Hotel Business

In the hotel business, bigger isn’t always better

Shoba Narayan (Writer)

Jan 27, 2010

 

Mohammed is afraid of losing his job. I met the middle-aged man from Kerala in Bahrain’s transit lounge. Emboldened by my few words of Malayalam, and since we would never see each other again, he told me his story. A housekeeping supervisor at a hotel on Yas Island, he can see the writing on the wall: “Too many empty rooms, even during high season, too many new hotels. It’s going to bite all of us.”

Thanks to the many hotels built ahead of the Formula One Grand Prix, room prices in Abu Dhabi have dropped by nearly 30 per cent. Occupancy is down to below 60 per cent (from nearly 90 per cent a year ago), the revenue per available room (REVPAR) has dropped 53 per cent, and hotels have slashed their rates – all of which will eventually trickle down to people like Mohammed. At least, that’s his worry.

As a travel writer I have one word for those in Abu Dhabi’s hospitality business: Aman. The Indonesian hotelier Adrian Zecha founded and expanded the Aman franchise using a counter-intuitive, indeed contrarian, approach: less is more. Aman’s 24 resorts across the world think small instead of big. The number of rooms is the bare minimum. Privacy and exclusivity are marketed and guaranteed, albeit at what some might consider exorbitant prices; at about $800 a room, they are among the highest in the hotel business. But instead of putting people off, they have spawned a cult of self-described “Aman junkies”.

The Gulf states already have some fine hotels and fine hotel brands. Contrary to popular perception, a few boutique hotels do exist, mostly in Dubai, including Fusion, the hip B&B in Jumeirah, and the XVA Art hotel in Bastakiya. Al Maha Desert Resort and Spa, also in Dubai, comes closest to the Aman experience, and at $1,000 a night full board it mirrors Aman prices. The UAE does ritzy very well; it does big, even better. What it lacks is the “bespoke” experience, a growing and lucrative sector in the reccession economy. The rationale is that the average traveller in today’s global village has been there, done that, and now wants is an “experience”, not merely accommodation.

The Gulf states lack the history of Egypt; the exoticism of Vietnam; the stunning natural beauty of Hawaii and other Pacific islands; the outdoorsiness of Australia or New Zealand; the magnificence of Africa; or the cultural sophistication of Europe. So the UAE, much like Singapore, Hong Kong and Las Vegas, has to invent its tourist idiom.  Simply building one more Ritz-Carlton, however comfortable, will not do it. Offering one more Dune Safari doesn’t cut it either.

What is required is a paradigm shift, which may involve turning traditional tourism adages on their head. Most five-star and seven-star hotels in the Gulf tone down religion and region, much as their counterparts do elsewhere in the world. What about doing the opposite? How about marketing the rich heritage of Islam to non-Muslims? How about going against the grain and marketing a mudbath in the desert, as Egypt is attempting in resorts near Aswan?

What hotels in Abu Dhabi are going through is what economists call diminishing marginal returns. The 4,000 new rooms that opened in Abu Dhabi last year put pressure on the existing 13,000.  Hoteliers need to balance the ability to spread fixed costs over larger numbers of rooms with the capital cost of building them and the marketing costs of getting as many of them occupied as often as possible. One example of this trade-off in the airline business is the strategic split between Boeing’s new and nimble 787 Dreamliner, which will carry up to 250 passengers, and Airbus’s gigantic A380, which can carry up to 853. So far the Dreamliner is winning hands down. In these capital-constrained times, big is not necessarily best.

Rather than emulating the Airbus approach, hotels and resorts in Abu Dhabi and elsewhere in the Gulf should look towards the Boeing experience. Or better yet, adapt the private-plane approach. After all, the Netjets owner, Warren Buffet, has predicted a profitable 2010 for his private jets. Doing small and bespoke may not boost the profitability of hotels in the Middle East right away, but this far-sighted approach can alter the fortunes of tourism in the Gulf states in the years to come.

Shoba Narayan is the author of Monsoon Diary, a memoir about growing up in South India