Why haven’t they booked? Was there a restriction on a certain room type, rate code or date? Was the hotel considered too expensive by the potential customer?

“By having all this data dynamically available, hotels have the ability to create actionable pricing strategies,” Hisham told me. “The fundamental basics of revenue management still apply — selling the right product to the right customer at the right time for the right price and with the right pack. However, in Dubai this hasn’t been taken into consideration in the past, partly because of a lack of predictive analytics tools.”

For more on how predictive analytics can help the hotel industry, see the recent blog from Justin Sadler-Smith, vice present of sales EMEA at Duetto, on making predictive analytics more targeted and relevant to hoteliers.

Today, the technology is there, and hotel managers, owners and asset managers should arm their e-commerce and revenue management teams with the right technology tools to enable them to deploy a strategic Revenue Strategy.

Data drive outperformance

Holding the right information enables revenue managers to wisely react, rather than overreact, to economic factors or to pricing moves made by the other hotels on the block. The most important thing hotels gain from having bigger and better data is the confidence to make the right pricing decisions at the right time.

Here are a couple tips:

  1. Revenue managers should learn how to wield data-driven strategies now, because the most important task in a recession is to identify the peak-demand dates as these become fewer and farther between. Competitors with less information or confidence might try to maximize occupancy during the downturn, cutting room rates too aggressively, even on those rare high-compression dates. Those will be the days your hotel wins the downturn. Have the confidence to hold rate when other properties are seeing how low they can go, or yield your prices higher when your competitors hesitate.
  2. Having better information helps your property to target when to best deploy or pull back on discounts. During a downturn there will still be days when the hotel is full, so again, use a competitor’s misstep to your advantage, and sell rooms on these days for a smaller discount. By yielding discounts daily based on supply and demand, you can offer a bigger discount on the lower-demand days and encourage longer stays without eroding revenue on the high-demand days. This concept of an Open Pricing strategy allows you to offer promotions that aren’t based on length of stay.

If your rivals do not prepare for the downturn by altering their revenue strategies, it’s their loss — and your gain.

Dubai is still a relatively new hotel market. Many of its hoteliers have grown with the market, and have not been exposed to the complexities of revenue management in more mature cities around the world. The hotels that succeeded in the last downturn in the United States and Europe had confidence in their strategies to outcompete rivals through better pricing and management of distribution channels. Now is the time for hotel owners and executives in Dubai to get strategic and redefine what winning looks like.

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Michael McCartan, Managing Director, EMEA

Michael McCartan, Managing Director, EMEA

Managing Director, EMEA at Duetto
Michael joined Duetto as Managing Director for Europe, the Middle East and Africa in 2014 to spearhead the rollout of the Revenue Strategy technology company throughout the region. Before joining Duetto, he served as CEO of eRevMax. Michael has an engineering degree from the University of Cape Town and a business degree from the Open University.
Michael McCartan, Managing Director, EMEA

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Michael McCartan, Managing Director, EMEA

Michael joined Duetto as Managing Director for Europe, the Middle East and Africa in 2014 to spearhead the rollout of the Revenue Strategy technology company throughout the region. Before joining Duetto, he served as CEO of eRevMax. Michael has an engineering degree from the University of Cape Town and a business degree from the Open University.