Comment: Stop price wars.
During the Hotelier Middle East Great GM Debate 2016, TRI Consulting's Christopher Hewett revealed that ADR is to continue to soften by 7-8% through 2016 and into 2017.
And while collating the results of the Hotelier Middle East GM Survey 2016 , it was interesting to note the number of responses talking about this issue. When we asked respondents what they thought will be the biggest challenge for their hotel in the next 12 months, we got a range of answers relating to supply and rates. One GM said: "increased inventory in the market [is] driving the ADR low and below par", while another put it simply: "Surviving the silly price war many hotels are creating".
Quite a few said it was a challenge to maintain RevPAR while rates continued to fall, and many highlighted new property openings as being to blame.
However, during the Great GM Debate 2016, Rotana Hotel Management Corporation area vice president - Dubai & Northern Emirates David Prince called out hoteliers for their role in the rate fall. He advised: "Don't panic and hold rates."
During the same event, Kerzner International vice president revenue management global Thibault Paquet argued the case and said: "Dropping the rate is like the panic mode when times are tough. Drop the rates and in the short-term you will see a difference, but you have diluted the business that was supposed to come anyway."
Some of the general managers we surveyed believed that the government should help in this situation. One suggestion by an anonymous participant was: "The government has to inform the hotels the rates according to the star category, and how much they can go below - that means five star hotels cannot go below certain rates, four stars cannot go below certain rates et cetera,"
Another said: "Put a ceiling on the lowest prices being charged by five- and four-star hotels to decrease the undercutting currently going on."
However, Hilton Worldwide president Middle East, Africa & Turkey Rudi Jagersbacher, during the live on-stage interview at the Great GM Debate 2016, cautioned hoteliers to not be negative, and think about the situation rationally: "We need to be careful because some of the panellists were talking about RevPAR, rates and occupancies - we are really fortunate because the occupancy is doing great. The rates have changed - not necessarily because customers are paying less, but because certain segments are not coming for certain reasons, and we have inflation and we have currency devaluations, which inevitably has happened."
And some of the general managers polled in the GM Survey 2016 were certainly optimistic about long-term correction. While 72.7% said they thought there was too much supply for current levels of demand, many also opined that new infrastructure in place is set to help tourism numbers in the region.
One GM said: "The number of nights will increase dramatically due to addition of new excursions/attractions", and another commented: "Opening the Dubai theme parks might boost the tourism positively."
My takeaway from this is that general managers and owners need to be bold in a market that's correcting itself to global standards and hold steady with their room rates - remember, if you cut your price, something's got to give. And it better not be quality. Because once that dips, how can you guarantee its return?
Devina Divecha is the senior editor of the hospitality group of titles at ITP Business.
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