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Market Update: Bahrain.

With hotel occupancy and rates on the rise, and the successful conclusion of the 2013 F1 Grand Prix, Bahrain's future looks bright. But its success will depend on the country's ability to manage room supply and retain political stability:

Hospitality updates from Bahrain over the past two years paint an unclear picture of the market, with negative reports of continuous political upheaval, airline closures and stalled hotel developments headlining next to brand debuts, tourism project launches and hosted world events.

The statistics are less contradictory, however, with the very latest market reports obtained by Hotelier Middle East showing positive growth in 2012 on 2011, continuing into the first quarter of 2013. Global consultancy HVS' 2013 Middle East Hotel Survey, released in April, reveals a rebound in the hotel market in 2012 over 2011.

Average annual occupancy levels at Manama hotels increased from 34% in 2011 to 49% in 2012, according to the report. HVS Dubai managing director Hala Matar Choufany, co-author of the survey, attributes the growth to "increased visitation as a result of the restored political situation".

Up in the air

Speaking of visitation, air passenger movements in Bahrain increased 12% in 2012 to 8,479,884 compared to 7,568,200 in 2011, according to HVS. To put this into perspective, the highest passenger movements in Bahrain since 2004 were recorded in 2009 at 8,736,974.

Growth in passenger movements has been recorded in spite of troubles among the country's airlines, culminating in the collapse of its second carrier, Bahrain Air, which went into voluntary liquidation in February 2013, claiming it could not pay back financial losses accrued in relation to "the unstable political and security situation in Bahrain".

Meanwhile, Bahrain's national carrier Gulf Air announced restructuring plans in December 2012, following the resignation of its CEO Samer Majali. At the beginning of this year it laid off 15% of staff and cut four loss-making routes. However, on April 23, the airline said it had reduced its losses by 50% in the first quarter of 2013.

Bahrain-based Kanoo Travel director Nabeel Kanoo downplays the impact of these airline troubles on airlift and hotel performance.

"We have Emirates, Qatar, Etihad, Air Arabia, British Airways, Lufthansa, Cathay Pacific, then we have our neighbours who just drive to Bahrain," said Kanoo, highlighting the importance of the inbound market from surrounding Middle East countries.

HVS' Choufany comments: "The airline business has played a significant role in increasing visitation levels as experienced in Dubai and Doha. Historically, much of Bahrain visitation comes by land and the share of international visitation has been conservative.

"Gulf Air could play a significant role moving forward, however, this has to be coupled with major developments in the city and active marketing of Bahrain as a safe and stable economy and destination," she adds.

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On the ground

If new hotels can be classed as "major developments in the city", there are plenty of these in the pipeline, with many projects that were delayed amid the unrest now coming online.

Furthermore, numerous operators forged ahead with their Bahrain debuts, even at the peak of the political unrest. Sofitel Bahrain Zallaq Thalassa Sea & Spa opened in early 2011, followed by the 460-key Kempinski Hotel Bahrain City Centre in quarter four.

In 2012, The Ramee Group of Hotels said it would open its first five-star property in Seef, Bahrain. At 115m tall, the Ramee Grand Hotel is expected to be the country's tallest hotel when it opens "soon", according to its website.

In the same year, Ishraq Gulf Real Estate Holding Company and IHG opened the first Holiday Inn Express-branded property and Best Western made its Bahrain debut with the launch of the 250-key upscale Best Western Plus The Olive.

Wyndham Hotel Group also unveiled its first Wyndham-branded hotel in the Bahrain Bay area called Wyndham Grand Manama, originally scheduled to open at the end of 2013. However, Wyndham regional VP for MEA Bani Haddad tells Hotelier that the hotel is still under development and is now scheduled to open in the third quarter of 2014.

"Although the country is stabilising, the economy has not fully recovered. Some minor events reported by the media still have an effect on the economy and the tourism sector," says Haddad, explaining the delay.

The added rooms supply in Manama, which increased by 6.3% and 8.7% in 2011 and 2012 respectively, is also putting hotel performance under pressure. In the first quarter of 2013, supply increased by a further 3.6%, STR Global data shows.

According to HVS, there are approximately 2700 hotel rooms in the pipeline and while occupancy is expected to suffer as a result of these new openings, it is expected that the hotels will be able to maintain competitive room rates.

Average rate in 2012 was US $221, up 8% on 2011 and not far off the peak rates of 2007 and 2008, which averaged at $249 and $259 respectively.

"This is largely driven by the Hotel Owners Association, which allows hotels to maintain high rates even at a time when occupancy is dipping. This overall strategy proves to be efficient during a downturn caused by political instability as travellers not considering making a trip because of safety issues will not be influenced by any discounts. They either travel or don't," explains HVS' Choufany.

Looking at selected markets in the MENA region, STR Global concluded that Manama had the second lowest occupancy but the sixth highest ADR in the first quarter of 2013.

Wyndham already operates two midscale hotels under its Ramada brand and a Days Inn property. Commenting on their performance Haddad says: "Hotel occupancies and rates have experienced a double-digit growth in 2012 compared to 2011 and the trend appears to be continuing in 2013".

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2013 and beyond

Haddad's optimism is shared by hoteliers, consultants and travellers alike, fuelled by various positive developments over the past few months, most notably, the successful conclusion of the Formula 1 Gulf Air Bahrain Grand Prix in April.

Rotana's first Bahrain property - the 128-suite Majestic Arjn by Rotana -opened in March, just in time for the race.

"Business was excellent during the Grand Prix, we were full because the F1 was during the weekend and at the weekend we have been at 90-95% anyway - mostly guests from Saudi," recalls Majestic Arjn by Rotana GM Raiz Saban, adding that the hotel is offering a low opening rate starting at BHD 50++ ($133++) during its first three months of operation.

Haddad says: "The recent success of the Formula 1 Grand Prix is another sign that the country is on its way to gaining the trust of international travellers".

Furthermore, the authorities are looking to expand on this success. Head of the kingdom's sovereign wealth fund Mumtalakat, Mahmood Hashim Al Kooheji said in March that there were numerous opportunities to leverage off the Formula 1, including linked events and greater use of the circuit.

Events targeted more specifically at Middle East travellers have also paid off, including the hosting of the 21st edition of the Gulf Cup of Nations biennial football competition.

"Now we have gained the confidence of our neighbours in Qatar, Saudi Arabia, Kuwait to come back, as having the Gulf Cup highlighted it is safe," said Kanoo.

Such initiatives will be absolutely necessary to fill the new market supply in 2013 and beyond. There is expected to be a 45% increase in rooms supply as a percentage of the existing supply - 6650 rooms as of March 2013, according to STR Global.

Among these are some exciting new hospitality offerings such as The Domain Hotels' first "hotel-club concept", The Domain Bahrain, due to open later this year.

The Domain Hotels GM Patrick De Groot says he intends to tap into the lucrative GCC market with the 36-storey, 129-key Manama property and is positive about Bahrain's future appeal.

"I have seen a gradual return of confidence in the markets. I can see hotels again running beyond 50% occupancy on the better months. We're opening with a much longer commercial vision," De Groot adds.

Majestic Arjn by Rotana's Saban agrees that it is important to focus on long-term tourism prospects.

"After what we have observed during the F1 we're very optimistic that stability and business will return and we're looking at the long term."

STR Global statistics from Q1 2013 support this trend. Average occupancy in the capital remained at 49% in the period. In comparison, Manama hotels were at 66.7% occupancy back in 2010.

"These boosts in performance are recovery from difficult trading conditions in previous years. Manama hotels have also started to make progress, though the market will struggle with the large amount of new room supply being added in the market in the upcoming years," STR Global MD Elizabeth Winkle concludes.

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Publication:Hotelier Middle East
Date:Jun 25, 2013
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